Just listened to an NPR article on the same subject. Fleesed is on the money. I think I would call for a re-election of those school boards.

The Kenosha school board member from Wall Street's excuse for not reading the prospectus is classic. You want to feel bad for the school boards, but when they are savvy enough to know how risky these investments were, then they're only as stupid as every other financial wizard on wall street, which doesn't help them at all.

Here's a similar bit about a PA school buying interest rate swaps:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ay5LDbjbjy6c

When? I recall it began during the Clinton administration which was about the time companies began to offer workers 401Ks instead of a pension. Almost everyone at work was telling me how great it was and that I should get a 401K or I would be left behind in the dust, whatever that meant. I thought at the time that it seemed strange to use your pension to gamble with the stock market. But for years people were saying that another crash like the one of the Great Depression couldn’t happen again because the American economy was too robust and big to fail and that there were safeguards in place to prevent this from happening again. And so it seemed to become common knowledge that the smart thing to do was invest in the stock market and eventually you would be wealthy beyond the dreams of mortal men. So much for conventional wisdom.

my sweetie is telling me that along with pensions, school boards end up managing a lot of not-yet-ready-to-spend bond money and such -- gathered at the start of multi-year capital projects -- and putting that money away safely, keeping in mind paying the interest on the bond, when the whole system is rigged to call itself "triple-A-OK, ya betcha" -- it's not hard to see how the swindles go down.

And so it seemed to become common knowledge that the smart thing to do was invest in the stock market and eventually you would be wealthy beyond the dreams of mortal men.

Oh, that's so 1990s. Since then it's become common knowledge that investing in the stock market is for pussies, and if you really want to make it you should 'invest' in hedge funds.

@rob payne: OVER TIME stocks do well. the pension fund would have invested in them. the issue with individual pensions is taking the power of the purse away from professional risk managers and giving it to people who are very busy doing other things -- most ESPECIALLY they are too busy to keep you honest. ah, sweet opportunity.

America is. fucking. crazy.

Not crazy. Lazy yes; incurious yes; crazy no.

During the go-go investing years, school districts, transit agencies and other government entities were quick to jump into the global economy, hoping for fast gains to cover growing pension costs and budgets without raising taxes. Deals were arranged by armies of persuasive financiers who received big paydays.

And there in the bolded section you have the non-crazyness of it. America (or at least the masses) will do anything to avoid pain that's caused by taxes. Why? Because they don't want their hard earned money going to the young bucks and the welfare queens -- which as we all know, school taxes would go to...

It and four nearby districts were just trying to finance retirement obligations that were growing as health care costs rose.

Health care costs? God forbid that we should all become socialists with the regulated and state sponsored universal care thing. Otherwise a good deal of American business might still be solvent.

America in 2008 = "(Still) Better dead than red."

A society's CULTURE which measures an individual's success in life by "HOW MUCH MONEY ONE MAKES" or "HOW MUCH MONEY ONE HAS", puts enormous pressure on the individual to make a quick buck and I guess, makes him/her irresponsible and careless in terms of taking risks with their investment ( or making money with legal but immoral means ) and that rule would apply to the school district or the transit system. They were trying to plug holes in their budgets but they should have known, "NOTHING IS FOR FREE" and the outcome would be the same i.e. they would lose. Another example of Globalization causing disasters.

I have to agree that this is in no way evidence of craziness on the part of the school officials or other small investors.

If you're participating in a distorted market (e.g. one with a grossly hypertrophied money supply) then all of the information available to you is profoundly wrong, but in ways that are very difficult to discover from the inside. It's only with a lot of diligent effort that you can discover the inherent distortions, in much the same way that it's only with a lot of diligent effort that you can discover the curvature of earth while remaining on its surface.

And you can only do that if you take an interest in the nature of the market as a whole, above and beyond your interest in maximizing your own local, transactional gains. For purposes of going about your daily business it's better to go with "flat" as the actual shape of things. Especially if they look flat, and the church and the government tells you that they're flat, and your friends all think that they're flat, and so forth. At that point figuring out that they aren't becomes a pretty big leap, with not a lot of immediate benefit.

Americans have been living in an environment with an economic (and political! and ecological!) signal-to-noise ratio of approximately zero for a long time now. I don't think it's fair to blame them for not being well informed...

I was not trying to blame the school board or the transportaion sysyem. They were doing it with good intentions and because of the red ink, as some one said earlier, because no one wants to pay higher taxes for 'public benefit'! However, BECAUSE they are public institutions and they have a higher stake in protecting their investment, they should have been conservative and taken more than one opinion.
And in case, IN SPITE of the state of economy as it is and credit is supposed to be tight, I keep receiving at least one or two offers of a credit card or credit at low interest rates/few days!!!!!These companies must really believe that people are fools!

I was not trying to blame the school board or the transportaion sysyem. They were doing it with good intentions and because of the red ink, as some one said earlier, because no one wants to pay higher taxes for 'public benefit'! However, BECAUSE they are public institutions and they have a higher stake in protecting their investment, they should have been conservative and taken more than one opinion.
And in case, IN SPITE of the state of economy as it is and credit is supposed to be tight, I keep receiving at least one or two offers of a credit card or credit at low interest rates/few days!!!!! These companies must really believe that people are fools!

Abb1, hey what do expect from an old guy like me?

Hapa, very good points. I don’t believe that there is anything wrong with putting money in stocks as long as it is money you can afford to lose, but to put one’s entire pension into stocks just might be a bit risky. I think CD’s are a lot safer than stocks.

I don't know anything about stocks or bonds, but I'm wondering why Mr. Noack isn't under indictment or something. Was it considered a "buyer beware" situation?

Jonathan, Thanks for the pointer to NYT article. There is a lot of good coverage of the increasingly obvious swindle aspects of the bailout passed last month. Presumably, Obama's policy minions are clipping away for reading on November 5th. Wonder if they're counting on the election obsession meaning that the rabble won't notice...

Nitpick: The post would be stronger without the "scissors, paste and" part -- inaccurate and manipulative imagery. The money was for the pension fund. (Blame the current environment of stump speeches and campaign commercials for this uncharacteristic lapse.)

Jonathan, you think this is a bad thing?

No way, this is bad ass. These guys probably called themselves 'the Booooard of Education' right? Well they just educated
an entire communtity about not being ill educated greedy numbnuts with your money or being an ignorant consumer. Thats Education man! That was the most efficient use of those taxpayers money for actual education that will ever happen.

Baddest ass thing EVER. Makes me once again ~proud~ to be American. *wipes tears* Thats freedom! USA! USA!

Wisconsin school boards, Norwegian local councils, Australian workers' superannuation funds - the fallout is global, but the responsibility is not. You can blame the rubes for being gulled - hell, I would have been too, had I been assured by people in thousand dollar suits that my investment was in triple A rated securities. Moodys and S&P have as much explaining to do as the inventors of the rip-offs.

Relating to this, here's a good one: I work in a non-profit rehabilitation hospital where I thought we would be somewhat insulated from the financial crunch. However, we just found out last week that the hospital counts as a given in their budget EARNINGS FROM STOCK MARKET INVESTMENTS. As a result of the crunch, we are in serious financial trouble since the hospital lost so much in the stock market. I've also found out that this is not such an unusual practice in many hospitals. Now our healthcare and services to the patients we see dependent on how the hospital invests. Great.

Come to think of it, what's the problem here, exactly? Really? This is, quite simply, how capitalism works. It's a curse, but it's also a blessing, just like a planned ('command') economy is blessed with stability and cursed by the lack of flexibility and so on. No matter how hard you try to alleviate the symptom, the fundamental dynamic remains and tends to escalate, to manifest itself. Sure, build safety devices, but they'll inevitably be swept away sooner or later. Can't put the genie back to the bottle.

I know it's a good thing, but it's also a little bit like trying to stop water from flowing downhill.