29 Mar Buenos Aires Is Defaulting on $7.1 Billion in Debt. Who Cares?
The Wall Street Journal (WSJ) has reported that Buenos Aires is being sued by Wall Street Investment firm Golden Tree Asset Management and the San Bernardino County Employees’ Retirement Association (SBCERA).
First a little background:
What is the San Bernardino County Employees’ Retirement Association (SBCERA)? The SBCERA manages $11.9 Billion in investments and funds the retirement benefits for 43,000 retired government workers. Members of SBCERA are retirees from San Bernardino County and 16 other local government agencies.
Who is Golden Tree Asset Management? Golden Tree Asset Management is a global investment company with offices around the world – including the Grand Cayman Island. They are also one of SBCERA’s top investment fund management firms. They manage $556 Million dollars of SBCERA’s money! (Page 25 of SBCERA Quarterly Investment Report).
If you are a county retiree, Golden Tree is managing your money. Here’s how it works:
Details of the lawsuit:
- Golden Tree, along with a number of other investment funds, including SBCERA are suing Buenos Aires over $7.1 Billion in bonds
- It is not yet known what the total value at risk for SBCERA might be
- Complaint #1 (view PDF) page 9 indicates $5.8 Million
- Complaint #2 (see PDF) page 12 indicates an additional $31.4 Million
However, Golden Tree’s claims equal a total of $932.9 million. Since Golden Tree manages assets on behalf of SBCERA, how much of the $932.9 million belongs to SBCERA?
What Happens if Golden Tree Loses SBCERA Money on a Bad Investment?
- If Buenos Aires defaults on its debt, Golden Tree loses money on a bad investment.
- Since Golden Tree is, in fact, investing SBCERA’s funds, SBCERA is losing money on a bad investment
- SBCERA funds are actually funds originally sourced from tax-payers.
- SBCERA is losing tax-payer funding
- If SBCERA earns less than they expect to earn on investments
- The result is less money available to fund retiree pensions and medical care
What Happens if SBCERA does not have sufficient funds to pay pensions and medical care for retirees?
- In short, YOU PAY!!
- By law, local government must prioritize its spending.
- #1 Priority = public safety
- #2 Priority = funding retiree pensions
- In other words, parks, libraries, roads, infrastructure, etc. all of this is a lesser priority when it comes to budget crunch time.
The bottom line is that when SBCERA makes a bad bet on investments, San Bernardino County tax-payers end up paying more taxes for fewer services.