|Official Ledger Reveals European Banks|
CINCINNATI (TDB) -- While the world worries about a growing financial crisis in the Eurozone -- where a monetary meltdown appears possible -- Ohio has been buying debt issued by foreign banks. Records in State Treasurer Josh Mandel's office listed $419 million in funds that had been loaned to banks in Britain, the Netherlands and Switzerland up until August 2011. The money is from the STAR Ohio fund, and has been placed in commercial paper issued by Barclays, Credit Suisse, UBS, and Dutch financial conglomerates ING Funding and Rabobank, which has a U.S. operation.
The IMF warned yesterday that the European debt crisis could wreck economies across the planet, wipe out billions in investments and already was slowing growth prospects in many nations. Contagion could spread to the U.S. if investsments were wiped out. The Wall Street Journal noted on August 11 that investors were wary about the debt of Eurozone banks and that the commercial paper market was tightening because of risks that the banks could not repay their loans. Commericial paper is considered unsecured. short-term debt issued by a corporation. You can learn about commercial paper at Investopedia.
STAR Ohio is an investment pool run by the treasurer's office with about $4 billion, mostly from school districts. The details are here on the state's website. At the moment, the ledgers do not disclose how much is in Eurozone commercial paper this month. The big banks and financial institutions have all suffered sharp declines in their stock prices recently. Bloomberg is now reporting the Eurozone banks have a credit risk of nearly $400 billion and need to raise capital. There seems to be increasing gloom about the situation. So far, there hasn't been a default, but the prospects clearly are rising. The Ohio Bureau of Worker's Compensation lost more than $56 million when Lehman Brothers collapsed in 2008. It did not not unwind its investments in the Wall Street investment bank quickly enough, nor did it heed warnings that bankruptcy was ahead. You can read about that disaster and how the state managed to collect just 2 cents on every dollar it lost. This time around, Is there any possibility that Ohio's school districts and small towns will suffer if the investments in Europe take a hit?