MATT GOURAS Associated Press Writer HELENA (AP)
The director of the Montana Board of Investments says recent trouble in an investment plan used by state and local government was caused by issues beyond Montana. Carroll South said it's part of what he described as "worldwide credit crisis" where banks are having trouble selling certain types of investments. South told the Legislative Finance Committee Tuesday that he has been busy working almost exclusively on the Short Term Investment Pool issue for the past two weeks. It holds more than $2 billion, most of it state money. It is a temporary place for government to put money before it needs to use it. South says the questionable investments totaling about $500 million have strong underlying assets. But he says the problem is there are no buyers for the paper. South told the panel that a "fear factor" drove some local governments, which hold about a quarter of the fund, to pull out $425 million. Purchases by local governments over the past two weeks total $66 million, for a net reduction of $359 million, he said. South says there are no immediate changes needed in law, but might have some suggestions when lawmakers convene in 2009. A legislative staffer told the panel that he thinks the investment pool might have to face some type of reduction in principal as a result of the problem with so-called structured investment vehicles. South said any losses the pool might experience could be amortized over time to protect governments from losing money. That would result in a lower yield, though, South said. He said managers should know in a month or so if they will need to take a loss like that. Lawmakers expressed doubt that the original investments were properly rated top-shelf Investments by Wall Street brokers. "How in the future do you trust the ratings?" Said state Sen. John Brueggeman, R-Polson. "My only comment is that I don't trust Wall Street." South said he expects the Board of Investment to adjust its investment rules at a February meeting. And he said staffers are going to rely less on rating agencies and "get out and kick the tires and maybe learn something that the rating agencies don't know."