Orange County: A Case of Derivative Mismanagement
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Code : INB0010
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Region : US
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Orange County's Treasurer - Robert Lafee Citron Robert Lafee Citron (Citron), born in 1925 , was the democrat who worked as Orange County's Treasurer-Tax Collector (treasurer). In the last 15 years of his 24 years of elected tenure, OCIP had earned an average return of 9.3% per annum, which was notably higher than the other cash management pools of that period. For example, during the same period, the California treasury was able to generate a return of only 5-6% per annum... Changing Interest Rate scenario On February 4, 1994, the Federal Reserve Bank increased the fed rate by 25 basis points from 3% to 3.25%. This was the first of a series of interest rate hikes which ultimately increased the fed rate by 275 basis points in the period February 4, 1994 to February 1, 1995. Citron ignored the shift in the interest rate environment and kept betting on lower interest rates throughout the summer months in 1994... The Orange County Bankruptcy Orange County is known for its tradition of hostility to taxes. In 1978, California passed Proposition 13 which cut property taxes. To maintain their income level, municipalities sought new sources of income. Citron found that exotic derivative instruments gave superior returns as compared to plain vanilla Treasury debts... |
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