And Calpers was supposed to be one of the saner big pension funds

CalPers losing 103% on its housing bets – Lansner on Real Estate – OCRegister.com

Officials at Calpers confirm that it currently expects to report paper losses of 103% on its housing investments in the fiscal year ended June 30. The Wall Street Journal has a gripping story today detailing CalPers bad bets on real estate. In part, it says …

Calpers is now warning California’s cities, towns and schools that they may have to cough up more money to cover the retirement and other benefits the fund provides for 1.6 million state workers. Some towns are already cutting municipal services, and at least one is partly blaming the Calpers fees.

Calpers in recent weeks said it expects to report paper losses of 103% on its housing investments in the fiscal year ended June 30. That’s because Calpers invested not only its own money, but billions of dollars of borrowed money that must be repaid even if the investment fails. In some deals, as much as 80% of the money invested by Calpers was borrowed.

Lesson one of highly leveraged investments: set things up so that all the lender gets when things go pear-shaped is your collateral.

This is actually one of the things I’m a little worried about as Wall Street starts unwinding all of its crazy high-leverage deals: everyone is acting as if the lowest value a derivative asset can have is zero. Would that it were so.

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