The Orange County treasurer managed the pools, which totaled approximately $7.6 billion.  The treasurer used reverse repurchase agreements, a type of derivative. The deposits were leveraged to more than $20 billion.  Orange County declared bankruptcy in December 1994. (U.S. Senate testimony)1


(September 2012) The Arkansas State Treasurer has no written policy regarding financial derivatives, according to the office’s response to a Freedom of Information Act request filed Sept. 24 by the Policy Foundation.


The Treasurer’s office did provide a copy of the ‘State Treasury Investment policy,’ a 15-page public record.


State Officials Ignore Problem for More Than a Decade


The Arkansas Teachers Retirement System was named a lead plaintiff last month in a group lawsuit in New York federal court alleging pension funds lost as much as $52 million in derivatives trades by J.P. Morgan & Chase.2


The Foundation, starting in 20013 recommended state officials require transparency of derivatives positions to protect Arkansas taxpayers.  Foundation research has been published in international peer-reviewed journals.4  The latest Foundation plea for transparency occurred in June.5

State officials have invited a financial disaster by ignoring the problem for more than a decade.  They can solve the problem by creating transparency for any Arkansas government unit with potential exposure to derivatives.

--Greg Kaza

1   U.S. Senate Committee on Agriculture, Nutrition and Forestry, December 1998

2  “Public Pension Funds Named To Lead ‘London Whale’ Lawsuit.” August 22, 2012. Bloomberg News

3  “Derivatives and the Financial Transparency of Government Retirement Systems.” 2001.  Policy Foundation research memo

4   “A review of state statutes regulating financial derivatives in the USA.” April 2004.  Pensions: An International Journal.  London: Palgrave Macmillan.

“Regulation of financial derivatives in the US code.” February 2006.   Derivatives Use, Trading & Regulation.  London: Palgrave Macmillan

5  “State Can Lead Way.” June 4, 2012.  Arkansas Democrat-Gazette