Ten years after: Have we learned anything? (Orange County, CA Bankruptcy of '94)

Spare me the 10-year anniversary recollections of the Orange County bankruptcy of 1994, which are too self-serving for my tender stomach. I'm still guffawing after former county administrator Ernie Schneider told a fellow Register columnist that he should have followed his instincts and demanded an audit of then-Treasurer Bob Citron's Ponzi-like investment schemes.

Oh, please. A decade ago John Moorlach, our current treasurer, warned, loudly and clearly, about the looming financial disaster.

The instinct throughout county government wasn't to conduct audits and blow the whistle on the scam, but to circle the wagons, protect themselves and their treasurer and treat the bad news bearer as an opportunist who was simply after Citron's seat. The paradigm, of which Schneider was a part, said: "Look, the status quo is good, it's providing good earnings. Citron has been doing this a long time. Who is this guy Moorlach?"

Schneider accused Moorlach of trying to hurt the county's credit rating after Moorlach questioned Citron's investment strategy in a Wall Street Journal article. Some instinct.

I wasn't in Orange County at the time, but as a close observer of government I know that officials tend to defend the status quo. Reporters tend to echo the status-quo view, and most members of the public are happy with the status quo until something hits the fan.

Ten years later, no one blames themselves, except in the most passive way. As Register contributor Sir Eldon Griffiths said recently, "The memory was so embarrassing that they refused to learn anything from it."

The public has forgotten, forgiven (EXCERPT)

http://ocregister.com/ocr/2004/12/05/sections/commentary/article_332437.php

By Mark Baldassare
Author of "When Government Fails: The Orange County Bankruptcy"

A decade ago, Orange County entered the record books by becoming the largest municipal government in U.S. history to declare bankruptcy. This crisis stemmed from the county's inability to pay back billions of dollars in debts incurred by the county treasurer. A risky investment strategy that was supposed to provide interest income for cash-starved local governments had badly backfired. Left without viable alternatives - and with both state and federal officials ignoring their pleas for help - Orange County government officials decided to file for Chapter 9 bankruptcy on Dec. 6, 1994.

What followed was a roller-coaster ride for county residents. They faced the threat of massive layoffs of public employees and disruptions of essential local services and watched the county's credit rating fall to junk status on Wall Street. A county previously known for its affluent lifestyle and fiscal conservatism suffered a body blow to its sterling reputation and became the object of jokes and ridicule in the national media.

One year later, a bankruptcy escape plan was filed in court. Orange County government officially emerged from U.S. bankruptcy court protection on June 12, 1996.

What are the repercussions of this traumatic episode on the county's psyche? First, there is collective amnesia when it comes to recollections of this painful event. Today, eight in 10 county residents say they remember little or nothing about the dark days of the 1994 county government bankruptcy, according to our latest Orange County annual survey taken last month. Even the long-time, older residents have mostly dim memories of this fiscal fiasco.

Reporters tend to echo the status-quo view

As I recall John Moorlock went to the Los Angles Times to tell his story. The Times then reported that they thoroughly investigated the charges and found them to be false. Citron was voted back into office and then it all fell apart. Two things learned from the bankruptcy, don't vote for senile, old democrats and don't listen to the Los Angles Times.

The article refers to "Citron's scheme" as having brought on the bankruptcy. The scheme actually came from a Merrill Lynch rep who was advising Citron. Citron didn't know squat about the derivatives he was allowing OC's funds to be invested in, and he lacked the good sense to avoid what he didn't understand. His vanity overruled what little good judgment he had. All he cared about was being able to brag about the big return he was getting on the funds he was responsible for investing. LA County had a treasurer who had good sense as well as a financial education, and when he was offered the same "inverse rate floaters" he wanted no part of them.

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