MOORLACH UPDATE — LOOK BACKS — December 28, 2009

FIVE-YEAR LOOK BACKS

1994

December 28

Melissa Balmain of the OC Register was back with a column titled “Tools for fiscal recovery are right at home.”  Melissa tried to be humorous by proffering money making opportunities that individuals could provide, instead of a proposal to sell landfill space.  Somehow, I visualize Melissa writing this after consuming too many egg nogs.

                Ex-Supe Harriett Wieder . . . tap dances.  I bet we could persuade her to do a soft shoe on Orange County’s investment portfolio and sell tickets.

                And former county Treasurer Bob Citron could really do his bit.  Pooling his passions for Navajo jewelry and cars, he might open Bob’s Trading Post and Chrysler Rodeo.  The first 300 visitors would each get one of Citron’s neckties.

                After a long day at the trading post, he could do a little light beachcombing – and send all the nickels, dimes and quarters he finds to John Moorlach.  Then Moorlach, who tried unsuccessfully to unseat Citron in June, could invest them and (if he’s as good as he promises) make us a tidy sum in no time.

Good friend, neighbor and fellow Republican activist Jim Meehan spent some of his own money and printed the bumper stickers!  Believe it or not, fellow friend Phil Marx still has one on his Ford Ranchero (I’m sure the camper shell has protected it these past 15 years!).  The OC Register announced the news in a piece by Gina Shaffer, titled “Taking It To The Street:  The Bumper Brigade.”

                The bumper-sticker backlash against President Clinton has inspired some residents to affix to their cars a statement about Orange County’s financial debacle:  “Don’t blame me, I voted for John Moorlach.”

                Patty Gaunt, a member of the Tustin Area Republican Assembly, said she liked the anti-Clinton slogan she saw on bumpers while driving around the county:  “Don’t blame me, I voted for Bush.”

She thought a similar slogan should be used on bumper stickers for Moorlach, the Costa Mesa accountant who issued warnings several months ago about the volatility of the county bond pool.  He had unsuccessfully challenged Robert Citron, who won re-election as treasurer in June but resigned earlier this month when the county pool collapsed.

Gaunt, a grandmother who tutors Southeast Asian refugee children, said she called Moorlach’s office early this month – a few days after the county’s financial catastrophe was disclosed.  She doesn’t know him personally but had heard him speak in a panel discussion in the spring.

“I told him I’d like to have a bumper sticker,” she said.  “I’m just reflecting the views of thousands of others out there.”

Gaunt said Moorlach was receptive to the idea and had received similar requests from other political activists.

“I started getting calls from people I don’t even know,” Moorlach said.

Jim Meehan, a member of Moorlach’s campaign committee, arranged for production of 500 stickers at a cost of $285.  He gave them to Moorlach as a gift.

Meehan said the stickers are so popular that someone swiped one from the back of his 1992 Buick Regal while he was parked at a Santa Ana store. 

“The notoriety has been really cornball,” said Moorlach, who has distributed the stickers to supporters and people who ask for them.

“I couldn’t afford bumper stickers during my campaign,” he added.  “It’s kind of nice to have bumper stickers.”

Community activist Carole Walters (shown in an accompanying photo) has plastered the Moorlach stickers on both her cars and the front door of her home in Orange.

“Everyone laughs and puts their thumbs up,” said Walters, who is president of the Orange Taxpayers Association.

“He was the one who told people what happened, but no one believed him.”

The front-page story in the OC Register was Jean O. Pasco’s “Letter a road map to ruin—Citron challenger explained in May that the fund was losing money.”  If you read my Update from June 6, 2008, you know that my letter hit the papers.  When something like that hits the papers, you can rest assured that every Board office would be aware of it.  The later attempt at claiming plausible deniability was a tough story to buy.

Eight months after warning of impending financial Armageddon in Treasurer Robert L. Citron’s investment fund, a letter written by Citron’s election opponent has emerged as a virtual road map to the fund’s collapse.

The letter, dated May 31, was addressed to Orange County Board of Supervisors Chairman Thomas Riley by Costa Mesa accountant John Moorlach. It warned in exacting detail the dangers of the highly leveraged $7.4 billion pool, especially from rising interest rates, and ended with an admonition: "Prepare for the worst-case scenario."


The prediction became reality Dec. 1, when Citron announced that the pool had lost $1.5 billion in value. Five days later, the county declared bankruptcy.

"The pool is focused on decreasing interest rates even after those rates have been at all-time lows," Moorlach said in his letter. "The only quasi-legitimate exit plans Citron has are increasing (the fund’s) leveraging or increased contributions.

"It’s time to get back to the basics. Mr. Citron has (his) priorities reversed. He has focused primarily on yields. He has poor liquidity. And he has put our principal at risk. He is willing to make highly leveraged, highly speculative and highly aggressive investments. I am very uncomfortable with that and you should be, too."

Citron handily won re-election June 7, picking up nearly two-thirds of the vote.

He resigned Dec. 4. The Orange County Investment Pool collapsed two days later after county officials couldn’t comply with cash demands by major lenders who held the county’s securities as collateral for loans that came due. Supervisors voted that day to declare bankruptcy on behalf of the fund and the county, which owned 37 percent of the fund’s deposits.

Former state Treasurer Thomas Hayes, called in to protect the fund’s remaining assets, has estimated that the fund’s principal suffered a $2 billion loss, or 27 percent.

Riley said Tuesday that he remembers receiving Moorlach‘s letter but didn’t get much past the first page, which chided Riley for his "ignorance" regarding the county’s financial picture. Riley, who leaves the board Friday after 20 years of service, said he passed the letter to an aide but doesn’t remember who.

The remaining four supervisors said Tuesday that they don’t remember seeing Moorlach‘s letter, which Moorlach indicated he was copying to each board office.

"When I looked at it and started reading it, I said, `This is more political rhetoric,’ " said Riley, who endorsed Citron in the June election. "The first page struck me as not a good way to gain friends."

Supervisors Roger Stanton, Gaddi Vasquez and Bill Steiner said a check of their files indicates that they never received the letter. An aide to Supervisor Harriett Wieder said she didn’t receive it, either.

Moorlach said Tuesday that he can’t remember if individual copies were mailed or if they were sent to Riley’s office for distribution. He said several calls to Stanton’s office – who he felt would be most "approachable" – went unanswered.

"This lays a lot of stuff out," Stanton said after reading Moorlach‘s letter Tuesday. "Whether I would have responded directly or not (to Moorlach), I’m not going to say. I would have gotten the CAO (county administrative officer) up here to ask what the heck was going on. I know I would have written Citron a memo asking him to explain it."

Among the warning signs raised by Moorlach was the extent Citron had leveraged the fund – using deposits as collateral to buy more securities – on a bet that interest rates would drop. As interest rates notched up, Moorlach predicted that the fund had lost $1.2 billion in value as of May 31.

In June, the Board of Supervisors voted unanimously to borrow $600 million more to invest in the fund, a move copied by a dozen other cities and school boards. At least four school districts now face bankruptcy or state bailouts because they don’t have the cash to cover millions of dollars in loan payments due next month.

Moorlach‘s letter also was sent to members of the media, including The Orange County Register. Citron defended himself in a subsequent story that ran June 3, dismissing Moorlach‘s concerns for the fund’s vulnerability to interest-rate increases as "the dying gasps" of a political opponent.

"If interest rates do go up, not all of the securities we have will (lose value) in that way," Citron said. "We may not be earning the very high interest rates (of past years), but we are still predicting that we will earn no less than 6.5 percent in the fiscal year that begins July 1."

Citron has contended that the fund wouldn’t have lost value if the securities had been kept until maturity, when they would have paid 100 percent of their value.

In recent weeks, some board members have said they would support Moorlach being named acting treasurer after interim Treasurer Thomas Daxon returns this spring to Oklahoma.

Moorlach wouldn’t discuss a possible appointment Tuesday. He said he holds no joy in predicting the fund’s collapse: "I’ve been living on pins and needles for six months."

Lou Cannon a correspondent with The Washington Post did a piece, titled “Orange County:  The Wild West Lives,” that reprinted in The San Diego Union-Tribune.  He had a little fun at Orange County’s expense.  Here are the first two and last four paragraphs.

                Orange County was once so conservative that a right-wing Republican legislator quipped he had joined the John Birch Society in an effort to win the middle-of-the-road vote.

                That was in the mid-‘60s when rolling hills and pastoral valleys that had once been cattle ranches and citrus groves were rapidly being transformed into subdivisions and shopping malls.

                During the campaign, Moorlach laid out the facts in a blunt letter to the Orange County Board of Supervisors that dissected Citron’s investment strategy (see previous article above).

                “Every prudent investor chooses safety of principal as the top priority,” he wrote.  “Next comes the need for liquidity.  The last priority is achieving yields . . . Mr. Citron has these priorities inversed.”

               

                While Moorlach persuaded his home city of Costa Mesa to withdraw from the pool, his letter was ignored by his fellow Republicans on the Board of Supervisors.  It was also barely noticed by a media that was preoccupied with tabloid sensations.

                The facts were in the public record.  But the spirit of the wild West prevailed in Orange County.

1999

The LA Times had a Guest View, by Jim Hill of Yorba Linda, titled “Privatization puts the buck above the public’s best interest.”  Mr. Hill took a pretty cynical perspective on the topic of public-private partnerships.  Here are the first two paragraphs and the portion where I was looped in.

                Privatization of government services has been one of the rallying cries of right-wing ideologues over the last decade.  The argument is that private enterprise can do whatever the government does, but cheaper and more efficiently.

                In some areas the idea may have merit, but the sorry history of the Riverside (91) Freeway’s Express Lane offers a cautionary tale of the dangers inherent in privatizing public services.

Plagued from the start by insufficient earnings, and now caught in a shady attempt essentially to sell the enterprise to itself reincarnated as a tax-exempt nonprofit group, [CPTC] now faces a desperate future.  Orange County Treasurer John M. W. Moorlach and other government officials are even pursuing the possibility that the lane might be opened for use by all.

The OC Register’s lead editorial was titled “Silliness was in season in 1999.”  It took on various actions and quotes during the year by political, business and media leaders.  Near the end of the piece, they gave me a back-handed compliment.

                And we won’t even mention . . . county treasurer John Moorlach playing Cassandra again, this time over the fishy financing of the now-stymied effort to sell the 91 Express Lanes.

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