Bailout vote scares money managers

Permanent fund, revenue officials fear for economy without action

Posted: Tuesday, September 30, 2008

Alaska's top money managers, responsible for more than $70 billion in public investments, are expressing dismay at Congress' rejection of a Wall Street bailout package Monday.

RICHARD DREW / THE ASSOCIATED PRESS
RICHARD DREW / THE ASSOCIATED PRESS

"This needs to be done or a lot of us are going to be suffering a lot of pain," said Gary Bader, the state's chief investment officer in the Department of Revenue. He is responsible for more than $30 billion in state money, including retirement plans, the Constitutional Budget Reserve and others.

"I'm very disappointed in the congressional inactivity, very disappointed," said Mike Burns, executive director of the Alaska Permanent Fund Corp., which managed $34.4 billion as of last Friday. Monday's losses had not been calculated at press time.

Among those voting "no" on the deal between President George W. Bush and House Democratic and Republican leaders was Rep. Don Young, R-Alaska.

Young said the rejected bill was a "slippery slope to socialism," according to Meredith Kenny, Young's communications director.

The bill failed 228-205, with most of the votes to kill it coming from Republicans.

Young is running for re-election against Democratic challenger Ethan Berkowitz. Berkowitz, too, would have been inclined to oppose it, said Press Secretary David Shurtleff.

"Any bailout plan has to protect homeowners, first and foremost," Berkowitz said in a quote provided by Shurtleff.

"People should have confidence that their homes and families are safe from Wall Street's greed. There are more than 8,000 foreclosures a day in this country, and that is a root cause of this crisis," Berkowitz said.

Alaska Sens. Ted Stevens and Lisa Murkowski, both Republicans, told The Associated Press they were inclined to vote for the rescue package, despite reservations. After the failure in the House of Representatives, the measure never came up in the Senate.

Burns and Bader are in agreement that the state of the economy is such that without the bailout, a major credit contraction could threaten the entire economy.

The term "bailout of Wall Street" is a mischaracterization, Burns said. "This is a rescue of Main Street."

While one bill was voted down Monday, Bader said it was crucial that another plan be developed.

"There is a serious dislocation in the markets, and it has to be addressed in some fashion," he said.

One sign of that is that Treasury Bills are yielding nothing, as people try to find some safe place to put their money.

"They'll take no interest just to have it in a safe vehicle," Bader said.

The credit crisis, if not dealt with, could have a "cascading" effect through the economy, he said.

Both investment managers said that while they understood the reluctance to bail out those who made bad investments for fear that would encourage even more risk taking in the future, the markets need federal help to stay functioning.

That's the "moral hazard" argument, which Bader said he agreed with philosophically but said this wasn't the time for a philosophical argument.

No mater what Congress does now, a modernized, regulatory regime is coming for the finance industry, Burns said.

"You are not going to have the government putting this kind of money into fixing the problems and not regulate - or re-regulate - in a different manner," he said.

Both say they're taking some small steps because of the market turmoil, but largely sticking to their diversification plans.

"Our asset allocations are based on five-year, not a five-day, returns," Bader said.

The retirement plan managers are making sure they have plenty of liquid investments because they have to make regular retirement check and other payments.

At the permanent fund, which only needs to make withdrawals once a year for dividends, they're not making any changes in asset allocation, Burns said.

• Contact reporter Pat Forgey at 523-2250 or patrick.forgey@juneauempire.com.



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