There was a certain smugness about how Orange County went about the business of investing its money. But there always seemed to be good reason to crow.
Then came the first of the terrible days. In the opening hours of the crisis, it all seemed like a confusing bad dream, with incomprehensible losses in a financial medium that was like Latin to a layman. Derivatives. Things that lost money as interest rates went up. It was all so unreal.
Now those terrible days are beginning their march into weeks, which will surely turn into months of agonizing choices and pointed fingers and, of course, lawsuits. But those first days will always be the worst, the time when the realization struck that Orange County Treasurer-Tax Collector Robert L. Citron had blundered badly. Would the teachers be paid? Would someone be around to pick up the trash? Are we really cold, flat broke?
There are dozens who have been involved in this, the most dramatic and fateful event ever to befall Orange County. They talk of sleepless nights and tears, of careers and investment portfolios gone up in smoke.
Spring 1994 / The Wolf Begins to Howl
Republican candidate for county treasurer-tax collector
Voices from the past now look so prescient, and none was more forceful than accountant John Moorlach, Citron's Republican opponent in the last election. In discussing his losing campaign, Moorlach now talks like a man who has been vindicated. He described in detail how Citron first stalled, then grudgingly gave him a copy of the county's investment portfolio in May.
Moorlach: "I finally got his portfolio in readable condition on May 2, a month before the election. I shopped it around to bond brokers around the country. They took all kinds of evening hours to pore over it. They were just flipping out. He'd increased his leverage from $4 billion in March of 1993 to $12 billion in March of 1994. He not only bet that rates would go down, he bet really big."
On May 31, Moorlach, who was destined to lose his election by a large margin the following week, sent an eight-page letter to Thomas Riley, chairman of the County Board of Supervisors. What was dismissed by the supervisors then now seems to have been exactly on the mark.
The letter: "Every prudent investor chooses safety of principal as the top priority. Next comes the need for liquidity. The last priority is achieving yields. It's time to get back to basics. Mr. Citron has these priorities inversed. He has focused primarily on yields. He has poor liquidity. 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."
As it turned out, few heeded Moorlach's warning. He did, however, help convince the city of Costa Mesa, where he lives, to pull most of its funds from the county investment pool.
Former Mayor, City of Costa Mesa
One who was most concerned was then-Mayor Sandra Genis, who still rues the fact that the city was unable to extract all of its money. Still, the city managed to withdraw $11 million of the $14 million that was in the pool.
Genis: "Maybe if I had just beat my head against the wall a little harder, pushed a little more. Maybe when I got real worried last October I should have gotten real obnoxious and beat on people. I know how to be pushy. But I was trying to be cool, to do this quietly.
"If we were to withdraw, we didn't want a public flurry. If there was a run on the bank, we didn't want to cause it."
Others were more trusting. The city of Cypress had a relatively small $5.85-million investment and chose to stay with the tried-and-true Citron even though interest rates were on the rise.
Mayor, City of Cypress
Age: "Citron won that (political race) overwhelmingly and assured everyone that everything was fine. I think everyone was comfortable with that after his statement in which he reassured everyone that he's been in that office for 16 years or whatever it is and he's always had a high rate of return." His reassurances "eased my fear that there was something wrong there. There was no cause for alarm and there was no cause at that point in time to really question it."
'I Did Nothing Wrong'
WILLIAM G. STEINER
County Supervisor William G. Steiner has a notation on his calendar for the date of Nov. 10. It says "Ernie Schneider 2:15." It was on that date that the county administrative officer notified the supervisors individually that outside consultants were being hired to examine the portfolio and its value.
That briefing, according to sources, came only after Assistant Treasurer Matthew Raabe threatened to quit if something was not done to improve the portfolio. But even with this official admission that all was not well with the county's investments, Steiner said the belief was that Citron could pull the proverbial rabbit out of the hat.