Recent Wall Street crashes effect on Missouri state economy remains dubious
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Recent Wall Street crashes effect on Missouri state economy remains dubious

Date: September 17, 2008
By: Chris Dunn
State Capitol Bureau

JEFFERSON CITY - Statewide repercussions of the most severe stock market dip since 2001 have not yet been felt on Missouri government's financial holdings, according to the Missouri State Treasurer's office.

Despite this week's setbacks for three of the nation's major financial firms, a top investment official for Missouri said the state's investments remain secure.

During the weekend, Lehman Brothers filed for bankruptcy, and Bank of America purchased Merrill Lynch. Most recently, the Federal Reserve bailed out American International Group (A.I.G.) on Tuesday, with an $85 billion loan.

Since the bailout, the Dow Jones industrial average has dropped even further than Monday's closing 504.48-point slump, by plummeting an additional 449.36 points by the market's close on Wednesday evening.

Missouri's state economy has not yet felt the effects of the Wall Street crisis, said Mark Mathers, director of investments in the state treasurer's office.

"We don't have any exposure to any of the financial companies that have been in the news in the past month, and the portfolio is not at risk in any way," Mathers said. "In fact, we have unrealized gains in the portfolio, so we're in sound shape -- good shape -- and the taxpayers' money is safe."

Mathers said the state treasurer's office decided in July 2007 against maintaining any holdings in the insurance and banking industry including Merrill Lynch, Lehman Brothers or A.I.G.  Instead, Missouri invests in fixed-income assets, including securities and commercial paper.

"What we've seen in the markets here with the cratering of the stock market is, an appreciation of the values of most fixed-income assets," Mathers said. "So if anything, we're in better shape today than we were last week in terms of the evaluations of our holdings."

So far, other institutions whose portfolios are linked to the state's portfolio have not been damaged by the Wall Street crisis.

The Missouri State Employees' Retirement System (MOSERS) handles retirement plans, insurance and benefits for most state employees, including legislators and legal advisers. According to Gary Findlay, the executive director of MOSERS, all benefits are stable despite the national stock market crash.

"We can all be particularly grateful that we are participants in a defined benefit plan that is supported by a professionally managed, well diversified portfolio of securities and an employer's legally binding commitment to contribute the amounts necessary to support the retirement benefits provided by law," Findlay said in a statement.

Impact on public equity investments and retirement trust funds held by the University of Missouri system may be dampered by the university's diversified portfolio, said Nikki Krawitz, the vice president of Finance and Administration for the UM-system.

"Because any one investment manager would only be invested in any one of those firms [that are publicly traded], one wouldn't expect that the direct impact on any of our investments would be very great," Krawitz said. "But certainly, the impact of what's happening to those firms in the market as a whole impact the investments in the university's endowment and retirement portfolios."

However, a statewide nonpartisan, nonprofit organization expressed concern over the precariousness of Missouri's state economy.

The Missouri Budget Project, based in St. Louis, analyzes Missouri public policy and its effects on Missourians' economic welfare and opportunities. Executive director Amy Blouin said the effects of this economic slump could be more difficult and last longer than the 2001 downturn.

"It's unquestionable that we've entered a significant economic downturn, and obviously, Missouri is not doing well," said Amy Blouin, executive director of the Missouri Budget Project. "We entered this economic downturn at a place where more families are living in poverty, more people are uninsured and the median income in Missouri is significantly lower than it was in 2001 prior to the last economic downturn. And as a result, it will be more difficult to recover."


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