Story Created:
Oct 15, 2008 at 9:46 PM EST
Story Updated:
Oct 15, 2008 at 9:46 PM EST
INDIANAPOLIS (AP) — Claims by Democratic gubernatorial candidate Jill Long Thompson that about $1 billion in state funds from the Indiana Toll Road lease have been invested in risky ways are misleading, Republican state Treasurer Richard Mourdock said Wednesday.
"We are doing very well with the entire portfolio, thank you very much," Mourdock said.
Long Thompson first raised the issue Tuesday night, saying about $1 billion of the $3.8 billion the state got from leasing the Indiana Toll Road in a 2006 initiative deemed Major Moves had been invested unwisely.
She said about 22 percent of Major Moves funds had been invested in Fannie Mae and Freddie Mac. The federal government took control recently of the two giant mortgage finance companies to stabilize the housing market and prevent chaos in the nation's financial system.
The companies own or guarantee about $5 trillion in mortgage loans, about half the nation's total.
Long Thompson said about another $300 million of Major Moves money had been invested in so-called junk bonds, which she deemed higher-risk private bonds not backed by the government.
She said it was astonishing that 22 percent of the fund had been placed in one area — Fannie Mae and Freddie Mac — especially before the federal government bailed them out.
She also said Republican Gov. Mitch Daniels had a responsibility to insist on a detailed policy of how the Major Moves money is invested, even though legislation that authorized the toll lease gave sole authority on investing the money to the state treasurer.
Daniels said after Tuesday night's debate that there was a policy on what investments were permissible. The funds can be invested in a similar fashion as funds in the Public Employee Retirement Fund, but unlike that fund, they cannot be invested in stocks.
Long Thompson responded Wednesday by saying, "He brokered the deal, he sold the road, he took the money, he wrote the statute and he has wrapped himself in this deal. Now he is trying to distance himself from how the dollars are invested."
Mourdock, the Republican treasurer, said there was an implication even before the federal government took over Fannie Mae and Freddie Mac that it would back up their mortgage securities if needed.
"On Sept. 7 of this year, it went from being an implication to an explicit guarantee," he said. "That is what the federal government did. They raised the quality of those instruments further by putting absolutely without any question the full faith and credit of the United States behind 22 percent of our portfolio."
He said 9.9 percent of the portfolio, or $277 million, was invested in what he called speculative grade investments, or high-yield bonds sometimes called junk bonds. He said even if the Major Moves investments in them failed, the fund would only take a fraction of a hit.
"People use the term junk bonds to try to imply that there is some impending failure that makes those inherently unsafe," he said.
Mourdock said that after some Major Moves money was doled out to northern Indiana counties and for local road construction, the treasurer's office had $2.6 billion to invest for highway and other transportation projects, and another $500 million for a trust fund for future spending on transportation needs.
He said the state had made more than $300 million on the investments from July 2006 to this past June, or a rate of return of about 4.5 percent. He said a new report on the investment figures would come out in November.
"The thing that upset me most about watching (the debate) last night was it was just kind of a flippant attitude of, 'Well, you know it's just junk bonds, they are just doing this and they are not watching the shop,' and that is so far from anything close to accuracy as to be absolutely bizarre," Mourdock said.
