If there is a hero in the Orange County financial debacle, it is John M.W. Moorlach, who sought for months to warn of impending disaster. Mr. Moorlach persisted in his warnings though he was accused of shouting "fire" in a crowded theater and of raising the county's borrowing costs.
Mr. Moorlach sought for months to warn the people of Orange County against the dangerously risky investment strategy of Robert L. Citron, county treasurer, whose activities cost the county at least $2 billion.
Perhaps Mr. Moorlach's warnings about potential disaster to the county in Mr. Citron's risky investment strategy went unheeded because he raised them during his campaign to unseat Mr. Citron - who had never before, in his 24 years in the position, faced an election opponent. Whatever the reason, his was a voice crying in the wilderness, heard perhaps, but unheeded. In fact, Mr. Moorlach became the target of wild attacks by public finance officials, accusing him of harming the county's then-very good credit standing with investors by his accusations about trouble in Mr. Citron's $8 billion investment pool.
Last spring, Mr. Moorlach, after obtaining records of the county's investment pool, revealed it was forced to meet $300 million in collateral calls because rising interest rates reduced the value of the securities in the portfolio, which Mr. Citron leveraged by $12 billion to create a pool totaling $20 billion.
At the time, Matthew R. Raabe, assistant treasurer of Orange County and a key aide to Mr. Citron, confirmed the collateral calls, but dismissed Mr. Moorlach's concern. A news story in May reported Mr. Raabe saying, "the county investment pool is protected by about $1 billion in liquid assets." In retort, Mr. Moorlach warned county officials were ignoring the risks: " 'If rates continue to soar, couldn't the size of the calls top $1 billion?' Moorlach asked rhetorically in the story. 'My problem is, why aren't people making a connection here? I have not been screaming fire in a theater. I have a legitimate concern.'"
Before Mr. Citron went on to a seventh term by winning the election in a June landslide, Mr. Moorlach, again studying the financial reports he was able to obtain, warned the county's pool already had sustained a $1.2 billion loss. His estimate was prescient. Earlier this month, Mr. Citron acknowledged the pool had a $1.5 billion loss, which now is more than $2 billion.
But Mr. Moorlach was ignored.
In May, Orange County Sanitary District officials blamed Mr. Moorlach for roiling the financial markets with irresponsible charges about Orange County's investment pool. Peer Swan, the district's fiscal policy chairman, said the district was forced to pay $12,000 more to issue $30.2 million in commercial paper because of Mr. Moorlach's criticism.
Mr. Moorlach's charges, Mr. Swan was quoted as saying May 5, "are like the guy who runs into a theater and yells, 'Fire'. ... It would have been real easy to create a stampede."
Even many fellow Republicans, especially those on the county's board of supervisors, dismissed Mr. Moorlach's concerns.
Just after Mr. Citron won re-election in June, Mr. Raabe was quoted as bragging how the vote "validates our investment strategy." Six months later when Mr. Citron resigned, Mr. Raabe continued as one of the officials overseeing the portfolio. Yet, he should have quit, too.
Even after the election, Mr. Moorlach still was warning of the impending disaster. In mid-June, as a report then noted, he said if he had won the race he would have unwound the portfolio and marked it to market. Still everyone ignored him. You want to scream.