Did Orange County Sell Too Soon?

OOPS, TOO LATE. IF ORANGE County had hung on to its battered investment pool last winter, the recent bond market rebound might have saved it. That's the talk among Wall Street types, who figure the fund would be healthy enough today to let the county avoid bankruptcy.

Various estimates say the county's portfolio now would be worth some $500 million to $1 billion more than it was sold for. The county lost $1.7 billion off face value in a fire sale. "They would not have gotten as slaughtered as they did," says Marilyn Cohen, president of Envision Capital, a Los Angeles investment adviser.

Could the county have hung on? Christopher Varelas of Salomon Brothers, the firm hired to sell the county's holdings, argues that in January no one knew if interest rates were headed up or down. The pool's investors--schools, especially--were unable to run the risk, he says. "We decided to close the casino and put away the dice." Plus, weathering the storm would have been far from cheap. Hundreds of millions in interest payments were falling due. One thing's sure: Whoever bought the county's investment instruments has done splendidly.

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