The orange county, a municipality in United States was declared bankrupt on 6th December 1994 after loosing about $1.6 billions due to risky investment strategies i.e. over leveraging purchases of structured notes and fixed income securities.
Robert Citron who was the county treasure gambled with $7.5 billion public pool with a strategy of borrowing short to go long. Being a star performer he wanted to raise higher income without increasing the taxes, as he believed that medium term investments had higher returns than short term investments. Citron entered into reverse repurchase agreement where he used the pool’s securities as collateral to ...