Sunday, February 15, 2009

Money from the past

Here we are in a big financial crisis and all of a sudden, out of the blue, on Friday I received a check in the mail as a "final distribution" for a class-action securities litigation settlement related to the last big banking crisis, the infamous S&L crisis of 1989, 20 years ago.

Like a bunch of other people, I had invested money in various limited partnerships being pitched by Paine Webber back in the 1980's. One was called Realty Southwest which basically used our investment to fund the down payments to build new apartment building in California and elsewhere. They were actually reasonably upscale apartments, but the problem was that everybody had the same idea, so there was a huge glut, causing rents to fall due to competition, resulting in a shortfall of rental income, causing these limited partnerships to default on the mortgage loans, helping to fuel the financial weakness leading to the overall S&L crisis. There were other factors as well, but these real estate limited partnerships were one of them.

At the time, the class-action lawsuit against Paine Webber (now part of UBS) was the largest to date ($1.5 billion.) The gist of the lawsuit was that the investments were "innapropriate" for some (all?) of us investors and that the risks were not adequately explained.

Over the years I have gotten several payments from the settlement. I actually had no idea that the suit was still "alive." Maybe now the ghost of that past crisis can finally be laid to rest.

Now I need to budget what to do with the money. The amount is on the order of 10% of my original investment. There may be taxes due on it. Obviously it will simply will go to paying for living expenses since I do not currently have any work income, but that does delay a further drawdown from my savings.

-- Jack Krupansky

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