San Mateo, Calif., Grapples With Economic Fallout

As the national economy slowly recovers from the 2008 Wall Street meltdown, San Mateo, Calif., is still grappling with the fallout. The city lost more than 150 million dollars when Lehman Brothers went under. That loss, combined with California's overall economic crisis, has forced San Mateo to make deep cuts in spending and personnel.

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Not long before Washington Mutual was seized by federal regulators, the investment bank Lehman Brothers collapsed, and that collapse is still playing out on main streets across the country. Exhibit A: California's San Mateo County. Among local governments, it was the single biggest loser when Lehman fell apart.

More than a year and a half later, San Mateo officials are still trying to get some of their money back. NPR's Richard Gonzales reports.

(Soundbite of train)

RICHARD GONZALES: The train that carries commuters between San Francisco and San Jose runs right through one of California's most diverse regions, San Mateo County, where Richard Gordon is a supervisor.

Mr. RICHARD GORDON: (Supervisor, San Mateo County) We have an agricultural zone on our coastal area. We have the San Francisco International Airport in our county. We are home to biotech and hi-tech. And we're also diverse in terms of the people who live here. We go from extreme poverty to extreme wealth.

GONZALES: San Mateo County also bore the brunt of Lehman Brothers' bankruptcy. Like scores of local governments and school districts around the country, the county invested money in a pool tied to Lehman Brothers' bonds. When the firm folded, the county lost $155 million, more than any other local government in America. Gordon calls it a perfect storm.

Mr. GORDON: We had this incredible international economic downturn. We've suffered from state cuts, particularly in transit, and we've had the loss of the Lehman Brothers' monies that were part of, you know, an investment where we were banking our money for future expenses. Now, some of those future expenses would have been improvements to this rail line.

GONZALES: County schools have been hit hard, too, to the tune of about $38 million dollars. The Sequoia Union High School District had to absorb a six a half million-dollar loss, costing it 20 teachers and a cramped construction project, says assistant superintendent James Lianides.

Dr. JAMES LIANIDES (Assistant Superintendent, Sequoia Union High School District): We have a project that will be breaking ground this summer at one of our high schools, at Carlmont High School. And it's a biotech building. And the budget for this building is $6 million. And in other words, the amount of money that we lost pretty much would've paid for that building.

GONZALES: Bleeding red ink, San Mateo County officials decided they would try to get their money back. So they joined a bankruptcy claim against Lehman Brothers and sued its former executives for fraud, and they got their congressional representatives to join the fight. Congresswoman Anna Eshoo, a Democrat, represents San Mateo County.

Representative ANNA ESHOO (Democrat, California): They were not playing the market. They were not rolling the dice to optimize those dollars. They were invested in the safest, most conservative instruments. And yet when Lehman Brothers went down, those funds were lost.

GONZALES: Eshoo and other lawmakers put language in the TARP legislation giving the government authority to bail out not just big banks but places like San Mateo County, too. Treasury Secretary Timothy Geithner doesn't see it that way. The Treasury Department issued a statement, saying there are many well-intentioned ideas for the TARP money, but Congress never intended to help all of Lehman Brothers' casualties.

As a result, the anger once reserved for Lehman Brothers is now also directed at Secretary Geithner.

Rep. ESHOO: My constituents say, well, the government went in and helped out the very large banks and the large outfits because they were too big to fail. We may be in a position where we are too small to be paid attention to.

GONZALES: San Mateo County officials aren't giving up. They organized a coalition of more than 40 municipalities across the country that also lost money with Lehman Brothers, looking at every angle to get it back. But for supervisor Richard Gordon, help can't come soon enough. He says San Mateo County will try to avoid a mass layoff by eliminating 150 positions through attrition.

Mr. GORDON: We're here on the opposite coast from where Lehman Brothers and Wall Street sits and perhaps in some ways forgotten, and how this Main Street in San Mateo County was impacted by bad decisions on Wall Street and an inability of the federal government to protect this place as it protected other investments across the country.

GONZALES: Gordon says he is left feeling leery of ever trusting Wall Street again.

Richard Gonzales, NPR News, San Mateo, California.

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