The New York Times hits Tennessee's state government today
for sponsoring seminars touting risky municipal bond derivatives. The deals have gone bad, leaving hundreds of small cities and counties--many in Tennessee--reeling under the weight of heavy interest payments.
After the Times
made inquiries, the newspaper reports on the front page, state Comptroller Justin Wilson ordered a statewide freeze on bond derivatives and a review of the seminar taught by Memphis-based investment banker Morgan Keegan and the Nashville law firm of Bass, Berry & Sims. After tutoring the cities on the risky deals at the state's behest, Morgan Keegan then made the deals. Bass, Berry often served as bond counsel.
"I think the multiple roles of a single firm is something we should look at, and there well may be limitations or prohibitions," Wilson told the Times
. In hindsight, he said, it "may not have been the best idea." Wilson became comptroller in January, so all this happened under his predecessor, John Morgan, who is now deputy governor.
The Times details the travails of Tennessee cities:
In Claiborne County, north of Knoxville, officials said they were recently told by Morgan Keegan bankers that extracting themselves from a municipal bond derivative would cost $3 million, a sum the poor county cannot afford.
In Mount Juliet, a suburb east of Nashville, city leaders were surprised to discover that the payments on its bonds had increased by 500 percent to $478,000. Morgan Keegan offered to refinance the bonds, but the city hired a new financial adviser and another investment bank.
"We decided we needed advice from someone who was not trying to sell us something," Mayor Linda Elam said.