Monday, April 13, 2009

Whoring Down for the Biz Pigs: Our State Government at Work Again

Posted By on Mon, Apr 13, 2009 at 5:11 AM

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So everybody now realizes it was a big mistake to let Morgan Keegan act as trusted adviser, promoter and salesman of those ticking time bombs known as derivative municipal bonds. It's a little late. Tennessee city and county governments are feeling the financial wallop now as interest payments balloon.  And pardon Pith if we doubt the sincerity of the official regrets. They have come only after The New York Times printed a front-page article laying out the whole sordid tale.

The state government's willingness, even eagerness, to sell out to business is at the root of our own little Wall Street-style scandal. In business dealings, lawmakers are either witless bumpkins or whores for campaign cash. And the witless bumpkins would whore down if they were only smart enough to recognize the opportunity.

In 1999, the legislature did require some oversight of municipal bonds issued as derivatives, but that was lax and mostly an ass-covering exercise. You can imagine lawmakers falling all over themselves to pass this bill for Morgan Keegan and Bass Berry & Sims, the law firm that acted as bond counsel on some of these deals. Matt Kisber and Bob Rochelle were the sponsors. It passed unanimously. It was so easy it went without objection on the consent calendar in the House. The state comptroller's office then rubber-stamped all 215 interest-rate swap applications submitted by local governments since 2001.

Incredibly, Gov. Phil Bredesen is innocently batting his eyes, saying he knew nothing about any of this until the Times started snooping around. But ignorance is no excuse. If Bredesen didn't know, obviously he should have. At some point in his nearly seven years as governor, no one raised a red flag? It was all happening in the comptroller's office right across the hall from Bredesen. Yet he was clueless?

Meanwhile, the guy who was running this show as comptroller, now-Deputy Gov. John Morgan, has been conspicuously silent. The new comptroller, Justin Wilson, says he didn't know anything, either. During the transition, we guess it didn't occur to Morgan to say to Wilson, "Hey Justin, we've been letting Morgan Keegan hoodwink a bunch of little towns, and the whole mess is about to blow up in your face. Just thought I'd let you know." It would be wonderful if the legislature would drag Morgan's ass down to an oversight hearing for a little questioning on this topic, but don't count on it. Many of those who voted for that '99 law are still in office and don't want to be reminded of their ineptitude. They include the legislature's current leadership: Republicans Ron Ramsey and Jason Mumpower, and Democrats Jim Kyle and Gary Odom.

As the Chattanooga Times Free Press puts it in an editorial, negligence is no consolation to the cities stuck paying off these bonds.

Much financial damage has been done in recent years because the state's lackadaisical regulatory structure wasn't paying attention.
Update: The city of Cleveland fires Morgan Keegan. Mayor Tom Rowland compares the firm's financial advisory role to having a car dealer in charge of the city's fleet of vehicles. "If Jack Hall was the city's fleet manager and I asked him which brand of vehicle to buy, we would probably end up with a fleet of Chevrolets."

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