Theft at the Public Till
Contributions go to support good candidates. Then again just hypotheti- cally speaking, if this bargained for exchange took place, shouldn’t we move along to criminal law? All the rhetoric notwithstanding, isn’t “pay to play” just nice words for bribery? The municipal bond market coasted from the New York City crisis of the 1970s through the Washington Public Power Supply System default of a decade ago through the issuance of billions of dollars of “build-nothing” bonds in the mid-1980’s. The desperate cash needs of localities fueled an every growing expansion in the business and a proliferation of more than questionable tactics by participants. In what some critics depict as a vestige of a bygone era of states’ rights, bond issuers remain exempt from the broad panoply of the federal securities laws, and are subject only to the antifraud provisions. Because issuers enjoy this exemption, regulatory review has not centered on the manifold others in the industry. Only as the practices of the industry become more and more obscene did this scenario change. Local officials often have far greater discretion in selecting the firms used to prepare bond sales than they have in awarding contracts through the type of competitive bid process used for expenditures such as construction work. That discretion has led to many a scandal. An investment bank’s po- litical relationships and contributions often play a larger role in the selection of underwriters and advisers than do skill and qualifications for the assign- ment. Across the country, local governments issue hundreds of billions of dollars a year in municipal bonds, using the proceeds for projects such as building roads. Investment banks act as dealers, or underwriters, buying the bonds from governmental issuers and reselling them to investors at a markup. Under the old system, bond sellers could recover the cost of dona- tions by charging the state higher fees. Fees were not subject to competitive bidding but were quietly negotiated. And the public, unschooled in the arcane ways of public finance, paid little heed. Take Massachusetts during the late 1980’s and early 90’s. For anyone wanting to do municipal finance business there, Mark Ferber of Lazard Freres was the one to see. He had both the political connections and the brainpower to get the job done. So great were Ferber’s skills that even Merrill
147
Made with FlippingBook - professional solution for displaying marketing and sales documents online