Michael Lissack failed. According to the Wall Street Journal, Lazard officials insisted they had to have the monopoly on investment of proceeds because this was ex- ceedingly complex and required their expertise. That is precisely the argument Lazard made in Kentucky in 1992 when they argued against the state’s proposal that the reinvestment of $250 mil- lion in bond sale proceeds be put out for competitive bids. In their long memo critical of Lazard, Kentucky finance-department officials said they discovered that in one instance the prices Lazard charged for the investment were higher “by as much as nineteen thirty-seconds” of a percentage point, or about $1 million, than a quote received from PaineWebber Group Inc. Indeed, ripoffs in the investment and reinvestment world are common, as investment banks take advantage of unsuspecting local officials. The lack of knowledge among local officials has made them ripe for picking off and many bankers -- including all of Wall Street’s most venerable firms - have been doing so for years. One example, when Mound, Minnesota was looking for a safe place to invest $2.5 million until it was needed to pay for new water meters and sanitary sewers, the town fathers of this fast-growing suburb 28 miles west of Minneapolis went for what appeared to be a sure thing: a mutual fund that invests in U.S. government securities. So, when the value of their in- vestment plummeted to $2 million, less than needed to pay for the new meters and sewers, the officials were astonished. And angry. They accuse Piper Jaffray Cos., sponsor of the fund, of misleading them about the nature of the investment. As reported in the Wall St. Journal, “We never would have invested in this if we thought there was a chance of losing a significant amount of money,” said Curtis A. Pearson, an attorney for the city. “This was supposed to be a safe place to park our funds until we needed them. Now we have an immediate problem.” Piper Jaffray brokers promoted the fund as a low-risk, plain-vanilla investment in triple-A-rated government securities. The truth is that the fund was over invested in what are known as derivatives -- securities that are created by the bankers, derived, from other securities. In this case the derivative was a piece of a US government bond -- not a $5000 piece or a $10000 piece, but a piece that was designed
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