Michael Lissack Derivatives are not new. Yet it is important to remember that in the 1980’s and 90’s their widespread use was new. As an early 1990’s Business Week story pointed out, “The first treatise on futures contracts, options, hedging and so forth-all the paraphernalia of markets in contingent claims (derivatives)-was Joseph de la Vega’s Confusion de Confusiones. Published in Amsterdam in 1688, it was intended for the edification of members of Amsterdam’s Portuguese Jewish community who were actively trading shares of the Dutch East India Company after 1650. As that book shows, the ‘rocket scientists’ of today are not quite as original as they have led their employers to believe. Nor are derivatives as dangerous as their detractors would have you believe, but they are complex.” And the complexity leads municipalities to forget the rule of caveat emptor. They believe the salesman has a fiduciary responsibility to protect the client. The banker is a salesman, but to the locality he is also a financial advisor. Bankers and financial advisors. Two conflicting roles or so one would think. Yet, many an investment bank acts as a financial advisory firm. The opportunities for “you scratch my back and I’ll scratch yours” are legion. The issues facing participants are similar to the case cited above: political con- nections and business favoritism involving alleged illegal payoffs, influence peddling, conflicts of interest, and questionable sales practices. Anyone who suspects that there are plenty of other scandals hidden under state capitol rotundas around the country is probably right. This is a matter of dollars and cents. And not very many taxpayers know what is going on. I don’t know of any politicians who have run on the platform, “If elected, I promise to make sure to divide up the patronage the right way! To the victor go the spoils!” But then again, some local officials have their own set of interesting standards. Louisiana, for instance, seems to encourage the payment of fees for no work, and no value added. You can get paid just for existing. If you are a minority firm, that is. Senator Mary L. Landrieu, the Louisiana State Treasurer in the early 1990’s, had by 1995 spent more than eight years attacking the good-old-boy network that allowed politicians to steer lucrative municipal finance busi- ness, often at taxpayer expense, to their families and friends. Her record is
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