The New York Times reports today that the municipal bond scandal extends much farther than New Mexico’s Governor’s office. The scandal has already forced New Mexico Governor Bill Richardson to withdraw his name as Barack Obama’s appointee to the position of Commerce Secretary and may bring down other state and local officials around the country.
The Times illustrates just how widespread the scandal is:
Three federal agencies and a loose consortium of state attorneys general have for several years been gathering evidence of what appears to be collusion among the banks and other companies that have helped state and local governments take approximately $400 billion worth of municipal notes and bonds to market each year.
E-mail messages, taped phone conversations and other court documents suggest that companies did not engage in open competition for this lucrative business, but secretly divided it among themselves, imposing layers of excess cost on local governments, violating the federal rules for tax-exempt bonds and making questionable payments and campaign contributions to local officials who could steer them business. In some cases, they created exotic financial structures that blew up.
People with knowledge of the evidence say investigators are not just looking at a few bad apples, but also at the way an entire market has operated for years.
CEI Senior Fellow Eli Lehrer had this to say about the scandal:
There’s still a lot we don’t know about when it comes to these bond issues. The municipal bond markets are notoriously complex and crowded with fancy accounting. There’s a lot more we need to know before we jump on the banks but, at the same time, it seems quite possible that laws were broken.
Eli’s correct in saying that there is still more that needs to known before we can say for certain who’s broken the law, but the source of this sort of problem is well known. Whenever governments start handing out vast sums of money, bribery, vote buying, and the selling of political favors will spring up. Government money is like Miracle Grow for corruption.
If this kind of corruption can happen as a result of the $400 billion per year bond market, just imagine the kind of runaway scandals we’ll be seeing as Barack Obama and the 111th Congress gear up for handing out $750 billion to “stimulate” the economy.
2009 is going to be quite the year.