TPM and The Nation Wide Scope of the Muni-Bond Scandal

Yesterday The Economist looked at the weakening of the Muni-Bond industry and a possible bailout. Today TPM Once again notices how widespread the scandals are. Now there is more then one issue involved here, some of the scandals involve the use of derivatives and and led to massive financial and social damage. In these cases CDR financial products and various banks were the chief, but not only culprits. Accompanying this are the sordid pay for play aspects as politicians and "consultants" receive payouts from companies profiting from these deals. In addition there is just plain bizarre choices by state officials, such as the investing of New Mexico's pensions system in sub-prime mortgages. The author, Moe Tkacik, definitely is on to something when he points out how hard is to wrap your head around these scandals, but they are there and although they may appear to be separate, on a state by state basis, in reality this is a nationwide muni-bond scandal. Of course both here and here people noticed the connections, so this is not the first time.

And while it may be hard for you to get your head around as fundamentally dry a subject as state pension funds, the underlying alleged wrongdoing is same as it ever was: billions of dollars in state business steered to politically connected firms, kickbacks, and taxpayers left holding the bill.

You don't have to scratch too far beneath the surface to find the same patterns--and sometimes the same players--emerging from state to state.

Let's start with Obama car czar and billionaire money manager Steve Rattner. Last Friday the Wall Street Journal reported that Rattner was the money manager referenced in an SEC indictment in a pay-for-play scheme run by the top adviser to the former New York State Comptroller that allegedly siphoned more than $30 million off asset managers seeking investments from the state pension fund.

Here's how it worked: the adviser, Hank Morris, also allegedly played a dual role as a "placement agent" matching private money managers with the manager of the $122 billion state pension fund, David Loglisci. When Rattner approached Loglisci on behalf of his private equity fund Quadrangle in 2004, Loglisci allegedly sent him to Morris -- who asked Rattner to pay a 1.1% "finder's fee" to a firm he represented for whatever investments Quadrangle received. Then, in a decidedly straight-to-video heist, Loglisci also allegedly convinced Rattner to have a division of Quadrangle pay $86,000 for the DVD distribution rights to a movie Loglisci's brother produced (The movie is called Chooch.)

According to the SEC complaint, Rattner eventually received $100 million from the pension fund Loglisci ran. But that's not all the business Quadrangle got via Morris, according to today's Wall Street Journal: Morris also secured $85 million from the New York City Employee Retirement System, $10 million from the Los Angeles Fire and Police Pension System and $20 million from the State Investment Council of New Mexico in 2005.

New Mexico, of course, has its own pension fund scandal brewing; inflows from state retirement funds are a major focus of the expansive pay-to-play probe that caused Gov. Bill Richardson to withdraw his nomination for Obama's commerce secretary. Rattner, for his part, has donated $20,000 to Richardson's gubernatorial campaigns, $15,000 of that after he nabbed the state retirement fund investment.

One of these days the role of Rubin, CDR, the Democrats, and the whole muni-bond scandal will break. Perhaps one of these days people will simply click here and wonder why so many states and cities are suing so many financial houses:

Companies involved being sued:

AIG Financial Products Corp., AIG Sunamerica Life Assurance Co., Bank of America Corporation, Bank of America NA, Bear Stearns Companies, Inc., Cain Brothers & Company, LLC, CDR Financial Products, Inc., Financial Guaranty Insurance Co., Financial Security Assurance Holdings, Ltd., First Southwest Company, GE Funding Capital Market Services, Inc., Genworth Financial Investment Management, LLC, George K. Baum & Company, Investment Management Advisory Group, Inc., JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., Kinsell Newcomb & De Dios, Inc., Merrill Lynch & Co. Inc., Morgan Keegan & Co., Inc., Morgan Stanley, National Westminster Bank plc, Natixis, S.A., Packerkiss Securities, Inc., Piper Jaffray & Co., Security Capital Assurance, Inc., Shockley Financial Corp., Societe Generale, Sound Capital Management, Inc., Trinity Funding Company, LLC, UBS Ag, UBS Securities LLC, UBS Financial Services Inc., Wachovia Bank, N.A., Wachovia Corporation, Winters & Co. Advisors, LLC, XL Asset Funding Company 1 LLC, XL Capital, Ltd. and XL Life Insurance & Annuity Company

Perhaps if and when the scandal breaks people will wonder about Obama's payoff to the banks in regards to muni-bonds. Maybe they even why Henry Waxman never bothered to investigate or why Alice Martin should stay in her job.