Springfield Massachusetts' High Risk
[http://www.masslive.com]
Springfield Massachusetts has a just revealed scandal (see
MassLive.com); which scandal is a warning for municipalities nationwide.
As a general principle of government; public funds cannot be placed in
the hands of brokerages or third parties for high-risk investment income
(ie for speculation).
That activity is customarily decried and prohibited as a violation of
the materially controlling "prudent investor" standard which applies to
public (government) funds custodians.
Involved further, is the "ultra vires" factor in the Springfield
Massachusetts case. City officials do not have the powr for the alleged
acts.
In case you missed it, a few days ago, the 'Springfield Republican' and
other local news sources reported that the City of Springfield, now as
then, in receivership with a State Fiscal Control Board; had loosed
almost $13 million to a Merrill-Lynch brokerage; and the Merrill-Lynch
surety-funds-trustee invested those funds in high-risk ventures; which
risks were paramount and controlling; and the entrusted amount dropped
90% to about $1.3 million.
The little detective story now, is about how that broker got those
funds; from which official; and from which suddenly discovered 'surplus
city funds" source.
Sadly, the good Merrill-Lynch which may yet incur full liabiltiy for the
fiasco, seems to have joined its salesmen to seek and use such 'surplus
public funds' nationwide.
As Jimmy Hatlo once said : "There oughta be a law!"
There is in part, and if needed -- these brokerage targets in the
government publc sector will be taken from the market by good US law.
This is a triple shame with Merril-Lynch's soley for profit
involvement.
--
This was posted by this blogger to WMASSA at 1/12/2008 01:43:00 PM --
and is re-published with corrections and minor editing.
Today's <a href=http://www.masslive.com>Springfield Republican
(http://www.masslive.com)</a> reports that the City Treasurer made the
deal; with the Republican's reporter assserting that state law forbids
such investments. Todya's article further explains via Merrill-Lynch
--that the funds were invested by Merrill-Lynch in those same recently
troubling high-risk high-end mortgage packages.
In this blogger's opinion, Merrill-Lynch and the City Official and the
State Fiscal Control Bord shou be liable for the loss -- not the
Sringfield taxpayers.
[Cities can incur surpluses in accounts which might be hedged and parked
for interest in a bank or conservative securities funds -but not used
inany such speculative venture.]
Merrill-Lynch has expertise to know a priori (as in dealings with minors
or conserved people) the limittation of city treasurers' powers. It is
an event which should never have happened with professional oversight.
