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WHO'S IN CHARGE HERE?
Magpie is a former journalist, attempted historian [No, you can't ask how her thesis is going], and full-time corvid of the lesbian persuasion. She keeps herself in birdseed by writing those bad computer manuals that you toss out without bothering to read them. She also blogs too much when she's not on deadline, both here and at Pacific Views.

Magpie roosts in Portland, Oregon, where she annoys her housemates (as well as her cats Medea, Whiskers, and Jane Doe) by attempting to play Irish music on the fiddle and concertina.

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Wednesday, October 25, 2006

Why isn't this financial scandal big news?

It's not like it's small potatoes: It involves billions of dollars of tax-exempt bonds issued by local governments; US $100 million in lost tax revenues annually; and schools and low-cost housing that never gets built. And, not incidentally, the scandal also involves a lot of money going into the pockets of US banks, insurance companies, and financial advisors who arranged the 'black box' bond deals.

This should be front-page news, but not only is it not on the front pages, the scandal hasn't made any page of any US newspaper that we can find. (A related story in the St Paul Pioneer Press is the only exception.) If not for three reporters at a financial publication, Bloomberg Markets, nobody would know about the scandal at all.

And given that I'm not a Bloomberg subscriber who can look behind the magazine's pay firewall, I wouldn't know anything at all about the story if CJR Daily hadn't posted about the Bloomberg story. Here's part of that post:


The headline is "Broken Promises," the special report "Duping Main Street." Words clad in mulberry explain: "Wall Street created $7 billion in bonds for housing and schools. The tax-exempt deals were a ruse; banks and advisers collected millions in fees and investment gains. The public got nothing." [...]

Bloomberg's William Selway, Martin Z. Braun and David Dietz outline a scandal of staggering proportions, then make their case through exhaustive research and reporting that backs up the splashy start.

Their story begins with Pastor Willie Williams in Pensacola, Fla., as he remarks that the Oakwood Terrace complex of 300 apartments for low-income residents "looks like a concentration camp." It didn't have to be that way, as the complex was one development "eligible to benefit from $220 million in bonds issued by a public agency in 1999 to promote affordable housing in Florida." But, says Bloomberg, "None of the money went to Oakwood Terrace. Not a penny of the $220 million bond issue -- which was underwritten by JPMorgan Chase & Co., the third-largest bank in the U.S., and insured by a unit of American International Group Inc., the world's largest insurance company -- was ever spent on low-income residences."

"During the past decade, local governments across the U.S. have issued more than 70 of these phantom bonds -- at least $7 billion of them," Bloomberg continues, explaining that the money generated by the sale of these tax-exempt bonds should be used for, say, housing renovations or computers for inner-city schools. But "Taxpayers never get most of those benefits; the winners are the banks, insurance companies and financial advisers that get paid millions of dollars for crafting these transactions and then profit by using bond proceeds for their own investment gains."

This sort of behind-the-scenes scam is possible because these complicated "black box deals," Bloomberg says, "sometimes contain secret agreements that promise to pay the financial middlemen higher fees if none of the money from the bond offerings is used to help the public. The agencies that issue the bonds buy them back from investors. The money goes untapped, and the advisers keep their fees."

Municipal bonds might not naturally come to mind when considering financial corruption, but Bloomberg's writers manage to make this obscure, arcane issue come alive for Street obsessive types and general readers alike....

The Bloomberg story, incidentally, is further proof that the most important economic news is often buried in the business pages and in specialized business publications, where it goes unseen and unread by most of the public. Hell, it even goes unseen by most journalists — something I well remember from my time as a reporter.

This magpie sends big congrats to Bloomberg for publishing this important story. But the congrats would be even bigger if they'd take the story out from behind the pay firewall so that it would get the attention it deserves.

Thanks to Suburban Guerrilla for a post that got me to look a second time at CJR Daily.

| | Posted by Magpie at 8:51 AM | Get permalink




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