Nashville News Blog

Before Two-Face and the Joker, er, I mean Robin Smith and Bill Hobbs, get too carried away attacking Gov. Phil Bredesen as the rotting fish in our own little financial scandal, they probably should take a look at the record here. The law authorizing local governments to enter into these risky bond deals with the approval of the Comptroller's office zipped through the legislature in 1999, and prominent leaders of both parties voted for it.

They include Republicans Ron Ramsey, Jason Mumpower, Marsha Blackburn, Mae Beavers, Diane Black, Tim Burchett and Rusty Crowe. Among the Democrats voting for it were Roy Herron, Kim McMillan, Jim Kyle, Doug Henry, Thelma Harper, Joe Haynes, Gary Odom, and Jimmy Naifeh. The bill's House sponsor: Matt Kisber. It passed the House 94-0 on the consent calendar and sailed though the Senate by a vote of 30-0. The Senate sponsor was Bob Rochelle.

As The New York Times notes in its front-page story this week, the legislation failed to take the commonsense precaution of prohibiting a single firm from serving as both financial adviser and underwriter. That's how Morgan Keegan and Bass, Berry & Sims were able to tutor Tennessee towns on the financial risks and benefits of these bonds, then make the deals and profit from them.

Municipal bond experts say they know of no other state where a firm was allowed to wear three hats; several states prohibit a single firm from acting as both adviser and underwriter. In Pennsylvania, which has such a prohibition, federal prosecutors are investigating accusations that investment banks and financial advisers conspired to sell bonds with inflated fees to school districts.

"It's like the lion being hired to protect the gazelle," Robert E. Brooks, a municipal bonds expert and a professor of financial management at the University of Alabama, said of the situation in Tennessee. "Who was looking after these little towns?"

Something tells Pith we're not going to hear much more from the state GOP on this. With several of the lawmakers who voted for the bill running for governor or thinking about it--including Ramsey, Kisber, McMillan and Herron--it behooves the political establishment to shut up about all of this. That won't stop, say, Zach Wamp, Bill Haslam or Ward Cammack from bringing it up, though. It'll make a great little attack ad in the governor's race.