UOP Business Forecasting Center’s Jeff Michael has called out Wall Street with a great piece of research and analysis.
In his latest quarterly forecast, reported in today’s story, he says banks misled Stockton about the risks inherent in a $125 million pension obligation bond (essentially a loan to help pay employee costs when cuts were the real solution).
Because Lehman Bros. misled the council about the risk, the bond insurer should take some of the loss in bankruptcy court, Michael argues.
Not having reviewed that council meeting yet, I can’t judge the degree of deception, if any, in the Lehman Bros. presentation.
What can be said is that Lehman Bros. was selling a product. It was up to the Council to kick the tires. That Council people failed to perform due diligence can be ascribed to two both their lack of financial acumen — and, even more importantly lack of staff support; thanks again, Dwane Milnes! – and their desire to avoid cuts to public employees, who had become the tail wagging the municipal dog.
Shakespeare wrote in Hamlet, “I must be cruel only to be kind./Thus bad begins and worse remains behind.” Never is it more necessary to be cruel to be kind than with public employees. Councils who couldn’t muster the minor cruelty to say “no” when no was financially responsible precipitated a fiasco that has put a real hurt on employees.