Surprise, surprise, surprise!
That’s how Gomer Pyle would respond to his beloved “Sarge” when he had something totally obvious to tell. Well that’s what’s in the news today: a surprise that’s not.
The news today is how a consortium of big banks conspired to cheat some municipalities. Apparently Bank of America, Bear Stearns, Smith Barney, and GE Capital were asked to bid on some municipal investments, called GICs—or Guaranteed Investment Contracts. Towns use these to park excess cash that they plan to use later.
The normal practice is to have banks compete for the business. But this time the government alleges that an advisory firm ran a sham auction and allowed the banks win below-market deposits in exchange for kickbacks.
This is an old story. Municipalities have some of the lowest-paid workers controlling huge amounts of capital. So it’s easy to see how a sharp operator can create a rigged game that cheats the towns and enriches himself and the banks.
Only, the banks should know better. But as bees are drawn to honey, crooks are drawn to money. And the big banks just have a bigger pool of “talent” to draw from.
Douglas R. Tengdin, CFA
Chief Investment Officer
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