...And Denial is a River in Egypt

Hello everyone-


Please forgive me if I sound a little testy. I've worked in the mental health field for a very long time, and one of many things I've learned over the years is that you can't fix a problem until you acknowledge it exists.

I've been asking questions one way or another about the way our county debt has been managed for over a year now. Starting last April, when we were asked to approve refunding resolutions that were necessary to cover what I now know were failing auction rate bonds. I passed on that vote, even though I'd studied it in advance, because additional information was placed in our packet literally on the day of the vote. There was no time to explore, or explain, exactly what we were approving, so I asked the commission to hold off for 5 days, to call a special meeting if needed to handle this 'emergency measure', but to take the time to study the paperwork. That request was denied. The resolution went through.


We had a similar experience in June, and another one in February of this year. Most if not all of that I've discussed on here in previous posts.

At this week's Work Session, I placed in the commission packet a handful of documents that offered some important information about:

• our overall debt levels (skyrocketing from $126,350,185 in 2004 to $211,740,313 in 2009) ,


• about what it cost us to do that refinancing in February ($368, 081.25 for what is only a 2 year fix) ,


• about the amazing overlap inherent in the multiple roles played by our principal source of financial advice who works with Regions Bank/Morgan Keegan/Cumberland Securities/TN-Loans.


• about the revised swap guidelines being proposed by our new state Comptroller, Justin Wilson.

I made a motion to forward to the "full commission" next week (that is, to our formal monthly meeting agenda) an item that would allow us to discuss, debate, explore, review our current debt situation. The Comptroller is only taking public input into the rules revision until June 1, and it seemed like an important time for us to take a look at this issue, to decide how we'd like to have these matters handled in the future, and voice our opinions to the state.

I mentioned that even Federal Reserve Chairman Ben Bernanke has expressed concern about the use of these financial instruments in municipal bonds.

Then, in what can only be described as an amazing coincidence, commission Chairman Steve Samples read to us a memo that he'd received from the Accounting Department just that day. Because the memo was NOT given to any of us, was NOT included in the packet nor placed in our mailboxes, he had to read it to us. I am, therefore, going on memory here.

However, he said something to the effect that "As you know, the Accounting Department has been working closely with the Mayor's Office for 6 months now to develop a revised debt management policy. We ask that you avoid taking any action on this until we can unveil our new policy in June."

How about that.

Neither the finance director nor Mayor Cunningham were able to be at that meeting.

I asked a few of my fellow commissioners, and none of them were aware that either of those offices was working on any kind of revised debt policy. This has never been mentioned in any commission meeting that I'm aware of. In fact, according to recent memos and public comments from our accounting department, we are in excellent financial shape in this county, and have nothing to worry about.

Apparently it doesn't matter that:

• some 66% of our debt is in variable rate bonds,
• that roughly a third of our debt is in swaps (derivatives),
• or that if we wanted to get OUT of those swaps (based on the most recent figures given to me by the accounting department) it would currently cost us $20,992,432 to do so.

Nevertheless, that memo had the not-unexpected effect of convincing the commission to hold off on any discussion about debt.

And then this morning, I woke up to hear this on the radio:

"The Obama administration is proposing its first major step in overhauling the financial regulatory system. The plan would extend oversight to the buying and selling of derivatives. Those are the financial instruments that have been largely unregulated because they are traded privately. They were also a key factor in the recent financial meltdown. "

And then, this afternoon, I find this:

NEW YORK, May 11 (Reuters) - The U.S. Securities and Exchange Commission may launch a civil proceeding against the Morgan Keegan & Co brokerage unit of Regions Financial Corp (RF.N) over the alleged improper sale of auction-rate securities, Regions said on Monday.

and this from the Birmingham News:

The Securities and Exchange Commission has notified Regions Financial Corp.'s Memphis-based subsidiary Morgan Keegan & Co. that it is investigating the firm.

REMEMBER: We have 93 million in swaps and they are ALL financed in one way or another with the help of Regions/Morgan Keegan/Cumberland Securities/TN-LOANS.

And Morgan Keegan is being investigated by the Federal Securities and Exchange Commission.

So- why aren't the same alarms being sounded here at home?

Hmmmm..... maybe that's what's being 'unveiled' in June...


Until next time,

~Wendy

P.S. I know that the fact that I've raised concerns about these issues upsets a number of good people. Let me be clear: I am in no way suggesting that anyone has done anything wrong. Starting in the 90's, numerous factors have influenced world markets in ways that no one could have possibly predicted. The news accounts I've mentioned show just how widespread these issues are.

I believe all of us make the decisions we believe to be best at the time; sometimes those decisions pan out, sometimes they don't. What may have made sense in 2000 may look very different in hindsight. No one can be faulted for that.

I am simply suggesting that, in view of all that we've learned about the role of variable debt in general, and swaps in particular, isn't it time we took a hard look at our own situation?