Well, one small Tennessee town demonstrates that its not just individuals that can be easily suckered by pushy and unforthcoming lending institutions. The Lewisburg Mayor tells the NY Times flat out that labyrinthine guidelines and stipulations to the financial world make municipal navigation impossible without some private financial advisor who usually has a stake in the recommendations. Allow me to insist that the maze is set up to conceal corporate intentions and confuse consumers, including cities themselves.
But the State of Tennessee and the Governor's Office shares much of the blame in this case, because of the lack of regulation and late response in the wake of the newspaper's investigation:
Lewisburg is one of hundreds of small cities and counties across America reeling from their reliance in recent years on risky municipal bond derivatives that went bad. Municipalities that bought the derivatives were like homeowners with fixed-rate mortgages who refinanced by taking out lower-interest, variable-rate mortgages. But some local officials say they were not told, or did not understand, that interest rates could go much higher if economic conditions worsened — which, of course, they did.The article goes on to describe how Mount Juliet got snookered by Morgan Keegan as well.
The municipal bond marketplace was so lightly regulated that in Tennessee Morgan Keegan was able to dominate almost every phase of the business. The firm, which is based in Memphis, sold $2 billion worth of municipal bond derivatives to 38 cities and counties since 2001, according to data compiled by the state comptroller’s office.
After The New York Times made inquiries, the Tennessee comptroller, Justin P. Wilson, ordered a statewide freeze on bond derivatives and a review of the seminar taught by Morgan Keegan and others.