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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

December 8, 2010 at 9:55 AM

That obscure muni bond plea may prove to be very big

It might seem like just another day on the corporate crime beat. Bank of America agreed Tuesday to pay the government $137 million over muni bond bid rigging. Chump change, of course, for a corporation that, excluding a one-time charge, earned $3 billion in the third quarter. On to the next perp.

But not so fast. Bloomberg reports that BofA’s settlement may just be “the tip of the iceberg.” As in, BofA got off easy in exchange for working with the Justice Department to go after other playerz, including big banks. “Bank of America, which has assisted the government probe of the $2.8 trillion municipal-bond market since at least 2007 in return for leniency, has provided documents, e-mails and recordings of phone calls, according to court records of civil suits.”

Nothing is simple in “financial services” now — one reason it is rife with risk and fraud — and the same is true in this case. It involved allegations that BofA participated in a conspiracy to rig bids in the municipal bond derivatives market. As Bloomberg reports, “Prosecutors have said that favored bankers got inside information from brokers who handled bidding for the contracts so they could carve up the market. In some cases, bankers admitted paying kickbacks to brokers.” Municipalities didn’t get real competition or, likely, the best deal, which weighs even more heavily amid local and state fiscal crises.

This is what happens when industry consolidation results in monopolies or cartels. We’ll see if the Obama Justice Department is willing to pull this string and see where it leads. Or if the tales of WikiLeaks looking at BofA are true.

Today’s Econ Haiku:

America now

From naming rights to skylines

Always be selling

Comments | More in Banking

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