Jan. 14 (Bloomberg) -- Banning the sale of states’ and localities’ debt through privately negotiated deals is the only way to combat corruption in the $2.7 trillion market, according to Christopher Taylor, who ran the municipal bond industry’s self-regulatory organization for almost three decades.
“If they want to sell bonds at tax-exempt rates, it should be mandated that they do so at auction,” Taylor, 62, executive director of the Municipal Securities Rulemaking Board from 1978 to 2007, said in an interview from his home in Alexandria, Virginia.
Taylor, who has also criticized banks’ employment of consultants to attract business and the use of interest-rate swaps by municipalities, first aired his plan to bar negotiated bond sales at a Princeton University conference in November. He repeated the proposal in the interview. He left the MSRB in the summer of 2007 after the board declined in 2006 to renew his contract.
Shifting to competitive sales from negotiation, in which states and cities choose which underwriters will sell bonds to investors before they are priced, would change the way about 50,000 issuers borrow. Of $391.5 billion in municipal bonds sold in 2008, $334 billion, or more than 85 percent, were marketed via negotiations with underwriters, according to Thomson Reuters data. An average of 79 percent of municipal bonds, by value, were sold in this fashion over the past decade.
The 2005 conviction and 10-year prison sentence given to Philadelphia Treasurer Corey Kemp for trading city financial business for bribes and political contributions made Taylor change his mind about negotiated sales, he said. Such deals rose from 54 percent of municipal bond sales at the beginning of his MSRB tenure in 1978 to 82 percent by the time he left office.
‘Money Chase’
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