Stephen H Baum Leadership

I am sure that I when I first heard it, I underestimated the power of the concept underlying my sister’s (Nancy Boswell’s) non-governmental organization: Transparency International. It is an entity that educates, lobbies and otherwise puts pressure on government officials and corporate chieftains to eliminate corruption and to stop keeping the public from knowledge it is entitled to have. 

It affects us in many, many aspects of our lives. Let’s focus on one very narrow one: do you own any municipal bonds? Thought these fixed income investments safe? Safer than mortgage-backed securities? Think again: “Our findings indicate that nondisclosure is an established practice and a growing trend,” said Peter J. Schmitt, author of a study of municipal bond practices.   Beside being a breach of fiduciary responsibility to investors, it raises considerably the risk of your investing in sorely needed (by the issuing municipalities) by concealing or delaying disclosure of what you need to know to be wise about where you put money you thought safer than in stocks. 

How? Missing deadlines for filing public statements or simply failing to file  (from 1995 thru 2006 more than 50% of the entities responsible for repaying, 25% in chronic delinquency — $350 billion in 2006), holding back knowledge of forthcoming problems like downgrading of their rating and more. 

The study is available on the website: www.dpcdata.com. Think your holdings can’t be worthless? Remember the shock waves when Orange County, California defaulted about a decade ago. And now, Jefferson County, Alabama may be the next in a series of defaults driven by the economy and the credit mess.

We need transparency by the issuers more than ever. 

Note: The article on this subject by Gretchen Morgenson (NY Times, Sunday, Business Section, Augusst 31, 2008) is definitely worth reading.