Several angry readers have demanded that I apologize to State Treasurer David Lemoine. They’re upset by a recent column, in which I suggested Lemoine should be dismissed from his position of public trust because he’s an incompetent doody-head.
I see their point, and I do apologize. Lemoine is certainly not an incompetent doody-head.
He’s a reckless weasel.
What prompted this drastic reassessment of the treasurer’s capabilities? On Aug. 28, Lemoine announced he’d recovered $20 million he misplaced last year by investing it in a risky offshore fund backed by subprime mortgages.
This is great news. Except for the parts that aren’t so great, which I’ll get to in a moment. (Or a little longer if you’re a slow reader.)
For those who came in late, here’s the story. In August 2007, Lemoine, acting on financial advice from Merrill Lynch, dumped $20 million into Mainsail II, the aforementioned offshore fund. Twelve days later, Mainsail II failed. Lemoine didn’t bother disclosing that little problem to legislators, the governor or the public for three months, because, he said, he didn’t think it would take long to recover the money.
Translation: With a little luck, nobody would have known he’d screwed up.
When I criticized Lemoine for keeping his mistake a secret, I was unaware that offshore funds backed by subprime mortgages have a longstanding policy of reimbursing their investors if returns don’t meet expectations. Otherwise, nobody would be foolish enough to throw cash into such shaky ventures.
I’m sure this is true. I read it on the Internet.
Once everybody learned that the money was temporarily indisposed, Lemoine embarked on a public-relations campaign designed to reassure the taxpayers that their investment was safe. From November 2007 through May 2008, he made at least nine statements claiming there was no problem, and the state would be made whole.
For instance, he told the Morning Sentinel in Waterville, “he believes the state will be paid back the $20 million, plus interest – but that it’s impossible to know when.”
In an op-ed in the Lewiston Sun Journal, he wrote, “I am confident the state will recoup the investment, so long as we do not succumb to panic selling.” (If you want to read the other statements, they’re all in my column published the week of Aug. 11. Google away.)
In making these claims, Lemoine noted that Mainsail had assets, which could be sold to reimburse investors. He said the state was well positioned to be among the first to get their money back. As it turned out, that wasn’t quite the case. In July, Statehouse News Service reported that Maine could expect to recover no more than $7 million of its $20 million investment, mostly because Mainsail didn’t have all that much in assets, and the state wasn’t all that well positioned to grab whatever was left.
It was at this point that I recklessly asserted that it was time to take action regarding Lemoine. I think the phrase I used was “Fire this guy’s assets.”
A couple of weeks passed, during which we now know that behind-the-scenes negotiations were taking place among Lemoine, the state attorney general and Merrill Lynch, the company that got us into this mess in the first place. In late August, the treasurer issued a statement saying he’d reached an agreement with Merrill Lynch to recover the lost loot.
What kind of agreement?
Lemoine didn’t exactly say. He just put out a press release that said, “We commend Merrill Lynch for the amicable manner in which this settlement was reached. Merrill Lynch is in good standing with the State of Maine, and we look forward to a mutually beneficial future.”
How nice for them. But is it nice for us?
According to the Times Record newspaper and other reports, Lemoine refused to respond to questions about this deal. Which is too bad, because there are a few of the unanswered variety floating around.
Got interest? I’m not sure how much the state expected to earn on this risky investment, but it had to be a substantial sum. Even putting $20 million in relatively safe places, such as certificates of deposit, ordinary savings accounts or Fannie Mae stock would have netted more than $1 million over the last year. But, in spite of his earlier promises, Lemoine’s statement doesn’t mention Merrill Lynch paying interest. If that’s the case, Maine lost money. A lot of money.
Got legal fees? In the past year, the state must have used a significant amount of staff time, including that of Lemoine, his employees and lawyers from the attorney general’s office. Anybody with the initials ML planning to reimburse us for that expense?
Got common sense? This deal seems to indicate Merrill Lynch will continue advising the treasurer on cool places to park the public’s money. Why does this make me nervous?
It’s possible Lemoine has excellent answers to these questions. If so, my apology stands.
If not, I’m researching recipes for reckless weasel stew.
Invest a moment to convey your thoughts to me at firstname.lastname@example.org