Springfield, Mass.

The Wall Street Journal gives prominent play in its weekend edition to the financial troubles of Springfield, Mass.

Springfield received a coat of red ink two months ago when its financial adviser, Merrill Lynch, informed it that the city's stake in three CDO portfolios had been marked down. That stake had been worth $13.9 million as recently as July. But by November, Merrill valued it as worth less than 9% of that, or $1.2 million.

City officials are ticked off about this. And they aren't blaming themselves. They aren't kicking the furniture in their office while saying, "Dang! There we go making investments of taxpayers' money without doing proper due diligence and ascertaining the risks first," and offering to resign in disgrace. No ... any such reaction has as yet failed to make the news.

Instead, the broker is obviously to blame. The story quotes Christopher Gabrieli, chairman of the city's Finance Control Board (i.e. the guy who should be doing the mostdamage to his foot whilst kicking that furniture right now) saying: "I believe Merrill Lynch is responsible and will be obliged, in the end , to restore the city's money."

Here'ssome background on Mr. Gabrieli.

Another bigwig at the Finance Control Board (though I gather his name goes below Mr. Gabrieli's on the org chart) is Stephen P. Lisauskas, the FCB's executive director. According to a story in the Springfield Republican today, a member of the city council has charged that Lisauskas is a personal friend of an agent at Merrill Lynch involved in this choice of investment, Carl J. Kipper.

From what I can tell, the councilman seems to be straining at a scandal but hasn't found anything. It isn't illegal or unethical for friends to do business together. If the friends have fiduciary obligations, and they let their personal ties get in the way of fulfilling those obligations ... there is a problem. But we haven't seen that yet.

The bottom line, for me, is that Springfield's finance officials give all indication of being responsible adults who made rational though risky decisions. I don't think they have recourse against Merrill, nor do I think the council has recourse against them.

If you can't run with the big dogs, stay on the porch. You'll find the concise Latin tag for that sentiment among the labels for this post.