WASHINGTON - In the midst of any complicated scandal, there comes a time when it is best to take stock and sort everything out.
The investigation of the municipal market launched last week by two key House securities lawmakers comes at such a time.
Reps. John Dingell, D-Mich., chairman of the House Energy and Commerce Committee, and Edward Markey, D-Mass., head of the panel's subcommittee that has jurisdiction over securities regulation, made it clear that the recent New Jersey Turnpike refunding scandal is only the tip of the iceberg.
The two are going to focus on the long-overdue questions of whether regulation of the municipal market is adequate and whether the abuses of the past decade justify beefing up the federal regulation of municipals to improve protection for both investors and the public.
Dingell and Markey also made it clear they are going to look at two linchpin issues long in need of serious thought - repealing the so-called Tower amendment, which protects issuers from being told what to disclose, and restructuring the 18-year-old Municipal Securities Rulemaking Board.
The issues are important because no matter what aspect of municipal securities is discussed, the trail leads back to the fact that underwriters are regulated and issuers are not - an oversight that makes it very difficult to have an effective system of disclosure.
When Markey's securities subcommittee holds its hearings, probably this fall, it should seriously consider whether the time has come to give the MSRB expanded powers to regulate issuers and require mandated disclosure of issuers' finances and their relationships with the bond industry.
Mandatory disclosure for issuers would also be an excellent way to deal with the volatile combination of political contributions and the negotiated sale of bond issues - the two factors that are at the heart of the current scandal.
The MSRB has said it is considering requiring dealers to disclose political contributions before underwriting bonds and other market participants have advocated repealing Tower to require issuers to disclose campaign gifts from underwriters. Both would help.
Richard Lehmann, the president of the Bond Investors Association, has a suggestion that would take another valuable step forward. He feels one of the best ways to crack down on influence peddling is to require issuers to disclose in writing why they chose a negotiated sale over a competitive one. If a negotiated deal is justified, fine. If not, Lehmann says, voters will have the ammunition they need to kick the culprits out of office.
Lehmann makes an excellent point. He is saying, in effect, that disclosure is the best enforcement.
The House committee should take that into consideration when it decides whether to tighten the regulation of municipals.