One more reason to clean up.

New York City's report on Elizabeth Holtzman's $450,000 bank loan will propel the municipal bond market toward tougher regulation, and it should. Election campaign funny money has become too dark a blot on the business.

Liz Hoftzman last Tuesday came in second in a three-way primary race to select the Democratic nominee for city comptroller, and she then decided to make public a report of the city Department of Investigation that had looked into a loan from Fleet Bank to the Holtzman U.S. Senate campaign. The report found that Holtzman had shown "gross negligence" when she took out the loan and later approved Fleet Securities as a co-manager of the city bond syndicate.

The Department of Investigation passed along its findings to the city's Conflicts of Interest Board, which is currently reviewing the case and can issue an opinion and recommend fines. Holtzman has vowed to stay in a runoff against Alan Hevesi on Sept. 28.

What is clear from reading the Department of Investigation's 62-page report is that expensive campaign finance warped Holtzman's judgment and made her unfit to be comptroller of the nation's largest city, largest bond issuer, and largest provider of municipal pensions. Fleet Bank comes across as a business organization that knows what it wants and how to achieve its goals. Holtzman appears negligent or dissembling. Her failure to recall what happened at meetings with Fleet officials is unconvincing, to say the least.

To increase their bond business, securities firms make campaign contributions, and they don't have a shot at the bonds if they don't. The New York City report made it more evident than ever that this unacceptable way of doing business is standard today. As a former Fleet Securities banker told the investigators, political contributions are a "requisite element for being a member of the negotiated public finance community in the State of New York."

The bond market is peculiarly susceptible to these sophisticated shakedowns because A) huge amounts of money are readily available and B) the people who are hurt, the taxpayers, don't realize what's going on. Who can prove that New York City's tax revenues might be lowered if bond underwriters were forbidden to make campaign contributions?

This year has become the year of ceaseless scandal in the municipal bond business, which is unfortunate. Handling $200 billion of bonds in nine and a half months at ever-lower interest rates is an achievement that is being overshadowed. The Holtzman report last week gave the muni market one more reason to clean up.

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