"Any connection between political contributions and the awarding of business is over; it's done; it will not be tolerated; and it will be punished."
These strong words were uttered last Wednesday by Christopher Taylor, executive director of the Municipal Securities Rulemaking Board, and they represent his finest hour. They mark the beginning of a new era for the municipal bond business, an era unsoiled by investment bankers making substantial campaign contributions to government officials in order to get their underwriting business.
Politicians seeking funds can continue to come to Wall Street, but Wall Street, which professes to detest the practice, now has a solid rejoinder: It's against the rules.
"Pay to play must end," Heather Ruth, president of the Public Securities Association, declared at the same Municipal Forum of New York luncheon, affirming the same laudable goal that Kit Taylor set.
Taylor, however, was firmer. He said, in effect, "Pay to play has ended."
With the MSRB's declaration that it already has the power to kill bond dealers' campaign contributions, the dark blot of influence peddling has been removed from the municipal bond market at a stroke. Whether municipal bond firms challenge this rule and continue to make contributions in defiance of the MSRB remains to be seen. But given the general distaste for the practice, such a challenge seems unlikely.
As Heather Ruth pointed out, other parts of the municipal bond business need to be made to play by the same rules. What's good for investment bankers is also good for bond lawyers, independent financial advisers, reinvestment agents, and others. The ultimate solution, she said, lies in actions taken by a Securities and Exchange Commission empowered to regulate all market participants, and she's right. All of the loopholes will have to be closed.
The MSRB regulates only dealers, though, and dealers don't like the system that has festered and worsened recently. "It's no secret," Ruth said, "that a significant number would dearly love it if someone would absolutely ban political contributions to officials who could influence the award of business."
If we heard Taylor correctly, he already has. If any dealer wants to challenge the rule, he can. But as Taylor noted, the SEC's Division of Enforcement has a keen interest in these matters.
