$50 million lost -- so where's the outrage?

Politically speaking, Treasurer Kate Marshall couldn't have picked a better time to lose nearly $50 million in taxpayer money.

The electorate has recession fatigue. Their investments, IRAs, 401(k)s and home values are in the tank.

With Congress throwing around trillions of dollars for this bailout and that rescue, an eight-figure loss for the state in the Lehman Brothers collapse seems downright reasonable.

The Legislature? Weary Democrats already were angling to raise taxes by at least $1 billion for the next biennium. When revenue collections are shrinking by the month, what's another $50 million to make up?

And let's face it, the intricacies of securities lending aren't quite as journalistically sexy as, say, McCarran International Airport land giveaways.

Regional Justice Center delays, cost overruns and mismanagement will get the populace fired up. Tell drivers a new, finished Beltway bridge is staying closed for another year, and they'll actually call their county commissioner to demand it be opened to traffic.

But see a conservative investment strategy blow up amid the banking crisis and, well, let's just say no one's going to be filing petitions to recall Marshall anytime soon.

Heck, she's got Jim Gibbons living in the governor's mansion. Any Nevada politician facing heat need only wait a few days before the bumbling Republican puts himself back in the crosshairs.

In fact, the Lehman Brothers investment is so far below the radar -- and so far over the heads of most taxpayers -- that Marshall is declaring the state hasn't lost a cent. Not yet, anyway.

Marshall, a Democrat elected in 2006, used a Wachovia subsidiary as a lending agent for the state's $3.6 billion general investment portfolio. In March 2007, Wachovia loaned $50 million in state-held securities, then took the cash collateral and invested it with Lehman Brothers. That investment was set to mature Monday.

When the markets grew volatile in late 2007, Marshall frequently consulted with Wachovia about the security of the Lehman Brothers investment. Marshall said the bank consistently advised her against selling the investment at a minimal loss, even when signs pointed to Lehman being in serious trouble. Marshall checked with Wachovia again on Sept. 13, 2008, and again took the bank's advice to stand pat. Two days later, Lehman filed for bankruptcy.

Now the state must wait in line with thousands of other investors while the whole Lehman mess is sorted out in bankruptcy court.

Meanwhile, the supposedly broke state government this month came up with $500,000 to retain the law firm of Sherman and Howard to exhaust all legal options in getting that $50 million back. That could include a lawsuit against Wachovia, which was acquired by Wells Fargo in December, over its advice to Marshall to keep the state invested in Lehman.

By the time the issue is settled, the state's legal costs easily could double or triple. And there's a good chance the treasurer's office won't be able to recoup any of the Lehman losses, even in bankruptcy court.

But don't expect any Obama-esque "I screwed up" admissions from Marshall. For a first-time office holder, she's smooth and feisty, quite adept at deflection and misdirection. She's downplaying the Lehman disaster and emphasizing brighter spots on her resume.

"I moved the state out of securities lending before the markets really fell," she said last week. "And even if the Lehman Brothers investment is a complete loss -- and it's not going to be a complete loss -- we will have a net gain from my office's other investments and efforts. We will have made the state money. I don't know how you turn a net gain into a loss."

If the goal of the treasurer is to realize only a tiny gain from the billions upon billions of tax dollars that flow through her office, why is she committing taxpayers to a potential million-dollar legal battle that might gain nothing? And if Marshall is patting herself on the back for discontinuing securities lending in December 2007 -- if she's willing to brag that she saw unacceptable risk in those investments -- why didn't she follow through and pull out of Lehman Brothers? Why does the state still have tens of millions of dollars in those investments with Wells Fargo?

There is no spinning the fact that the state was counting on the maturation of the Lehman Brothers investment. That $50 million could have built a high school, or widened five miles of interstate highway, or covered the operational costs of Nevada State College and UNLV's Boyd Law School for two years.

How tight are Nevada's finances? School funding used to be distributed quarterly. Controller Kim Wallin said the money is now transferred on a monthly basis. Every penny counts, every single day.

Marshall would have you believe that nothing has happened to the $50 million, and that because it was a secured investment, it is merely sitting in limbo, waiting for the right judges to send it back to the treasury, in different pieces from different sources, if necessary. But if the state technically hasn't "lost" any money, as Marshall says, why does it need to sue to get it back? She has defensively tied her culpability -- and perhaps her re-election chances in 2010 -- to the fate of the state's litigation.

Taxpayers should start paying attention. Yes, Marshall has done some good things in the treasurer's office, including identifying $60 million in unclaimed property and bond sale savings, revenues that prevented further state budget cuts. But Marshall also supported the terrible idea of using a $160 million line of credit to cover state operating costs -- deficit spending.

And I doubt a lawsuit against Wachovia will produce better returns.

"If we can win this one," Wallin joked, "maybe I'll sue my broker."

Glenn Cook (gcook@reviewjournal.com) is a Review-Journal editorial writer.


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