January 7, 2008 (LPAC) -- A fund set up by the Springfield (MA) Finance Control Board, a city board that manages the city's finances, has collapsed in nominal value from $14 million a year ago to $1.2 million today, after buying supposedly "high grade" paper that was backed by sub-prime junk. Bloomberg reports that Massachusetts Secretary of State William Galvin has issued subpoenas for information to New York-based Merrill. Galvin, the state's top securities regulator, said he wants the names and details of the CDOs by 3 p.m. Jan. 10. Merrill said it will cooperate with the investigation.

Bloomberg also admits what LPAC has been reporting for months, that "U.S. state and local governments including Florida, Montana and Orange County, California, are vulnerable to losses as complex investments once sold as less risky high-yielding instruments are now backed by collateral that no one wants. The market for CDOs, loans and mortgages packaged into new securities, has frozen up after surging subprime defaults led to unprecedented rating downgrades."

The Springfield finance board said it “believes that Merrill Lynch can and should be held fully accountable for any potential losses.” But when you add up all the losses, Merrill and the others don't have the money either, as is becoming increasingly obvious to any honest observer. Only LaRouche's HBPA, with bankruptcy protection for the chartered banks, can save the banking system and preserve our local government institutions from financial collapse.