Lebenthal on Munis

An exciting first impression of municipal bonds from a vintage Lebenthal & Company brochure.

It was a scene out of that Edward Hopper painting, Office at Night. There was our Miss Dodd, bookkeeper-stenographer-telephone operator, plugging in calls at the switchboard. Dad clutching the upright telephone in one hand, the receiver up to his ear in the other...the office goldfish surfing the fish tank for something to eat...me, for pre-TV fun and excitement, linking paper clips together in an endless chain, which the "customers men," to their grief, would not discover until the next time they reached for a paper clip...or filling paper cups of water just to watch bubbles glug-glug up the water cooler jug. Closing time Saturdays was 3 o'clock. Dad would cover the canary cage, push the elevator button, and as we left, say, "Good night!" to the elevator man. That bothered me. "Dad, it's still afternoon. Why are we saying good night?" "Oh, son!" Dad exclaimed.

That I should ever end up in such an office scene was out of the question. So, after graduating Princeton, I took the glamour road with dream jobs at Life magazine, NBC, Disney, Young & Rubicam Advertising, and Ogilvy & Mather. (For more about fifteen years and tons of fun working for Henry Luce, Walt Disney, and David Ogilvy, while avoiding the family bond business, read Confessions of a Municipal Bond Salesman, John Wiley & Sons, Inc., publisher.) Guilt finally got me pondering, What am I doing here? Why was I making other companies famous instead of putting my family's name on every tongue and building an empire for Lebenthal? Ever since Dad's death in 1951, Mother kept the company going, barely hiding the hope that one day, I'd...Well, let's just say that when I finally did cave in and join her selling "odd-lot" municipal bonds to the little guy with a thousand dollars or so to invest at a time, she let it out: "At last you've gotten all that other foolishness out of your system."

That was way back in heady 1963, before landlords in the South Bronx started walking away from buildings that were worth less than the bills for back taxes. It was before New York City began borrowing for daily operating expenses. It was before the City declared a "moratorium" (you can pronounce it "default") on the repayment of $1.6 billion municipal notes, and before the flag touched the ground in Washington, Oregon, and Idaho, the home states of the Washington Public Power Supply System (WPPSS).

My formal education in tax-free municipal bonds began long before inroads were made on their hallowed exclusion from income tax, before the Social Security tax, before the alternative minimum tax on certain municipal bonds deemed "private activity bonds," and before the outright ban of tax-exempt bonds for ballparks, convention centers, liquor stores, and private jets. Municipal bonds still had twenty-five glorious years to go before the Supreme Court would knock tax exemption off its constitutional high horse and rule in South Carolina v. Baker that municipal bonds were tax free only by the grace of Congress, not by any constitutional right.

I sat at a desk across from my mother's and got on-the-job-training from the master. Today, I own the verities "my momma done told me."

It's not how much you earn that counts. It's how much you keep.

If you're going to speculate, don't do it in municipal bonds.

Municipal bonds are for tax-free income, not to make a killing from market moves.

A good portfolio diversifies maturities as well as municipalities.

If you know you're going to need your money in two, five, ten years, buy bonds that mature in two, five, ten years. Why subject your savings to the vagaries of the market?

A bond is marketable when you can get a bid on it before maturity from other firms and not just the house you bought it from.

The best time to invest in munis is whenever you have the funds.

If it's knowable, make sure the customer knows it. If it isn't, don't pretend.

Besides "listen to your mother," I believe in taking on, taking over, and making whatever you do your own. And, true to form, here I go now making a certain rule of the game my own, as if I were the one who thought it up and not the regulators:

"A broker has a duty to disclose all material information in connection with an investment recommendation...which may be reasonably relevant to an investor to take into consideration in making an informed investment decision...in particular the various risks and level of risk of an investment recommendation."

--THE NASD (NOW FINRA) OBLIGATION OF DISCLOSURE RULE

Giving you enough information to decide whether you really belong in municipal bonds--and which ones--isn't a choice that's up to me to make. It's the law. And Lebenthal on Munis is going to toughen that law by giving you the information to decide "No!" as well as "Yes," even if it means turning me and my bonds thumbs down.

Am I afraid that disclosing the why nots, as well as the whys, will kill the sale? I hope only the unsuitable sales that weren't meant to happen. After all, I am a municipal bond salesman, living by the best money-making claim Lebenthal & Company has advertised in all its eighty-plus-year history: "disclosing the risks about municipal bonds, and helping investors decide, 'Yes...' or 'No!'"