11/10/2011 11:10 am ET | Updated Jan 23, 2014

Occupy Wall Streeters: Be Careful What You Ask For

Since its spontaneous generation a few months ago, Occupy Wall Street has made me cautiously optimistic.

"Optimistic" because I'm thrilled that there's finally a highly visible effort to shine a spotlight on one of our country's worst modern tragedies:  the cancerous spread and increasing metastasization of income inequality.

"Cautious" because I've feared, as have many others, that the movement's uber-anti-hierarchical -- some would say anarchistic -- organizational structure would frustrate the emergence of any meaningful, concrete reforms that could actually tackle the worthy issues OWS is raising.

Fortunately, here in my hometown of Lexington, Kentucky, local OWS organizers have developed a concrete, comprehensible platform:  They have formed "Invest in Kentucky," which they describe on their Web site as "a grassroots initiative calling on the Kentucky State Treasurer to reinvest the Commonwealth of Kentucky's public funds into a financial institution that is headquartered in Kentucky."  They've also specifically called upon the Treasurer to divest the state's funds from  J.P. Morgan Chase, an out-of-state financial institution which was at the center of the country's 2008 financial collapse, and are asking interested citizens to sign a petition to that effect.

Unfortunately, however, "Invest in Kentucky" is aiming its rhetorical weapons at the wrong target.

The Kentucky State Treasurer has absolutely no authority -- administrative, legal, or political -- to take the action "Invest in Kentucky" is demanding.  And while I don't pretend to be the expert on many state policy matters, I'm pretty familiar with this one: I served in that office for eight years.

The good news is that there is another, viable path for meaningful reform, should "Invest in Kentucky" choose to take it.  And understanding how to choose the road less taken might provide some insight to Occupy Wall Streeters in other locations across the country.

But first a little history is in order.

In the 19th century, the office of Kentucky State Treasurer was one of the most powerful in the state.  And shortly after the Civil War, it was occupied by one of Kentucky's most legendary characters, James "Honest Dick" Tate.

As his biographer would later describe, Tate was credited with helping to rebuild the state's Democratic party during Reconstruction, and emerged as a hugely popular official:

Biennially... without opposition in his own party, he has been successively re-elected by popular majorities, perhaps exceeding those obtained by any other candidate for office in the State. From these evidences of popularity, it would seem that his lease on the office might be regarded as a fixed fact.

But perhaps his nickname should have provided adequate foreshadowing. After serving with distinction for more than two decades, "Honest Dick" absconded with nearly $250,000 from the state treasury, never to be heard from again.

What followed were a century's worth of efforts to place checks on the powers of the Treasurer to ensure that no such scandal would ever happen again.

Still, over the years, the office continued to hold considerable political sway, occupied in the mid-20th century by influential and colorful officials such as Emerson "Doc" Beauchamp and Thelma Stovall, both of whom would later ascend to the Lt. Governor's Mansion.

A key lubricant to their political engines was their ability to raise money from bankers across the state who were bidding for pieces of the state's investments.  As was the case among many of their contemporaries across the country, the most successful Kentucky Treasurers were often those most adept at spreading the taxpayer wealth among the most influential and politically-connected bankers across the state.

That all ended in the early 1980s administration of Governor John Y. Brown, Jr. Brown entered office with a pledge to run the state like a business (he was most famous for building Kentucky Fried Chicken into an international icon), and part of that effort was for the state to get the best return on its investments.  Brown successfully secured legislation removing the banking contract from the Treasurer's purview, and shopped the state's investments to the highest bidder.  That often meant out-of-state banks.

Fast-forward to today.  The state's investments and its banking contracts are awarded by a strictly political-free procurement system managed by a group of unelected career bureaucrats who serve under the media radar in a variety of offices throughout state government.

I do not use those terms pejoratively. Indeed, these officials are among the finest, brightest, and most capable public servants with whom I have ever had the privilege to serve. And under a secure system that insulates the process from political influence, they follow their statutory commands to the letter and choose institutions that they feel will bring the best value and service to the state. Most recently, in 2011, after a lengthy procurement process, career civil servants thoroughly vetted all applicants and recommended the selection of J.P. Morgan Chase for a critical banking contract.

It is important to note that the procurement laws do not permit favoritism toward Kentucky banks.  Nor could the evaluators take into account whether the institutions received TARP funds or were involved in the 2008 Wall Street debacle.

And contrary to the assumptions of "Invest in Kentucky," the State Treasurer is not directly involved in the selection process. While he is one of several state officials who must formally sign the paperwork to hire firms awarded banking contracts, he has zero authority to abrogate those agreements.

Conceivably, other Executive Branch officials could muddle through the complex and very costly machinations to cancel a state contract, but even if no expensive lawsuit were to result, there certainly would be no guarantee that a Kentucky bank would be selected to succeed Chase:  The same politically-blind, state-neutral process would be used to choose the successor bank.  In fact, state officials tell me that there currently are no Kentucky-owned banks that are large enough on their own to handle the size and scope of the state's banking business in the modern era.


There is, however, a clear avenue available to "Invest in Kentucky" and other reformers who would like to see the state invest its money closer to home:

Change the laws.

And as any high school civics student can instruct, the laws are made by the state legislature.

The General Assembly conceivably could pass legislation to require the banking contract and/or all of the state's investments to remain in Kentucky.  Or perhaps more practically, the procurement process can be re-weighted by law to give a preference to consortiums that have a significant Kentucky presence, or against Wall Street-based institutions that are deemed "too big to fail."

Alternatively, the legislature could amend the procurement laws to provide that Kentucky's elected officials be more intimately involved in the investment selection process so that these types of public policy matters are made part of the natural decision-making process.

Finally, legislators could re-establish the authority of the elected State Treasurer to enable him to make investment decisions -- while still providing the kind of checks necessary to prevent political graft and/or another "Honest Dick" fiasco.  (That's the model in several other states.)

All of these solutions have their merits and their flaws.  Many Kentuckians would prefer to see the highest return on their public investments; while others would accept less revenue if it meant the profits would stay in state. Many citizens would like politicians to stay completely out of the business of investing tax money; while others would prefer that critical financial decisions be made by folks they elect rather than by less accountable bureaucrats.

It is a debate worth having, and "Invest in Kentucky" can prove to be an influential force if it chooses to get the discussion started. But it first needs to turn its sights to the right target, and petition the General Assembly to effectuate the change it so desires.

So Occupy Wall Streeters nationwide, please take heed. Keep the faith; but also remember, the devil's in the details.