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"At no point did we have a commitment to sell those bonds," insists Halldin, who has no explanation for why the Union-Tribune reported they were already sold or being sold.

"Merrill Lynch got its cake and ate it too," says Zubel. "It got a high interest rate and got the insurance. That suggests that Merrill Lynch was on the inside when it came to knowing the true financial precariousness of this city. It creates the appearance that the firm had more knowledge about the pension problems and the chickens that would come home to roost than the average person."

Replies Halldin, "Merrill did not know about the city's financial problems at the time." Someone with stock in Merrill Lynch, concerned that the company could wind up owning a money-draining ballpark if San Diego goes bankrupt, could ask: why didn't Merrill know? A brokerage is supposed to do due diligence on stocks and bonds it handles.

This is an especially intriguing question since a so-called "smoking gun" memo that later surfaced suggested that Murphy's Blue Ribbon Committee on City Finances held up its report warning of the pension problem until the ballpark bonds went to market.

Says Davis, "My belief at the time was that Murphy was very uncomfortable making presentations to [the investment community]. So I assumed he was relieved that this solution [a monopoly underwriter] freed him of the need to leave town and make a presentation before tough questioners. Of course, if he were aware of the worsening financial problems of the City, this would likely have increased his discomfort making public statements to the contrary. But this is just speculation and connecting the dots on my part."

Throughout the period, Murphy "seemed concerned with spinning the financial situation of the City, without the financial documents to support it," says Davis. "I don't mean to imply he was not telling the truth, just speaking like a politician and assuring everyone things were fine."

Davis and Merrill Lynch will not say whether they have been interviewed by government investigators. Zubel says he has not. I could not reach Murphy; his former aide, John Kern, did not return an e-mail posing queries.

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