Did `the lemon' break Orange County's bank?

Some Californians call him "the lemon" of Orange County, adding gleefully that at last he is getting squeezed. And those are the kinder remarks circulating about Robert Citron, the man at the heart of the biggest municipal financial collapse in t he history of the United States.

At least five separate official investigations have been launched into the circumstances which prompted the county - one of the richest in America - to seek bankruptcy protection, rocking confidence in the US municipal bond market.

These are focusing on the role played by Mr Citron, a $104,000-a-year (£69,000) elected official whose penchant for investing public money at high-risk stakes led to his resignation as county treasurer nine days ago, after a $20bn (£13bn) investment fundsuddenly went broke.

Californians have been transfixed by the scandal which has brought rich details about the roles played by Mr Citron and by Wall Street in a drama which goes well beyond the world of high finance. Some 180 municipalities (cities, transport authorities, s

c hool districts and others) invested in Mr Citron's doomed fund - some of which may also file for bankruptcy as a result. Several schools are warning they could run out of money by the spring.

And there are other deeper issues at stake: for example, did the pinstriped brigade, the whiz kids from Wall Street, hoodwink bumpkin West Coasters by peddling risky securities? Was the county, the home of Disneyland and surfing, taken for a ride by the money men from the east?

The general consensus is `no'. Mr Citron, 69, is known in US financial circles for his fiscal wizardry, and was well regarded by fellow politicians because he knew how to generate money without either cutting expenditure or hiking taxes.

This is a valued skill in California, which is still suffering the effects of Proposition 13 - a statewide law, passed by public ballot in 1978, which froze property taxes, delivering an enormous blow to local government. Mr Citron - a Democrat in a Republican administration - does not live like a high roller. He is a quiet man with a smallish house, and a passion for W C Fields. Yet, professionally, he had a high-handed streak. He waved away suggestions by the county auditor last year that he should bemade more accountable. What was risky for others was prudent for him, he said.

As his investment strategy began to collapse, he seems to have become increasingly desperate. He was, in effect, borrowing money short term to buy long-term bonds in the hope that he would make money on the difference in interest rates - a gamble which he lost as rates rose. he appears to have borrowed more and more until his fund had $7.8bn equity supported by nearly twice as much - $13bn - in loans.

There is another major player in the Orange County debacle: Merrill Lynch, America's biggest dealer in municipal bonds, was Orange County's largest broker.

What investigators - who included the US Securities and Exchange Commission (which has subpoenaed Merrill Lynch) - will now want to explore was how much did it and the rest of Wall Street know about these dodgy investments. Do they and others now have any legal responsibility for the bankruptcy? Or should all the blame lie with the man they call `the lemon'?