Though it had papered the market with billions of dollars of municipal bonds, the Washington Public Power Supply System was still an enigma on Wall Street when Howard Sitzer went to work at Merrill Lynch in the fall of 1980. Were Whoops bonds a buy? A sell? Sitzer was assigned to find out.

He was 28 at the time, a dark-haired analyst with a sober air and four new suits.

As Wall Street was acquainted with Whoops mainly on paper, Sitzer set about sifting documents.

He ate lunch over 20-year power forecasts and took bond resolutions home on the subway to Brooklyn.

On weekends he went wading in utility "revenue streams."

But through the prism of a paper world it was difficult to get an undistorted view of Whoops. Some nuance was lost in the hurly-burly of the financial markets.

Seeking a "feel for the credit," Sitzer boarded a flight for Seattle two days after New Year's.

He had no inkling that the biggest municipal bond crisis in history was developing on Wall Street and that, in a matter of months, he would be in the thick of it.

Dear Sir: I am 62 with cardiovascular disease. When I told my wife about investing $25,000 in Whoops municipal bonds, she said to me David: Are they safe? to which I answered: Margaret this is the government of the United States. I cannot begin to tell you the anguish, the arguments, the humiliation, the frustration I had with my wife when we heard the $25,000 will not even earn interest. May God be with you ALWAYS. David Busuttil, Monrovia California.

It is often suggested that no one was to blame for Whoops. One of the great public-works projects of the century just unraveled on its own. Everyone handed responsibility on to the next guy. No one was accountable. In this sense Whoops may epitomize the whole structure of modern business and government, which seems to have evolved to spite the idea that people are accountable. When bureaucratic partitions separate people from a sense of having something personal at stake, and flow charts foster only narrow, legalistic notions of responsibility, society runs the risk of falling victim to itself.

The reactors known as Projects 4 and 5 were designed to withstand tornadoes, earthquakes and plane crashes -- every catastrophe but a change in political climate. In June 1983 the highest court in the state of Washington wiped out contracts between Whoops and the major utilities sponsoring the plants. That reading of law by an elected tribunal turned the world upside down. It destroyed the value of bonds held by more than 78,000 people and paved the way for a $2.25 billion default. And it produced a welter of lawsuits and legal issues so complicated that allies on some points are opponents on others, and where the positions aren't clear yet they have reserved the right to sue each other -- a new sort of futures market.

In essence, default poses hard questions for rival sides of America. What obligation do the ratepayers of the Pacific Northwest have to return money borrowed in their name? What duty does the financial community concentrated at the tip of Manhattan have to look beyond profits to the product it sells, and to share with investors its doubts about a deal?

"I considered what happened to be dishonorable," says Michael Satz, general counsel to the American Municipal Bond Assurance Corp., which insured $23.5 million in Whoops bonds. "It burns me up. You had a deal. The deal was understood. The money was borrowed in good faith. The people in the Northwest are not saying, 'I can't pay.' They're saying, 'I don't want to pay.' They have the cheapest electric rates in the country. While some old lady in the East is sitting in her apartment in a sweater freezing, these bastards are lit up like Christmas trees."

"You want to know who the villain in this story is? I'll tell you," says Jim cKenna, chief aide to Rep. George Hansen (R-Idaho). "The villain in this story is some guy wearing a three-piece suit, and right now he's getting out of a stretch limo on Wall Street, and he's taking the elevator to the 65th floor of some building, and he's smiling because there are boobs like me in checkered shirts who can't do anything about it. Underwriters don't work, they scheme. What the people needed was some lawyer from Boston or New York on their side who knew the minute these guys walked in that they were SOBs. This whole thing is kind of an American tragedy."

Your Honor: I have been swindled. I invested $30,000 in Whoops 4 and 5. The money was left by my late husband, and it represents my supplement to Social Security. I will be 65, too old to get a job, and this default leaves me outraged, frightened and helpless. Sara M. Stalvey, Deerfield Beach, Florida.

Howard Sitzer's flight to Seattle that day in January 1981 ended up in San Francisco. Aptly, given his confusion, Seattle was fogged in. Sitzer was primed for travel. After a stint in state government, he had taken after his father and found a job on "the Street" in the mid-1970s. The geography of the country aroused his curiosity; as a credit analyst, reviewing documents, he could travel widely without leaving the 34th floor at One Liberty Plaza where Merrill Lynch housed the fixed income research department. But here was a chance to flesh out the abstractions of the Paper World, to see "14-percent complete" translated as concrete and steel. Sitzer had never visited a nuclear plant, never tackled the concept of "dry hole risk" at the heart of Whoops bonds. For that matter, he'd never flown on a commuter airline. He had two weeks on expense account to explore the nuances of the biggest name in the municipal market.

"If you went to work on the street in 1977 or 1978, you'd hear that Whoops was an entity that was constructing five nuclear power plants," Sitzer recalled. "You'd shrug and say okay. Then you'd learn there was two types of financing. On three plants the Bonneville Power Administration, a federal agency, was guaranteeing the bonds, and on Projects 4 and 5 they weren't, so the bonds were rated lower. In late '79, a rumor germinated that some federal legislation was being considered that would create a similar financing structure for 4 and 5 as for 1, 2 and 3. The thought that many people had was, 'Aha! The bonds would be upgraded to triple A.' "

Indeed a new federal law passed in December 1980 offered the possibility that the bonds for Projects 4 and 5 would be bolstered by federal backing. No one was sure. Five times Sitzer read the Northwest Power Act, that year's candidate for the title of Most Complicated Law Ever Passed by Congress. If Bonneville did step in, Whoops bonds would be worth more, and Whoops could borrow money more cheaply, reducing the cost of its nuclear plants. The plants were $11 billion over budget already. But more alarming was the sense that the region's political commitment was ebbing. Some ratepayers in what was known as the Light rigade were planning to disrupt meetings dressed as sponge-rubber light bulbs, fling Monopoly money at bond sales, and practice other extreme forms of "consumer resistance."

Without federal intervention, the projects might be doomed.

From San Francisco Sitzer flew to Seattle. He hopped over the Cascades to Richland, then down to Portland, and back to Seattle. He met with bankers, engineers and utility officials. He toured the Bonneville Dam, and stood under the reactor at Project 2. He heard many of the smaller utilities were running scared; he picked up contradictory opinions about the need for power. In the middle of his visit, the Washington State Senate published the report of its 11-month inquiry concluding that Whoops costs would continue to soar. It mentioned a study by a group called the Natural Resources Defense Council, which argued that power could be gotten more cheaply through conservation. Say what? Sitzer made a note to send for a copy. He began to formulate his thesis, expecting to have it written by the end of January.

His opinion? The federal government would not back Project 4 and 5 bonds, at least not anytime soon. Meanwhile the numbers boded ill. Whoops' credit rating for Projects 4 and 5 was then "investment grade" and good enough for banks to hold the bonds in portfolio, but as the costs went up, the rating seemed destined to decline toward the netherworld of "junk bonds." The implication: Whoops could run out of a market for its bonds. And without further bond sales, it was likely that Projects 4 and 5 would grind to a halt.

Sitzer knew to proceed cautiously. It was not just that opinions under the imprimatur of Merrill Lynch carried the influence of Wall Street's largest firm. There was a tremendous amount of money to be made from Whoops and a tremendous amount at risk already. Through its trust portfolios, Merrill Lynch had invested more than $230 million in Project 4 and 5 bonds. "The politics of the situation were explosive," Sitzer recalled. He returned with a foot-high pile of documents to begin a period he would remember as the "most exciting, condensed time of my career." The pressure was a measure of how high the stakes had become.

Dear Judge Bilby, Please, I beg of you, in the name of justice and the promise that was made when I purchased the bonds, hasten an equitable solution and fair repayment as soon as possible. I need the money now -- not after I've expired. Ann Chast RN, Daytona Beach, Florida.

Since the Depression, the municipal crisis to rival Whoops was the New York City default in 1975. The inquiry report published in 1977 by the Securities and Exchange Commission offers a revealing parallel. The questions are similar; a number of the firms are the same. In both cases, the two major rating agencies, Moody's Investors Service and Standard and Poor's, maintained high ratings when conditions might have warranted otherwise. The law firm Wood & Dawson did legal work for New York City and Whoops; the SEC found fault with the extent of investigations made by the bond counsel in the New York crisis. Merrill Lynch, a major underwriter of Whoops bonds, was one of a group of New York City underwriters. The SEC said the role of underwriters in the New York City crisis "raise s the question of whether changes should be made in the process of conducting municipal securities offerings in the future, to assure that the underwriters are sufficiently independent and that their paramount concern will be their responsibilities to the investing public."

Again the SEC has launched a one- to three-year inquiry into a municipal fiasco, and again the question of Wall Street's responsibilities has been raised.

The issue goes to the nature of the Paper World. Before each of the 14 bond sales for Projects 4 and 5, Whoops prepared an Official Statement. The equivalent of a corporate prospectus, it was cobbled together by a committee supervised by Whoops' financial adviser, former Blyth Eastman executive Donald C. Patterson, 44. The 50-page Official Statements were filled with maps, charts, footnotes and some of the densest prose this side of the Federal Register. The details essential to bondholders were described on the cover: First, the high A-1 and A+ bond ratings; second, the agreements securing the bonds. Projects 4 and 5 were "revenue bonds," meant to be repaid from money earned by selling the power the plants produced. If the plants produced nothing, the risk fell to the 88 utilities that had obligated themselves to pay "whether or not the Projects are completed, operable or operating, and notwithstanding the suspension, reduction or curtailment of the Projects' output."

What compelled Whoops to publish an Official Statement was not any law. It was the market's demand for information. Unlike corporate securities, municipal bonds are exempt from federal regulation; nothing says underwriters share responsibility for what a public agency reveals in its disclosure documents. However, issuers and underwriters are bound by the general anti-fraud provisions of federal securities law -- which implicitly demand that investors be given the whole story. There's the rub.

Bondholders charge that they were misled by a panoply of parties: Whoops; the 88 sponsoring utilities; the three engineering firms that did technical work; the bond lawyers who signed off on the legal arrangements; the financial adviser; the four major brokerages that led the syndicates that bought and sold Whoops bonds. Bondholders claim that the mother lode of misrepresentation was the Official Statements. Somewhere in the four-year course of Projects 4 and 5, they argue, the defendants knew or should have known that the Paper World did not jibe with the real world.

"Those were the most misleading Official Statements ever written," claimed Arthur Hoffer, who invested $50,000 in Whoops bonds and is now president of a 12,000-member national committee of bondholders, based in Florida.

Defendants in the fraud cases dispute the charges. "I was there; I know the amount of time spent developing the Official Statements," said Don Patterson, who entered the bond business when he was 16. "There was a good-faith effort to come up with information that was honest and forthright. You attempt to write an O.S. as if there were a Monday-morning quarterback looking over your shoulder."

The four underwriters -- Merrill Lynch, Smith Barney, Prudential ache and Salomon Brothers -- contend they relied on Whoops and its cadre of experts just as investors did, and thus were victims.

The general view of the municipal securities industry is that underwriters as a practical matter cannot -- and as a matter of policy should not -- second-guess the economic feasibility of more than 50,000 public agencies' projects. "Do we really want underwriters making economic determinations about what gets built and what doesn't?" asked Christopher Taylor, of the Municipal Securities Rulemaking Board, set up after the New York crisis. Independent investigation, said Taylor, is basically a matter of issuers passing the "smell test."

Dear Sir: I am retired and live on -- or exist -- only on the income from a few investments such as Whoops. I have no Social Security or pension payments. The loss of income from Whoops 4 & 5 has meant that I again at this late time in my life must look for some type of employment. In this area, this is almost a hopeless search. Russel Radom, Key Colony Beach, Florida.

Setting aside the issue of Wall Street's duty to scrutinize its product, how forthcoming were the Official Statements? A few conclusions are possible in advance of court findings. The portrayal of Whoops in the Official Statements seems about as comprehensible as a large canvas by Jackson Pollock. In a survey that underscores the importance of both ratings and credit analysts (who guide investors through a disclosure wilderness where only accountants and lawyers are at home), the Chicago-based Whoops Bondholders Association Inc. queried more than 1,000 bondholders and found that fewer than 2 percent even tried to read the Official Statements. Of those who did, none understood them.

It would have taken an exceptionally informed investor to spot the cheery face on sorry news in the last Official Statement issued in March 1981. It notes that Whoops has over "4,700 man hours of nuclear experience." It omits the chief conclusion of the state Senate inquiry that mismanagement was the "most significant cause" of cost overruns and delays.

Investors might have been less venturesome had they known more in a number of areas:

Economics: The projects' viability was consistently distorted in the Official Statements, according to court papers filed by Chemical Bank, the bond trustee that has brought securities fraud claims against Whoops and the sponsoring utilities. Chemical's lawyers contend that Whoops always used "optimistic" numbers. In January 1979 Whoops began conducting a "risk analysis" review of its budgets. For a year and a half, Official Statements made no mention of risk analysis, much less the findings. At times the reviews found Whoops had less than a 1 in 5 chance of meeting schedule and cost goals -- a fact investors were not told.

Conservation: The potential for conservation was brushed aside, yet it was very much a part of the question of power demand that ultimately unhinged Projects 4 and 5. The October 1978 Official Statement notes that the "effect of conservation on electrical energy requirements cannot be foreseen at this time." It does not mention that two months earlier, the U.S. General Accounting Office noted that electrical growth probably would be lower than the number quoted in Official Statements, and that conservation could help meet future loads. In bond sale after sale, the Official Statements claimed that the effect of conservation could not be foreseen, while other reports suggested that its potential was huge.

Market saturation: In its report on New York City, the SEC concluded: "The deteriorating condition of the markets for the City's securities was a material fact which should have been disclosed." Whoops, too, had trouble selling its bonds, and continued sales were crucial to Projects 4 and 5. Whoops needed money not just for concrete and stainless steel pipes, but to pay for the cost of borrowing money. (More than half the money raised in the last bond sales went to pay for the cost of interest.)

Before the first Projects 4 and 5 sale in March 1977, Bonneville's financial adviser had suggested that the plants be funded under another name; many institutional portfolios had guidelines limiting the number of bonds they could carry. A February 1979 Merrill Lynch report noted the "adverse impact" of outstanding Whoops bonds. By April 1980, the problem had become so crucial that Blyth Eastman's Public Power Finance Group said in a study: "There is a real possibility that the Supply System might be unable to raise the funds it needs to maintain construction cash flow at acceptable interest rate levels, or at any interest rate at all. Obviously this situation must be avoided at all costs."

This real possibility was not broached for the benefit of investors. As in the New York City crisis, underwriters considered the problem a marketing challenge. Given the equilibrium between fear and greed, the market's appetite might be restored if Whoops were willing to pay enough in the form of higher interest rates.

Legal authority: The Official Statements included a letter from Wood & Dawson saying that the law firm had examined and approved 72 of the 88 agreements signed by utilities sponsoring Projects 4 and 5. The letter did not say that the law firm had, in fact, examined all 88, and found legal problems for 16 of the utilities, mostly from Idaho and Oregon. The Wood & Dawson firm says that the authority of the 16 is irrelevant because the utilities' share of Projects 4 and 5 was less than 3 percent of the deal, and was covered by a provision which "stepped up" the contribution of other participants if one of the bunch defaulted.

But it is on this issue of a utility's legal authority to make such a commitment that Whoops came apart. The pressure of a multibillion-dollar deal gone bad bore heavily on Wood & Dawson's Brendan O'Brien. During a deposition in 1982, the 43-year-old lawyer grew dizzy and had to stop testifying. Severely depressed and under a doctor's care, he left work in March 1983 and spent nine months at home in Larchmont N.Y., doing chores, reading and going for long walks. He returned to work last January. Did Wall Street know the deal was going bad and sit idly by? Did they allow investors to be comforted by inaccurate or incomplete statements? As long as contracts secured the bonds, the financial community could argue that the paper was "money good." Indeed, as the economic rationale of the two Whoops plants faded, and hope dimmed that Projects 4 and 5 would ever have a chance to generate power, many on Wall Street embraced the unconditional promise in those contracts, like a shipwrecked crew clinging to flotsam. The issue divided the Street itself: what bearing does the economic context have on an unconditional contract? When evaluating the credit of a public agency, how much weight should be given to political questions? Such concerns sent the financial community and investors back to the analysts who had been following Whoops for years.

Dear Honorable Richard Bilby. I have completely lost confidence in brokers and all financial institutions. They are all the same and just interested in their commissions. They don't even know what they are selling and don't take five minutes of their time to study what risks or what type of investment you are getting into. Jean Baron, Bethpage New Jersey.

Municipal credit analysis not a sexy profession. There were barely two dozen of the breed on Wall Street a decade ago; the job was seen as the perfect backwater where women and minorities might start careers without disrupting the status quo. An analyst on the stock side can unearth a hot prospect and ride it to fame. Bonds are not as volatile; municipal analysts mostly uncover weaknesses in credit. So they don't earn the big salaries of traders and salesmen, or have the sort of workday that begs to be toasted at Harry's at Hanover Square, where the ceiling-mounted TV sets carry the "Daily Bond Buyer" newswire and limousines are parked outside.

The New York crisis and the tax-exempt market's growth have done much to boost the lot of a municipal analyst. Now running about $80 billion a year, the municipal market is zippier and more complex than ever; more individual investors are venturing in financial territory once dominated by insurance companies, banks and other institutions.

Long before Howard Sitzer's trip to the Northwest, analysts had been looking askance at Whoops and the premises of Projects 4 and 5. Smith Barney analysts remarked on the uncertainty surrounding the need for power in 1976, according to court papers. Jeffrey Alexopulos at T. Rowe Price began lowering his rating on Whoops bonds in September 1977 and removed them from the firm's buy list in November 1979. That year, Susan Linden at Merrill Lynch questioned the rationale for the plants. Analyst Elliot Greenbaum went so far as to urge the clients of Michael A. Weisser and Co. to get out of Whoops bonds. His call was thanks largely to consultation with a Northwest economist and part-time Volkswagen mechanic named Jim Lazar.

Lazar is a signal figure in the Whoops saga. In 1979, as a graduate student in Professor Richard Frye's Economics 500 course at Western Washington State, Lazar critiqued a Whoops Official Statement, citing examples of understated costs. The estimated price of power contained in Whoops' March 1, 1979 Official Statement was lower than the estimate contained in a letter written a day later by the managing director to a congressman. "Unless a major reevaluation took place early in the day on March 2, this unexplained increase of 15% in one day reflects an unwillingness of Whoops to update their bonds statements," Lazar wrote. His overall conclusion: utilities should cancel Projects 4 and 5.

Professor Frye gave him an A.

With characteristic cheek, Lazar, who was once denounced by a Whoops board member as a "heretic," mailed 18 copies of his report to people at major investment firms whose names he had seen quoted in The Wall Street Journal. They included the rating agencies and Whoops underwriters Merrill Lynch, Smith Barney and Salomon Brothers. Only Elliot Greenbaum replied.

Lazar says today that Wall Street analysts should have oticed by 1979 that Whoops bond statements showed a "blatant unfamiliarity" with the basic economic tenet of price elasticity. When costs of a commodity go up, people use less. But Whoops was beginning to divide municipal analysts themselves into heretics and believers. Within the professional society known as the Municipal Analysts Group of New York, people were coming to contradictory opinions by the time Howard Sitzer set out for the Northwest.

In January 1981, a 47-year-old Bear Stearns and Co. analyst named David M. Breen had published a report calling Project 4 and 5 bonds, "candidates for upgrading." He had based some of his conclusions on trends in the Washington potato harvest. Though he had been the first to call attention to the New York City crisis, Breen became a self-confessed "believer" in Whoops after the consortium hired Bob Ferguson as managing director.

In April, William H. Swann, a bond salesman who did his own research at Wertheim & Co., recommended that Projects 4 and 5 be scuttled and raised "the remote possibility" that the contracts securing the bonds might be abrogated. The brass at Wertheim were averse to publicity, Swann said recently, and the report was not widely circulated.

In a report published in May, 31-year-old Eileen Austen at Drexel Burnham Lambert ventured that the chance that the projects would be taken over by the Bonneville Power Administration was equal to the chance that they would be scrapped. Heads or tails, a risky call. Many on Wall Street were expecting Bonneville to step in and back the projects. On May 29, less than a week after her report, Austen returned from lunch to see a trader at Drexel waving a printout from the Munifacts newswire.

"I thought 'Oh God, I'm wrong, BPA must have taken them over,' " Austen recalled. "I knew I was out on a limb. When I saw what it said, I couldn't believe it. Then the phone started ringing, and it didn't stop for two years."

With "saddening shock," managing director Ferguson announced that revised estimates had hiked the price of Whoops Projects 4 and 5 by nearly $5 billion. He recommended a one-year construction slowdown. The staggering cost increase -- the culmination of a six-month review -- got the attention of virtually every bond analyst on Wall Street, and ensured a big turnout to hear Jim Lazar at the Downtown Athletic Club a few days later.

Lazar had not come East for the meeting, which had been scheduled at the last minute, but to help his mother with some repair around the house in Rockville. By force of habit he had packed only grubby corduroys and some Immoral Minority T-shirts (an organization he founded). That outfit, Lazar realized, would not help him get his message across to Wall Street. In the office of Rep. James Weaver (D-Ore.), Lazar buttonholed staff members, asking each: "Where did you buy that suit?"

In New York the next day, Lazar presented himself in crisp pin stripes. Joining him was fellow conservationist Ralph Cavanagh of the Natural Resources Defense Council, who called Lazar's new attire, "one of the greatest personal transformations ever made in the service of a cause." The pair focused their presentation on the conservation potential of the Northwest and the implications of the new regional power act.

Such were the dynamics of Whoops and nuclear energy on that spring morning in 1981 that Dave Breen and Lazar squared off over the energy potential of wood. Breen put some pointed questions to Lazar. Lazar parried them. It was like a boxing match. Unable to score a point, Breen tried for the knockout, with a fiendishly technical query. Lazar hesitated, then from some obscure corner of his memory retrieved the number of British Thermal Units in a cord of alder wood. Punched out, Breen sat down.

Austen thought at the time that the meeting's message made an impression on some analysts, but not on Whoops defenders. She and Sitzer treated the speakers to an expensive lunch at Michael's One restaurant. "I think we were underestimating the political impact of Whoops on the Northwest, and how important electric rates are," she recalled recently. "Whoops bonds had a kind of mystique on Wall Street."

Lazar remembers: "Lunch cost more than my suit."

Dear Sir, I am being robbed without a gun. I cannot understand how the courts cannot see this. Arletta L. Rodgers, Cape Coral, Florida.

Sitzer had planned to have his report done long before Whoops announced the nearly $5 billion increase. But he was delayed by Whoops' complexity, and other assignments. He did not begin to write in earnest ntil May.

At Merrill Lynch, Sitzer faced the difficulty of working on the "sell side." The firm bought bonds from Whoops and resold them to investors. Since 1972, bonds for the five Whoops projects had been sold by competitive bid, with underwriters, grouped into two huge syndicates, bidding against against each other. By May 1980, the competition had dried up. For the last five sales, the two syndicates merged. With some help on Wall Street, Whoops in late 1980 got a new state law permitting the consortium to meet with underwriters and negotiate the price it would receive for its bonds, rather than just toss them on the auction block. In the spring of 1981, Whoops screened investment firms to serve as underwriters in negotiated sales. Merrill Lynch was one of 15 candidates. The stakes were high. (In June, Merrill Lynch was selected to handle bond sales for Project 1 and went on to earn handsome profits in a September 1981 bond sale.)

Sitzer's report got caught in the tension between the research and underwriting departments. The goal of research is to supply objective credit analysis for the company and the investing public. The goal of a public finance department is to sell its client's bonds and keep the market upbeat. At the September bond sale, Merrill Lynch banker William W. Moore passed out "I'm bullish on the Supply System" buttons. Public finance knit deals and earned income. Research didn't. It is not surprising that bankers were reluctant to see Merrill Lynch publish a report offensive to their client.

After much internal agonizing "WPPSS: At the Crossroads" was published on July 24, 1981. Three thousand extra copies were printed. Sitzer's boss told him: "This is going to be a collector's item." If the market for Project 4 and 5 bonds had been stunned by the cost increase and slowdown announced in May, the Merrill Lynch report delivered the coup de grace. It said that unless 88 utilities reaffirmed their willingness to pay for the plants, the bonds could be in "serious jeopardy," a euphemism for default. As to Bonneville backing the plants -- the great hope of Wall Street and Northwest uti ties -- the report said such a move might well undermine Projects 1, 2 and 3. Whoops never sold another bond for Projects 4 and 5.

"At the Crossroads" was Sitzer's last major work on Whoops for Merrill Lynch. Through the fall, the firm issued updates to its network of more than 8,000 salesmen. In May 1982, it hired a new municipal bond research director, Robert A. Meyer. A June 24 memo to Meyer from James M. Ruth, then managing director of public finance, summarizes "understandings" reached after a series of meetings with public finance: "It has been agreed that opinionated hard copy research will not be undertaken on securities of issuers for which Merrill Lynch serves as senior manager."

What that meant was that research such as "At the Crossroads" would not be done on Whoops or 20 senior managed clients -- some of the biggest names in municipal bonds whose business had helped make Merrill Lynch the industry leader. In deference to "extreme client sensitivities," neither would Merrill Lynch do research into select municipal bond issuers who might want to hire the firm as a senior managing underwriter. t was also decided, according to the memo, that detailed reports with a credit rating were intended for institutional investors, while individual investors were to receive "suitability comments" without a credit rating.

Merrill Lynch spokesman Tom Debow said at the time of the memo Merrill Lynch was in the process of developing a new numerical rating scheme called the Investment Quality Opinion System. The firm's 21 senior managed clients were put off limits because "it would have caused confusion during the test period."

"We chose not to do quality opinion research on current senior managed issuers and on certain others with whom we were negotiating until the new system proved out," he said. Today, he said, "No clients are exempted."

"Our policy is very clear," said Sylvan G. Feldstein, now head of municipal bond research at Merrill Lynch. "We do research opinions on our own deals. No other Wall Street firm does it on their clients."

Dear Sir, I retired having worked for the same company for 49 years. A Dean Witter Reynolds broker advised a fine purchase -- the above bonds which were as 'good as gold' backed by the State of Washington. Bonneville Power and the U.S. government would have to fail before you could lose anything on them. Enough said! The Washington Supreme Court decision came as the crowning blow. There is a striking parallel to this kind of decision in the Bible -- perhaps you remember it -- the culprit's name was Pilate. He also washed his hands of the whole affair! H.H. Ferrell. Sun City Arizona.

A Whoops official testified in 1980 that the only two limits on how much Whoops could borrow were what the financial community would tolerate and what the public would tolerate. When the public had its fill in 1981 and tried to shut off the money with a ballot initiative that would have given voters the right to authorize energy project bond sales, Wall Street counterattacked, led by the four underwriters. Merrill Lynch put up $20,000. Goldman Sachs, Smith Barney and Salomon Brothers chipped in $15,000 each. A roster of utilities, construction companies, law firms -- many with a direct financial stake in the continuation of the plants -- raised $1.3 million to fight the measure. It won anyway with 59 percent of the vote. It was eventually ruled unconstitutional when applied to energy projects already under way.

After trying for six months to mothball Projects 4 and 5, Whoops terminated the ill-starred plants in January 1982. In March 1983 the first lawsuits were filed by bondholders. The bonds were still technically good, backed by an unconditional contract, but their value in the market had dropped as much as 40 cents on the dollar. To some dealers, they were good speculative buys. As it turned out, the bottom was nowhere in sight. The bonds skidded to about 15 cents on the dollar when the Washington Supreme Court, on June 15, 1983, wiped out the contracts securing the bonds, and made default inevitable.

"I had to sit down; I was totally despondent," recalled Cyril Smith of Wood & Dawson, who calls the state Supreme court decision an example of "banana-republic jurisprudence." Said Brendan O'Brien, taking comfort in law reviews that have found "serious flaws" in the court's decision: "In every moral sense I thought those contracts were valid." Washington Supreme Court Justice Robert F. Brachtenbach said in a speech last spring: "We're in the business of interpreting the Constitution and not in the business of selling bonds." As bond trustee, Chemical Bank plans to appeal the decision to the U.S. Supreme Court.

And so it goes. Some months ago a power failure trapped lawyer Al Malanca in the federal courthouse in Seattle. The irony delighted more than a few lawyers. Malanca was on his way to a hearing to represent the Washington public utility districts at the core of Whoops. The question can be asked: Does responsibility for what happened to people like David Busuttil, Sara Stalvey, Ann Chast, Russel Radom, Jean Baron, Arletta Rodgers and H.H. Ferrell begin with Malanca's clients -- the ones who formed Whoops in 1957, governed as members of the board, and contracted for the bulk of the power Projects 4 and 5 will never produce?

Malanca snatched the cigar out of his mouth and sprang forward in his leather chair. The telescope in his office in downtown Tacoma was trained on the white mantle of Mount Rainier, and on a cloudless afternoon the mountain filled the window, a welcome sight vaulting over the land, above the complexity of lawsuits, beyond the Paper World.

"What do you want my people to do?" Malanca cried. "Do you want each one of them to stand up and say, 'Yes, I was stupid enough to sign these agreements, and yes, it's okay for you to crucify me personally while Jesus Christ and all these other bastards walk?' Is that what you want my people to do?"

The question lingered in the air.