Two of Maine’s highest ranking political leaders are demanding change in the way the state invests tax dollars after an investment linked to subprime mortgages tanked.

Gov. John Baldacci is among those reacting to the loss of $20 million invested by Maine into a short-term, high risk offshore fund called Main-Sail Two, WGME TV reported Tuesday.

The state made the investment in August at the recommendation of brokers at Merrill-Lynch, Channel 13 reported.

That fund was largely backed by subprime mortgages – loans made to people with questionable credit that’s led to the collapse of the real estate market and a record number of home foreclosures. Main-Sail Two defaulted and is unable to pay back the $20 million invested by the state.

Re-evaluated

State Treasury officials admit that it was a risky investment going in, but they thought it would be worth it, Channel 13 reported.

State Treasurer David Lemoine said the department will no longer invest tax dollars into such risky ventures. Channel 13 said that Merrill Lynch’s role as financial adviser to the treasury department is being re-evaluated because it was its advice that landed the state in the mess in the first place.

Baldacci said Tuesday that he is concerned about the situation, and plans to work with Lemoine to find a solution.

In the meantime, House Speaker Glenn Cummings says since it’s the people’s money, taxpayers should have more of a say in how their money is invested.

Both Baldacci and Cummings agree that future dealings with Merrill-Lynch are doubtful, the television station reported.