As important as the news that the state will recoup all of a $20 million investment that quickly became almost worthless are the changes the state has made to its investment policies to ensure more independent oversight. This allows the state to gain the benefits of investment income while lowering its risks.

Late last year it was revealed that the state’s $20 million investment in Mainsail II, an off-shore fund run by a money management firm, was in jeopardy as the fund had dropped to junk status. The state made the investment on the recommendation of an approved broker at Merrill Lynch. When it made the investment last August, Mainsail II had top ratings from both Standard & Poor’s and Moody’s, as required by state investment protocol.

Within days the rating dropped to junk and Mainsail II’s assets were frozen. BusinessWeek wrote that the likelihood of such a precipitous drop was 1 in 100,000.

Still, Republican lawmakers called for State Treasurer Lemoine to resign and for the state cash pool to invest only in government-backed bonds, which pay much lower interest rates than investments. Even with much of the Mainsail II investment booked as a possible loss, the state’s cash pool earned more than $26 million in the last fiscal year.

Last week the state announced an agreement under which Merrill Lynch would ensure Maine got all of its $20 million back.

Here’s how Treasurer Lemoine described the resolution: “We do not think that the Mainsail II commercial paper should have been sold to the state. Merrill Lynch maintains that it did nothing wrong in connection with this transaction, but agreed to repurchase the paper to resolve this disagreement.”

Just as one purchase gone wrong didn’t mean the state should stop investing its money, the resolution of this situation doesn’t mean that the treasury didn’t need to revamp its policies and procedures.

Because of the Mainsail II problem, the state now has a cash pool investment design committee and a new independent investment consultant to review potential purchases. Having this review makes the state less reliant on ratings from agencies like Moody’s and S&P, which have been shown to be flawed by this investment and the sub-prime crisis. Analyzing what is in an investment portfolio and how it is structured is now more important than relying on ratings. The state’s Cash Pool Investment Advisory Committee also meets more regularly now.

The state’s holdings in a single investment like Mainsail II are now limited to $10 million, a reasonable compromise to limit the state’s potential losses.

These steps show the state learned valuable lessons from an investment gone bad, no matter who was to blame. Putting those lessons into practice is as important as the state’s getting all of its money back.