It looks like Governor Pataki and other politicians who have sought to play a double game — attacking tobacco and trying to lay their hands on its revenues — may be hoisted on their own petards. For Philip Morris is now threatening to file for bankruptcy after an Illinois court ordered the company to pay $10.1 billion in damages for misleading consumers that its light cigarettes were healthier than other cigarettes. The company would have to post a $12 billion bond by April 21 to appeal and may just have to file for protection under the bankruptcy laws.

In New York, Governor Pataki’s plan to issue bonds against the state’s future share of the Master Settlement Agreement of 1998 — in which the major tobacco manufacturers agreed to pay more than $200 billion over 25 years to 46 states and Puerto Rico — is in serious trouble. The Illinois case caused the S&P to put tobacco securitization bonds on credit watch negative. This means that there is a chance that these bonds will be junk.

When bonds are put on credit watch negative, two-thirds of the time they are downgraded. Further, on a conference call Monday, the S&P made it clear that the tobacco securitization bonds’ future was sketchy under any scenario. In the best scenario — Philip Morris makes this year’s payment of the MSA and doesn’t go bankrupt — the bonds stay on credit watch negative. If they make the payment and then go bankrupt, the bonds will probably be downgraded. Under the worst scenario — they don’t make the payment and go bankrupt — the bonds will almost certainly be downgraded.

So, whatever the future holds for Philip Morris, investors in tobacco securitization bonds have learned a lesson that will haunt that market permanently: Tobacco companies are simply too vulnerable to count on. The market is already operating on the assumption that, despite population growth, consumption of cigarettes will go down 75% in 40 years. Add to that excise taxes — another negative factor the S&P mentioned in that conference call — and anti-smoking laws, and you begin to get the impression that the idea of Mayor Bloomberg’s administration and other governments going into the tobacco business as a way of financing programs was a dumb idea.

The states and cities can’t have it both ways. They can’t assault the tobacco industry relentlessly and expect to live off the bounty of tobacco. There are a lot of decent Americans who enjoy cigarettes. These happen to include our GIs, incidentally. The wires are reporting the spectacle of our troops, risking their lives for us on dangerous fronts abroad, being forced to beg for smokes from the locals. It’s going to be something to see New York try to enforce its smoking ban when these GIs get home from the front.