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Preheat oven to 350 degrees.
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Place bread in small bowl and combine with milk and egg to soak up moisture.
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In a small saucepan, melt 2 tablespoons of the butter; saute the onion until tender.
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In a large bowl, combine the bread mixture with the onion, beef, pork, salt, pepper, and nutmeg and mix well.
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Shape into 1 1/2 inch meatballs and arrange on a lightly greased broiler rack.
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Bake 25 minutes or until cooked through.
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In a large saucepan, melt the remaining butter and saute the garlic for 1 minute. Add the flour, stirring well.
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Cook 1 minute. Gradually add the broth, stirring until smooth; bring to a boil and stir in the tomato paste and basil. Remove from heat; gently stir in the sour cream and meatballs.
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Place over medium heat, stirring constantly, just until heated.
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Serve over buttered pasta or in a chafing dish as a first course.