7 ms·

I live in Birmingham, so I need to correct a couple things. First, the "illegal" tax has been around a long time. In this particular case, it was overturned on

I live in Birmingham, so I need to correct a couple things. First, the "illegal" tax has been around a long time. In this particular case, it was overturned on a technicality [1]. However, because the state government is hostile to Birmingham, it has been impossible to replace the lost revenue. However, that's relatively unimportant, because the sewer budget is separate, and funded only by sewer system revenues. Secondly, the construction problems, common among massive public projects, really weren't the problem. The problem is that County Commissioners were BRIBED by bankers into taking out unwise interest rate swaps in 2003. I believe all five commissioners from that period have been convicted of corruption, particularly Larry Langford, commission president. [2] The reason for the bankruptcy is less that interest rates rose, but primarily the freezing of the market for municipal bonds during the 2008-2009 recession. Bloomberg explains, "After some bond insurers incurred losses on subprime- related securities, threatening the credit ratings they used to guarantee other Jefferson debts, investors in 2008 dumped the sewer securities on banks that had agreed to act as buyers of last resort. That triggered contractual requirements for the county to pay off $850 million of the debt in four years instead of the 30 or 40 under the original agreements, according to government records." [3] So it is clear that BOTH bankers and our local politicians are at fault for this problem. Both acted illegally. Our politicians are in jail, but the guilty bankers are not. So, yes, I think JP Morgan should pay a substantial penalty for this. 1: http://blog.al.com/spotnews/2011/03/alabama_supreme_court_rules_je.html http://blog.al.com/spotnews/2011/03/alabama_supreme_court_ru... 2: http://www.inthepublicinterest.org/case/jp-morgan-investment-consulting-fraud http://www.inthepublicinterest.org/case/jp-morgan-investment... 3: http://www.bloomberg.com/news/2011-11-09/alabama-s-jefferson-county-votes-for-biggest-municipal-bankruptcy-in-u-s-.html http://www.bloomberg.com/news/2011-11-09/alabama-s-jefferson...

yummyfajitas 15y ago
According to your link [2]: "The county paid $120 million in fees -- six times the prevailing rate - to buy interest-rate swaps from J.P. Morgan, Bank of America, Lehman Brothers and Bear Stearns. Within five years, the bad advice had increased the county's debt by $277 million." Hmm, let me do some quick arithmetic - is $277M < $3.1B? I believe it is, and I therefore stand by my claim that JP Morgan is not solely responsible for this problem. However, I'm all in favor of sending anyone involved in bribery to jail. It looks like the real problem is that the county decided to make long bets on housing and lost.
- UrbanPat 15y ago
  For the record, I'm certainly not saying that JP Morgan is the only responsible party. Clearly our politicians are at fault, and thus the voters as well. But if you'll read [3] (far more explanatory than [2] about the details), you'll see that the problem isn't the size of the debt that brought the county down -- it's the contractual obligation to pay it off early. You're right - the county did make long bets on housing. They attempted to expand the sewer system to growing areas to boost revenue. But the bankruptcy was primarily a result of the interest rate swaps. EDIT: The original reason for the debt was a court order to reduce the pollution from the sewer system. The county also tried to expand the sewer system at the same time to increase the revenue base. The debt was unavoidable (though larger than it could have been without the additional expansion). The interest rate swaps were applied to the debt later. These are what JP Morgan sold, and what caused the bankruptcy.
  - yummyfajitas 15y ago
    These are what JP Morgan sold, and what caused the bankruptcy. Yes, but that doesn't mean JP Morgan is responsible for the bad decisions of the county. Similarly, if the county bet $3.1B at the horse races, they'd have no right to go complain to the racetrack when their horse lost. That would be true even if the racetrack let some county employees sit in the VIP box.
    - yequalsx 15y ago
      JP Morgan bribed the officials. Your analogy is a bad one.
      - anamax 15y ago
        As as been pointed out repeatedly, the bribes were a small fraction of the total debt. The city got over $2B and that money is gone. The bankers didn't get it. It appears that the city pissed this money away. Why aren't they responsible for that?
        15y ago
prodigal_erik 15y ago
We don't think the county can pay off the bonds, so we'll demand they pay faster? What's the logic behind that cunning plan? Are they hoping to get paid early enough that the bankruptcy court won't claw back those payments?

yummyfajitas 15y ago

According to your link [2]: "The county paid $120 million in fees -- six times the prevailing rate - to buy interest-rate swaps from J.P. Morgan, Bank of America, Lehman Brothers and Bear Stearns. Within five years, the bad advice had increased the county's debt by $277 million." Hmm, let me do some quick arithmetic - is $277M < $3.1B? I believe it is, and I therefore stand by my claim that JP Morgan is not solely responsible for this problem. However, I'm all in favor of sending anyone involved in bribery to jail. It looks like the real problem is that the county decided to make long bets on housing and lost.

UrbanPat 15y ago
For the record, I'm certainly not saying that JP Morgan is the only responsible party. Clearly our politicians are at fault, and thus the voters as well. But if you'll read [3] (far more explanatory than [2] about the details), you'll see that the problem isn't the size of the debt that brought the county down -- it's the contractual obligation to pay it off early. You're right - the county did make long bets on housing. They attempted to expand the sewer system to growing areas to boost revenue. But the bankruptcy was primarily a result of the interest rate swaps. EDIT: The original reason for the debt was a court order to reduce the pollution from the sewer system. The county also tried to expand the sewer system at the same time to increase the revenue base. The debt was unavoidable (though larger than it could have been without the additional expansion). The interest rate swaps were applied to the debt later. These are what JP Morgan sold, and what caused the bankruptcy.
- yummyfajitas 15y ago
  These are what JP Morgan sold, and what caused the bankruptcy. Yes, but that doesn't mean JP Morgan is responsible for the bad decisions of the county. Similarly, if the county bet $3.1B at the horse races, they'd have no right to go complain to the racetrack when their horse lost. That would be true even if the racetrack let some county employees sit in the VIP box.
  - yequalsx 15y ago
    JP Morgan bribed the officials. Your analogy is a bad one.
    - anamax 15y ago
      As as been pointed out repeatedly, the bribes were a small fraction of the total debt. The city got over $2B and that money is gone. The bankers didn't get it. It appears that the city pissed this money away. Why aren't they responsible for that?
      - 15y ago

prodigal_erik 15y ago

We don't think the county can pay off the bonds, so we'll demand they pay faster? What's the logic behind that cunning plan? Are they hoping to get paid early enough that the bankruptcy court won't claw back those payments?