Feature Story In Rolling Stone About Jefferson County, AL…Does This Mean Jefferson County Is Cool?

Posted: April 4, 2010 in Politics
Tags: , , , , , , ,

Um, not quite.  Actually it is an article about the lousy financial mess Jefferson County got itself in.  So it pretty much means Jefferson County is the opposite of cool.  The article does go into detail of what went wrong (it’s Rolling Stone, so the article contains adult language):

Looting Main Street

Article Highlights (or Lowlights, depending on your perspective):

  • The article describes how this started with a leaky sewer system, but ended up leading to the decision to create the “most elaborate, ecofriendly, expensive sewer system in the history of the universe”.  In other words, the county decided to strive for a perfect system with no leaks.  What could go wrong?
  • “The original cost estimates for the new sewer system were as low as $250 million. But in a wondrous demonstration of the possibilities of small-town graft and contract-padding, the price tag quickly swelled to more than $3 billion.” Aw, crap!  Oh wait, that’s what got us in trouble in the first place!
  • Details how the county got into the synthetic rate swap business.  Apparently it is the same type of deals that have worked out so well for Greece.  This swap apparently was flawed from the get-go, because the basis of the rate from the banks was different from the basis of the rate for bondholders.  Apparently no one thought to ask what would happen if the bank interest rate return ended up way lower than the return rate owed to bondholders.  What could go wrong?
  • Of course, the reason “what could go wrong?” was never asked is because virtually all of our government leaders were on the take.  What could go wrong?  Who cares, I got a Rolex!
  • How lucrative was dealing with Jefferson County for bank JP Morgan?  When Goldman Sachs came sniffing around looking to get in on the action, JP Morgan cut Goldman a check for $3 million just to go away!
  • More evidence that this was lucrative.  JP Morgan would give Bill Blount, local sleaze ball, 15% of its fee for “not messing with us”.  But as they said, it was worth it for a “billion dollar deal”.
  • “The deals wound up being the largest swap agreements in JP Morgan’s history. Making matters worse, the payoffs didn’t even wind up costing the bank a dime. As the SEC explained in a statement on the scam, JP Morgan “passed on the cost of the unlawful payments by charging the county higher interest rates on the swap transactions.” In other words, not only did the bank bribe local politicians to take the sucky deal, they got local taxpayers to pay for the bribes.” It’s particularly worth it if you are not even paying for it!
  • At one point, Jefferson County had more outstanding bond swaps than New York City.  Population of Jefferson County?  660,000 or so.  Population of New York City?  Over 8.3 million.
  • We all find out what can go wrong in 2009, when penalty clauses start going into effect, turning an annual payment of $53 million to $636 million in just one year!
  • Oh, and that lousy swap deal set up with JP Morgan.  Turns out they had a clause where if the county missed a payment, they could terminate the contract.  The termination fee?  $647 million!!!!!!  (Fortunately the SEC charged JP Morgan with fraud and this fee was cancelled.)
  • Jefferson County’s total debt works out to be $4,800 per resident!

The article is an interesting read.  Think about this the next time local elections roll around.  They may not seem important.  But if you let idiots and criminals run the show, the mess that they create can be bigger and stinkier than the mess from the sewer system that they were in charge of cleaning up!

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