Even though I have read a number of accounts of the horrorshow of Jefferson County’s sewer financing fiasco, every time I go through a new one that it reasonably detailed, it still instills the same sense of rage. Rage not simply at the pervasive corruption – that’s bad enough – but that this predatory style of doing business is becoming increasingly acceptable (as witness the comments here that often defend it).
Municipal finance has long been a cesspool, but blatantly corrupt behavior was, not that long ago, for the most part limited to backwaters and bucket-shop operators. Now, it isn’t just Jefferson County, but pretty much every big-name financial firm is involved in multiple cases of stuffing local governments and their pensions funds, with derivatives that had all sorts of tricks and traps or toxic CDOs, sometimes with the liberal applications of bribes, sometimes merely with fast talk and omission of key details. Often, these government entities hired “experts” who simply sold them out for fat fees.
Matt Taibbi has a typical take-no-prisoners account of the fiasco, and one bit jumped out:
Given the shitload of money to be made on the refinancing deals, JP Morgan was prepared to pay whatever it took to buy off officials in Jefferson County. In 2002, during a conversation recorded in Nixonian fashion by JP Morgan itself, [JP Morgan banker Charles] LeCroy bragged that he had agreed to funnel payoff money to a pair of local companies to secure the votes of two county commissioners. “Look,” the commissioners told him, “if we support the synthetic refunding, you guys have to take care of our two firms.” LeCroy didn’t blink. “Whatever you want,” he told them. “If that’s what you need, that’s what you get. Just tell us how much.”
Just tell us how much. That sums up the approach that JP Morgan took a few months later, when [then county commissioner Larry] Langford announced that his good buddy Bill Blount would henceforth be involved with every financing transaction for Jefferson County. From JP Morgan’s point of view, the decision to pay off Blount was a no-brainer. But the bank had one small problem: Goldman Sachs had already crawled up Blount’s trouser leg, and the broker was advising Langford to pick them as Jefferson County’s investment bank.
The solution they came up with was an extraordinary one: JP Morgan cut a separate deal with Goldman, paying the bank $3 million to fuck off, with Blount taking a $300,000 cut of the side deal. Suddenly Goldman was out and JP Morgan was sitting in Langford’s lap. In another conversation caught on tape, LeCroy joked that the deal was his “philanthropic work,” since the payoff amounted to a “charitable donation to Goldman Sachs” in return for “taking no risk.”
That such a blatant violation of anti-trust laws took place and neither JP Morgan nor Goldman have been prosecuted for it is yet another mystery of the current financial crisis. “This is an open-and-shut case of anti-competitive behavior,” says Taylor, the former regulator.
Yves here. Now tell me, how come the other cops on the beat have swung into action but not the Department of Justice? Langford was found guilty on 60 counts and has been sentenced to 15 years in jail (despite being mayor of Birmingham at the time of his trial). Oh, and Langford is the fourth Jefferson County commissioner convicted on sewer-related charges. Blount was sentenced to 52 months (he testified against Langford). Jefferson County is suing JP Morgan, and the SEC has fined it $75 million and made it disgorge over $647 million of termination charges.
So where is the Department of Justice on the little bribe JP Morgan paid to Goldman to get lost? Or does the DoJ inaction have more than a little bit to do with the fact that Obama raised more money from the financial services industry than any previous presidential candidate?
Update: Taibbi has more commentary on his blog.