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.
Meanwhile, hundreds of thousands rot in jail for the voluntary consumption or disbursement of small amounts of plant material. This country is friggin nuts.
That’s exactly the kind of question anyone needs to ask if he still wonders how sincere this criminal administration and the Democratic party are about finance “reform.” (We already know about the Reps.)
And whenever you see the same party hacks out there telling the same lies they told about health “reform”, this is the kind of question to ask them.
Obviously, the stark fact of zero indictments, zero prosecutions, for the worst financial criminals in all of history is as clear as proof can ever be that this administration is an organized crime outfit itself which sees its role as protecting and facilitating these criminals.
The whole Bailout, the establishment of Bailout America itself, proves that.
Revile the kleptocracy, and revile all who support it or apologize for it. They’re enemies of humanity.
The 3 million bucks was donated by GS to the homeless puppies’ assocation of New York – they postponed the lethal injection of 6,000 cute helpless creatures by at least a week.
Where is the DOJ?
Come on Yves! Where do you think the DOJ could be, when the WH purposely do not invite the AG to meetings targeted to decide the venue (federal vs. military commission) trial of Khalil Sheik Mohamed?
Last time I checked, such a decision is exclusive province of the DOJ, right?
Not anymore! Starting with GW and proudly expanded by Obama, (read the excellent articles by Glenn Greenwald on this topic) justice is what the WH says it’ll be.
So, if the financiers are not to be touched, they won’t be touched. Period!
This country is royally fucked until proven otherwise.
While the DOJ might not have been in that meeting I sure bet Treasury officials were. To me it is obvious that Lower Manhattan was chosen as the location for that trial in order to justify having a huge security apparatus to protect – wait for it — Wall Street from potential demonstrations or worse. Look at a map and see just how close this courthouse is to the NY Fed, GS, and AIG and others. Here is a news report from ABC News on the subject:
Security is expected to include the closure of many streets around the court house, a very heavy uniformed police presence, snipers, heavy weapons teams, undercover police officers and a massive federal and local intelligence and counter terror operation.
While seductive, your hypothesis does not satisfy me entirely. I’m sure you are right in one respect: Wall Street big wigs must have asked for prevention of any manifestation.
That said, there are quite a few well connected people who have a big stake in pushing for an excessive role of the DHS.
Me think those people and the reichwing nuts left behind in the government apparatus by Cheney are exaggerating the security risks for nefarious reasons.
I’m still waiting for an explanation as to why we were able to prosecute and convict hundreds of terrorists on US soil (including the mastermind of the 1st attack on the WTC in 1993) thus far without any incident, and all of a sudden, the very thought of having KSM tried in NYC represent an clear and present danger to the existential core of this nation.
Does this gapping dichotomy make any sense to anyone? Not unless one take a look at the potential motives of some people within the National Security Apparatus.
To further substantiate what I wrote about the DOJ under Obama, see this:
I rest my case.
Short version: if we were in a “rule of law” place, Obama would have prosecuted the war criminals, and redeemed US credibility, instead of becoming the next war-crimes president.
America has gotten used to abrogated international treaties (illegal according to the US Constitution), to Bush’s “imperial presidency” wrapped in secrecy, to assassinations at home and abroad as a matter of course, and similar crimes RIGHT OUT IN THE OPEN! People are used to living in a moral sewer.
I am still not used to the idea that we murder in the name of a “War on Terror” as bogus as the War on Drugs, illegal from top (only Congress shall declare war) to bottom (mercenaries and torture, for instance are both illegal).
We’re like that frog in the pot of cool water that’s heated up ever so gradually until it, unnoticing, gets boiled.
OK — I don’t know whether that actually works on frogs, but it seems to be working on the US.
This blog helps me keep some grip on my sense of proper outrage in a world of sham realities and distracting fake concerns.
Sounds like you’re in the same boat — so I wrote you back!
This article reminds me what a friend of mine recently asked:
“Do you know the difference between the French and the American government?”
“The French government is afraid of their citizens, the American government is not”.
As Thomas Jefferson put it, “Where the government fears the people there is liberty; where the people fear the government there is tyranny.”
Well laid out!
The gleeful trot of government and finance into the exploitation of human nature and complexity has a long history and doesn’t end well.
You’re likely familiar with it but Joseph Tainter’s work ( http://en.wikipedia.org/wiki/Joseph_TainterJoseph ) “Collapse of Complex Societies” makes a good case of why collapse actually becomes the default optimal solution for a civilization. In a civilization’s early development each layer of complexity adds net value beyond the cost of that complexity.
But the net benefit with each additional layer of complexity becomes smaller until it becomes a net cost.
At this point one would hope that the civilization would start to simplify. However it doesn’t!
Increasing layers of complexity are added by an entrenched elite which gained its position due to network effects which allowed it to develop in the first place.
However complex systems aren’t static. The elite (who are no brighter than anyone else) don’t like change… and they keep adding complexity to address the problems they face.
But by this point complexity is added not to change and improve society… but rather in an attempt to preserve an untenable (and fictional) stability.
Until the inevitable happens.
(for a complex/chaotic system to persist its optimal state is a precarious balance between stasis and chaos called ‘criticality’… an excessive drive to stability actually promotes collapse)
I believe solution is possible. But it requires dealing with some realities that we don’t often consider.
This may be a bit obscure but it’s really a key…
The reason elites can develop and persist from a biological perspective… is inherent in each and every one of us:
It directly related to why it hits you much harder when your dog dies than when 100,000 people
die in an earthquake…
Don’t beat yourself over the head or try to deny it. I’m the same, we’re all the same. That doesn’t mean we don’t care… it’s just recognizing biology.
This has larger effects for the decision process in a scaled civilization than may at first be apparent.
P.S. My endeavor is (I believe) part of an approach to solution. The Individually-controlled/Commons-dedicated Account concept and business plan is much broader in impact and implication than may first be apparent.
It actually establishes the elements for empowered association via a distributed network ultimately outside of government’s ability to control. And does it via an innocuous, stealth-like evolutionary approach which then can also serve as a launchpad for new mechanisms for the allocations of social energy*… and it’s a simple idea.
*Social Energy = Individual & Group Decisions operating within the physical environment(decision=idea + an action).
Anyway, this is the stuff I’m playing around with in hope of finding some concurrence.
Tainter is associated with ecologists who write about Panarchy, which is concerned with explaining stability and change in natural and human ecological contexts. The central role of energy may help you: it takes ever increasing amounts of energy to run, maintain and grow a system. If the supply of energy declines, as is now happening, it becomes physically impossible to run, maintain and grow. Paulson, Bernanke,Obama et al are attempting through political/economy to overcome the laws of thermodynamics. This manifests as bailouts with borrowed and printed money -but there’s no enough energy to back it up.
lol…all voltage and no/low amps and we know how motors under strain react under those conditions.
Skippy…same applies to Ben’s printing press, velocity of money = cycles ramped up, with out amperage to push it down the line, when the sucking sound starts.
This article is a good summary of my personal opinion. No amount of financial “reform” will ever work as long as the government works for the financial thugs. The rules will never be enforced. So yes Yves your final paragraph is %100 accurate.
The DoJ is out to lunch. It has been out to lunch for a very long time, so long that the list of attendees has been revised many times.
Lets suppose that you want to arrogate authority so can manage the economy. One could begin by underwriting the abrogation of regulatory authority. There upon follows a financial crisis which is used as justification for ‘new’ laws, regulations and perhaps even a consumer protection agency. And therein lies increased government control.
Now comes the question of money, it is after all the demoninator of exchange. Debase it, execute a ZIRP. Saving is deterred, consumption is encouraged. Infact the encouragement to consume becomes such a powerful incentive that the body politic borrows excessively in order to consume today what will surely cost much much more tomorrow. What follows is another crisis, it too will not be wasted.
As regards financial fraud, the DoJ has been out to lunch for thirty years. Notably the SEC, the Comptroller of the Currency and the CFTC have been out to lunch with the DoJ. Oh there was a time once when one Brooksley Born said, Hey, we need to control this derivative business because there are systemic problems imbeded in the CDS and related contracts. But no, poor women, she got mugged for trying to do the right thing. It is also true that one Alan Greenspan was of the view that the prosecution of financial fraud was unnecessary because the ‘market’ would do its own policing.
I’m quite sure that the funding of election campaigns is included in the calculus of who to prosecute. I also believe that there is this incredible hubris that gives expression to the idea that a gagle of poltroons know better as to how ‘free market capitalism’ should operate, two hundred years of settled contract law be dammed.
Indictment would send the wrong signals to the financial markets. It might spook them and their fear could spike bond rates. We can’t have that.
I take as a given that your statement is correct that the DOJ has decided not to prosecute Goldman and JP Morgan for anti-trust law violations.
There are many reasons why a criminal prosecution might not be pursued. Political corruption is certainly one of them. But also the DOJ may have decided that there was insufficient evidence or little likelihood of conviction. The DOJ doesn’t have unlimited resources or time. In addition, the decision may be influenced by the fact that other Federal agencies (in this case, the SEC) might be pursuing the culprits on a theory of the case that is much more likely to succeed. In this case, the SEC did bring an action against JP Morgan and individuals who work for JP Morgan. JP Morgan settled without admitting guilt but the two individuals have not settled and think they will prevail in court.
In addition, the Assistant US attorney (DOJ) was quoted in the Tabibbi article, so presumably he was aware of the situation and may have assisted the SEC in its pursuit of JP Morgan.
But you could be right – this apparent lack of prosecution on the anti-trust/anti-competition basis may be politically motivated.
To clarify, I do not believe that JPMorgan “disgorged” $647 million in swap termination fees. Certainly, JeffCo was contractually obligated under the swap documents for that amount after JPM declared an Event of Default on the swaps, but JeffCo never paid that amount to JPM, which JPM could then disgorge. Rather, JPM agreed as part of the settlement to waive their contractual right to that termination fee. I point it out only to highlight that JPM walks away from the situation by rolling LeCroy and McFadden under the bus and coming out of pocket for $75 million – not the $700+ million number in some headlines. (Not that either number is terribly material to JPM.)
As to the DOJ, I would suspect that they are reviewing the pay-off of Goldman in their review of the evidence in the much broader municipal GIC and swap bid rigging case. Whether justice is served is another question.
Whoops, that was imprecise drafting, will amend the post.
Re why no action, you may be correct, that they are looking for bigger patterns, but I think a more mundane explanation is possible aside from the cynical one): even thought this was blatant, they don’t regard this as a big enough deal to bother with.
I agree, and that is our problem, but unfortunately it is G$’s, JPMorgan’s and The Federal Government’s solution. See my post at the bottom of yesterday’s Guest Post from the Washington Blog on Geithner.
The systemic propaganda is overwhelming as far as the average wage-earner is concerned in this country. They don’t even see it anymore, they just accept it.
If you’re curious, check out the first portion of the “Talk Of The Nation” show from yesterday, April 1, on NPR. First we are told by Ted Koppel and Senator Simpson that they are rational bi-partisan people, and then we get the usual gibberish that we are supposed to accept as normal and rational.
The system stinks right now and I wish there were more like Matt Taibbi (and you) out there in every part of the the Mainstream media.
Taibbi’s article and your take strikes me (not funny) that we are approaching African-level corruption, rampant and open save a veneer of pretense barely useful for those who want to claim ignorance. It’s the head of the fish that’s rotten, but the rot and lawlessness must inevitably trickle down. Horrifyng and heartbreaking.
Pam Martens at CounterPoint writes about the shredded rule book, Fed criminality and America’s broken meritocracy in “Obama’s Economic Brain Trust” http://www.counterpunch.org/martens04022010.html
ZeroHedge has also done a couple of pieces on JPM’s manipulatiion of the silver market, according to whistleblower Andrew Maguire, on a scale that could crash commodities and send precious metals into orbit.
All right, you nattering nabobs of negativity…stop your yammering and kvetching. Our two tier system of Justice (sic), Country of no laws for those on top, is jes’ fine, for those boys and girls in both parties. And speaking of parties, where did that Ukranian blond in leather go…one minute she was here, and the next she’s lapping up Karl Rove’s Reichstag drool.
I won’t quibble with Taibbi’s take on what went down with the financing – I cringe whenever I read about my local school board and the swaptions they’ve hooked us up to. But, I doubt Birmingham went out and built the proverbial $400 toilet seat just because. Taibbi mentions the low sewer rates from 1996, which coincidentally was around the time the DoJ and EPA went after numerous municipalities who were disgorging raw sewage into lakes and rivers. Obviously that needed to be remedied, but the sewer upgrades were likely done to comply with the safe drinking water act.
Birmingham has a proud history of shameless corruption regarding its infrastructure projects, FWIW.
Our country has lost its moral base…most insisted it be tossed out…truth they said no thanks deceit and lies are fine….justice they said not for me just for those in poverty…decency…they said are you kidding…I’ll do what’s good for me forget about others….and God…who’s He…just a fairytale….well guess what….we have what we wanted…..Come to me all you who are weary, I’ll give you rest, peace, and love….Your Creator…I’m game, care to join?