re: #148 jaunte

Wall Street banks, notably socialist.

JP Morgan.

Sewer construction and bond swap controversy (Wiki)

Two extremely controversial undertakings by the county account for the majority of this debt. First was a massive overhaul of the county-owned sewer system, and second was a series of risky bond-swap agreements. Both have been scrutinized by federal prosecutors, with several former county officials convicted of bribery and corruption.[7][3]
A series of controversial interest rate swaps, initiated in 2002 and 2003 by former Commission President Larry Langford (removed as the mayor of Birmingham after his conviction[8]), were intended to lower interest payments, but have, in fact, had the opposite effect, increasing the county’s indebtedness to the point that officials have issued formal statements doubting the county’s ability to meet its financial obligations. The bond swaps are at the center of an investigation by the United States Securities and Exchange Commission.[9]
In late February 2008 Standard & Poor’s lowered their rating of Jefferson County bonds to “junk” status. The likelihood of the county filing for Chapter 9 bankruptcy protection has been debated in the press.[10] In early March 2008, Moody’s followed suit and indicated that it would also review the county’s ability to meet other bond obligations.[11]
On March 7, 2008, Jefferson County failed to post $184 million collateral as required under its sewer bond agreements, thereby moving into technical default.[12]
In February 2011, Lesley Curwen of the BBC World Service interviewed David Carrington, the newly appointed president of the county commission, about the risk of defaulting on bonds issued to finance “what could be the most expensive sewage system in history.” Carrington said there was “no doubt that people from Wall Street offered bribes” and “have to take a huge responsibility for what happened.” The system was repaired and upgraded a few years ago because of environmental problems. Wall Street investment banks including JP Morgan and others arranged complex financial deals using swaps. The fees and penalty charges increased the cost so the county now has $3.2 billion outstanding. Some county officials have been prosecuted for accepting bribes from bankers and are now in prison or awaiting sentence. Carrington said one of the problems was that elected officials had welcomed scheduling with very low early payments so long as peak payments occurred after they left office. The debt structure now was such that there was no way that 700,000 people could pay it back over 30 years. The job could have been done for somewhere between $1.2 billion and $1.5 billion but shouldn’t have cost $3.2 billion. Those selling the bonds weren’t interested in whether they could be repaid as they would have moved on. The county was not able to pay its bills and now needed to restructure its debts to avoid bankruptcy. Investors would lose out but hopefully innocent small investors would get 100%. The SEC has awarded the county $75 million in compensation relation to “unlawful payments” against JP Morgan and in addition the company will forfeit $647 million of future fees. Carrington said citizens had to elect the right people to avoid a repeat disaster. Officials must identify those responsible, including local investment bankers, and root them out. A characteristic symptom of wrongdoing is unaudited books, the county was three years behind with its auditing, new debts cannot be issued until auditing is complete and this could take 1-2 years.[13]