Jefferson County goes to war
November 10, 2011 6:47 AM Subscribe
Larry Langford was sentenced to 15 years in a federal prison in 2010 for his role in it. "It’s unclear how much Langford actually understood. Later he told the Securities and Exchange Commission that he wouldn’t know a swap advisor from a rubber band."
Yesterday, Jefferson County in Alabama declared bankruptcy, the largest municipality to do so. "The filing means the county has declared war on its creditors. "
Previously...
Yesterday, Jefferson County in Alabama declared bankruptcy, the largest municipality to do so. "The filing means the county has declared war on its creditors. "
Previously...
I was kind of distracted by the way those articles glossed over what what "Jefferson County, Alabama" is... after going to Wikipedia I learned it's the county seat of Birmingham, Alabama. Considering it only has a population of 650,000 and Orange County, Cal. has a population of nearly 3,000,000, I'm not understanding how this is bigger than the Orange County fiasco. But still, interesting news.
posted by crapmatic at 6:53 AM on November 10, 2011
posted by crapmatic at 6:53 AM on November 10, 2011
Orange County was 1.7 billion. This is 4 billion. (nytimes, so paywall might apply...)
posted by dig_duggler at 6:57 AM on November 10, 2011
posted by dig_duggler at 6:57 AM on November 10, 2011
How the hell does one county get 3 billion dollars in debt?
posted by empath at 6:57 AM on November 10, 2011
posted by empath at 6:57 AM on November 10, 2011
They are probably the largest municipality in the current crisis to file for bankruptcy.
posted by glaucon at 6:57 AM on November 10, 2011
posted by glaucon at 6:57 AM on November 10, 2011
How the hell does one county get 3 billion dollars in debt?
Dude, it's Alabama.
posted by Old'n'Busted at 7:03 AM on November 10, 2011
Dude, it's Alabama.
posted by Old'n'Busted at 7:03 AM on November 10, 2011
Easy enough to do when you own the cops.
posted by seanmpuckett at 7:05 AM on November 10, 2011
posted by seanmpuckett at 7:05 AM on November 10, 2011
How the hell does one county get 3 billion dollars in debt?
Previously. It's a fun read, so I won't spoil it.
posted by a robot made out of meat at 7:10 AM on November 10, 2011 [1 favorite]
Previously. It's a fun read, so I won't spoil it.
posted by a robot made out of meat at 7:10 AM on November 10, 2011 [1 favorite]
The filing means the county has declared war on its creditors.
If by "creditors" they mean "big banks and insurance companies" then I don't care what the county may or may not have done, I'm for it.
posted by DU at 7:10 AM on November 10, 2011 [6 favorites]
If by "creditors" they mean "big banks and insurance companies" then I don't care what the county may or may not have done, I'm for it.
posted by DU at 7:10 AM on November 10, 2011 [6 favorites]
empath, in addition to the previously this link from above does a pretty good job of the how-we-got-here mess from a single politician standpoint.
Vain, naive and pretty dumb politician with a lobbyist buddy + worst excesses and destructive financial tools of the 2000's + Wall Street seeing a giant mark = giant clusterf***
posted by dig_duggler at 7:13 AM on November 10, 2011
Vain, naive and pretty dumb politician with a lobbyist buddy + worst excesses and destructive financial tools of the 2000's + Wall Street seeing a giant mark = giant clusterf***
posted by dig_duggler at 7:13 AM on November 10, 2011
I don't know what it means for them to file bankruptcy. Do the creditors now collect the collateral?
posted by rebent at 7:14 AM on November 10, 2011
posted by rebent at 7:14 AM on November 10, 2011
Ah - this is the Jefferson County in Alabama. It might have been useful to mention that, since there are 24 other Jefferson Counties in the United States. Note to counties: if you were named after a famous old president from centuries ago, you are probably not the only one in the country with that name.
posted by koeselitz at 7:14 AM on November 10, 2011
posted by koeselitz at 7:14 AM on November 10, 2011
Sorry for the confusion, I have put in a request to clarify 'in Alabama' in the post.
posted by dig_duggler at 7:17 AM on November 10, 2011
posted by dig_duggler at 7:17 AM on November 10, 2011
Posting from Jefferson Parish, LA -- strangely, Louisiana does not have the problem koeselitz mentions.
posted by localroger at 7:18 AM on November 10, 2011
posted by localroger at 7:18 AM on November 10, 2011
Mod note: Added "in Alabama" per OPs request though you could have gotten that from reading any of the links as well. Carry on.
posted by jessamyn (staff) at 7:18 AM on November 10, 2011 [2 favorites]
posted by jessamyn (staff) at 7:18 AM on November 10, 2011 [2 favorites]
localroger: “Posting from Jefferson Parish, LA -- strangely, Louisiana does not have the problem koeselitz mentions.”
No, but I'll bet you have a lot of annoying misunderstandings with Jefferson Davis Parish.
Anyway, thank you for a good post on a heartbreaking subject, dig_duggler.
posted by koeselitz at 7:30 AM on November 10, 2011
No, but I'll bet you have a lot of annoying misunderstandings with Jefferson Davis Parish.
Anyway, thank you for a good post on a heartbreaking subject, dig_duggler.
posted by koeselitz at 7:30 AM on November 10, 2011
It's fun to see investment banks get screwed. It's less fun to see individuals' investment accounts get screwed. Municipal bonds are generally considered the safest form of US investment, what your grandma puts her retirement money in so that it pays a nice small interest rate (tax free!) and won't lose value. If enough municipalities go bankrupt it's going to hurt individuals a lot more than banks.
posted by Nelson at 7:33 AM on November 10, 2011 [1 favorite]
posted by Nelson at 7:33 AM on November 10, 2011 [1 favorite]
Bankruptcy when the creditors rejected your out of court restructuring offer is not "war." Its rule of law.
posted by JPD at 7:34 AM on November 10, 2011 [10 favorites]
posted by JPD at 7:34 AM on November 10, 2011 [10 favorites]
Watching this implosion as someone from the UK is interesting. We have something that looks like similar municipal budget fudging with something called Private Finance Initiatives (PFI) where the municipal governments appears to essentially rob their ratepayers for the next 20 to 50 years on behalf of a service corporation while the councillors pretend they are holding the line on taxes. The difference from the US is that the bills for these deals haven't really come due yet.
posted by srboisvert at 7:43 AM on November 10, 2011 [2 favorites]
posted by srboisvert at 7:43 AM on November 10, 2011 [2 favorites]
A similar scam has felled a number of French municipalities, who were sold "sophisticated" loans by Franco-Belgian bank Dexia, among others. Dexia, the result of an earlier merger between formerly staid French and Belgian muni loan specialists and retail banks has foundered under the sovereign debt crisis, but it was a mere intermediary (French link) between those municipalities and large investment banks such as JP Morgan.
posted by Skeptic at 7:47 AM on November 10, 2011
posted by Skeptic at 7:47 AM on November 10, 2011
It got 4bln in debt because large lenders bent every law and flouted every tenet of responsible lending to put them there. There was no thought given to how the county could ever hope to repay the bill, except that accounting gimmicks would perpetually stave off bankruptcy, while piling ever more debt on.
Why?
Bonuses are quarterly, that's why. You don't get paid for averting fiscal armageddon for your client in the future. You get paid for soaking them hard now.
posted by Slap*Happy at 7:52 AM on November 10, 2011 [22 favorites]
Why?
Bonuses are quarterly, that's why. You don't get paid for averting fiscal armageddon for your client in the future. You get paid for soaking them hard now.
posted by Slap*Happy at 7:52 AM on November 10, 2011 [22 favorites]
PPP/PFI's are generally scams, but they are different from municpal scams in the US. Much closer to the privatization of infrastructure -i.e. to a degree they disintermediate politics - which is both a plus and a minus.
Dexia is essentially an example of the way muncipal finance works in Europe. Rather than issuing bonds directly as we do in the US, much of Europe relies on specialized banks who have quasi government guarantees. Dexia was an example of one that had been privatized. The Liberation article is actually sort of misleading. Dexia was selling the products because they could generate higher margins on them, and then buying hedges to cover their risks from the bigger banks. It was a conduit for the big investment banks in the sense that the big banks were not selling directly to the municipalities.
Ths swiss franc based lending isn't a problem just in France and Dexia is not the only bank that pushed those loans, and yes the violate every prinicple of risk mitigation I can possibly imagine.
posted by JPD at 7:54 AM on November 10, 2011
Dexia is essentially an example of the way muncipal finance works in Europe. Rather than issuing bonds directly as we do in the US, much of Europe relies on specialized banks who have quasi government guarantees. Dexia was an example of one that had been privatized. The Liberation article is actually sort of misleading. Dexia was selling the products because they could generate higher margins on them, and then buying hedges to cover their risks from the bigger banks. It was a conduit for the big investment banks in the sense that the big banks were not selling directly to the municipalities.
Ths swiss franc based lending isn't a problem just in France and Dexia is not the only bank that pushed those loans, and yes the violate every prinicple of risk mitigation I can possibly imagine.
posted by JPD at 7:54 AM on November 10, 2011
Previously. It's a fun read, so I won't spoil it.
This link goes to a 404 on rolling stone's site (obvs not the mefi link..the link in the mefi link). Anyone have a way back machine link?
posted by spicynuts at 7:58 AM on November 10, 2011
This link goes to a 404 on rolling stone's site (obvs not the mefi link..the link in the mefi link). Anyone have a way back machine link?
posted by spicynuts at 7:58 AM on November 10, 2011
404 on rolling stone's site
Huh, they rearranged their archive, but still host the article.
posted by a robot made out of meat at 8:30 AM on November 10, 2011
Huh, they rearranged their archive, but still host the article.
posted by a robot made out of meat at 8:30 AM on November 10, 2011
I figured out pretty quickly that this was Jefferson County, Alabama. Although, I could easily see something like this happening in Jefferson County, New York.
posted by TheWhiteSkull at 8:47 AM on November 10, 2011
posted by TheWhiteSkull at 8:47 AM on November 10, 2011
So glad I moved my 401k out of mortgage-backed securities into municipal bonds.
posted by Devils Rancher at 9:12 AM on November 10, 2011
posted by Devils Rancher at 9:12 AM on November 10, 2011
Surely there must be some sort of tax cut that can fix this problem.
posted by LastOfHisKind at 9:16 AM on November 10, 2011 [4 favorites]
posted by LastOfHisKind at 9:16 AM on November 10, 2011 [4 favorites]
Bankruptcy when the creditors rejected your out of court restructuring offer is not "war." Its rule of law.
Yes, but to be fair the author is from a country where the rule of law has been seen as a refuge for terrorists for the last 10 years.
posted by Kid Charlemagne at 9:18 AM on November 10, 2011 [1 favorite]
Yes, but to be fair the author is from a country where the rule of law has been seen as a refuge for terrorists for the last 10 years.
posted by Kid Charlemagne at 9:18 AM on November 10, 2011 [1 favorite]
Bankruptcy when the creditors rejected your out of court restructuring offer is not "war." Its rule of law.
Not if the creditors might take a loss. The law in America is "The Bank wins." If the bank takes a loss, it's illegal and someone better go to jail goddammit.
posted by T.D. Strange at 9:23 AM on November 10, 2011 [1 favorite]
Not if the creditors might take a loss. The law in America is "The Bank wins." If the bank takes a loss, it's illegal and someone better go to jail goddammit.
posted by T.D. Strange at 9:23 AM on November 10, 2011 [1 favorite]
Come the fuck on. Companies file ch.11 all the time. Stop trying to make the decision (the right decision BTW) into something politicized.
posted by JPD at 9:40 AM on November 10, 2011 [2 favorites]
posted by JPD at 9:40 AM on November 10, 2011 [2 favorites]
A similar scam has felled a number of French municipalities, who were sold "sophisticated" loans by Franco-Belgian bank Dexia, among others.
You'd have to be pants on head retarded to start futzing around with loan interest rates linked to currency. It's basically servicing a loan denominated in the foreign currency while still being "payable" in the home currency so it still stinks like shit but that turd is awfully polished.
At the very least they should have looked into hedging this risk and say "well that's how much the loan will really cost" but we're getting a bit too far into Captain Foresight™ territory here.
posted by Talez at 9:41 AM on November 10, 2011
You'd have to be pants on head retarded to start futzing around with loan interest rates linked to currency. It's basically servicing a loan denominated in the foreign currency while still being "payable" in the home currency so it still stinks like shit but that turd is awfully polished.
At the very least they should have looked into hedging this risk and say "well that's how much the loan will really cost" but we're getting a bit too far into Captain Foresight™ territory here.
posted by Talez at 9:41 AM on November 10, 2011
Anyone not supporting the bankruptcy case probably doesn't know much about what happened in JeffCo. Read about the SEC case against JPMorgan and the fraud, corruption, and bribery cases against the county commisioner - it's ridiculous to think that taxpayers should be on the hook for a deal that was the result of legally confirmed fraud and bribery.
posted by speedgraphic at 9:58 AM on November 10, 2011 [5 favorites]
posted by speedgraphic at 9:58 AM on November 10, 2011 [5 favorites]
I think the original costs of the sewer infrastructure was around 3 billion before the bond swaps started.
You should know the infrastructure that was built did not meet the specs required and has failed over and over again. Many of the original contractors and five former county commissioners have been convicted for the graft/kickbacks that have surrounded this fiasco since the late nineties.
Here is an excellent overview of the whole mess.
posted by cinemafiend at 10:04 AM on November 10, 2011 [2 favorites]
You should know the infrastructure that was built did not meet the specs required and has failed over and over again. Many of the original contractors and five former county commissioners have been convicted for the graft/kickbacks that have surrounded this fiasco since the late nineties.
Here is an excellent overview of the whole mess.
posted by cinemafiend at 10:04 AM on November 10, 2011 [2 favorites]
I think the original costs of the sewer infrastructure was around 3 billion before the bond swaps started.
Worse, according to this cringe making time line. Like, only 1.5 billion.
Damn overruns will get you every time.
posted by IndigoJones at 10:12 AM on November 10, 2011
Worse, according to this cringe making time line. Like, only 1.5 billion.
Damn overruns will get you every time.
posted by IndigoJones at 10:12 AM on November 10, 2011
I suspect that they could have cut the cost significantly had they not made the manhole covers out of gold.
posted by wierdo at 10:12 AM on November 10, 2011
posted by wierdo at 10:12 AM on November 10, 2011
I grew up outside of Birmingham. I remember watching, very confused as a young teenager, Langford steamroll everybody to get VisionLand built. From what I could tell, there really wasn't much of an idea behind it besides "Six Flags over Fairfield" but much less fun-looking. I left Birmingham in 1999, but my family is still there along with many friends. I don't know of anybody who ever went there. (In fact, I had to check Wikipedia to ensure that it had actually ever opened to the public).
I really haven't followed Birmingham politics much, but growing up my family seemed to hold the view that pretty much the whole government was corrupt from the top down. The fact that Langford first won his City Council position on an anti-corruption campaign against a man "under investigation for using pass-through pork to enrich friends and his family" pretty much sums up how my parents view politics there. It's corruption all the way down. Possibly the most salient quote: "That position placed him in charge of the Finance Committee, along with Commissioners Gary White and Mary Buckelew. (All three commissioners have since been indicted or plead guilty to federal criminal charges.)" That article is like a who's who of politicians that I had always assumed were corrupt. And the fact that Richard Scrushy's name comes up isn't exactly surprising.
posted by This Guy at 10:51 AM on November 10, 2011
I really haven't followed Birmingham politics much, but growing up my family seemed to hold the view that pretty much the whole government was corrupt from the top down. The fact that Langford first won his City Council position on an anti-corruption campaign against a man "under investigation for using pass-through pork to enrich friends and his family" pretty much sums up how my parents view politics there. It's corruption all the way down. Possibly the most salient quote: "That position placed him in charge of the Finance Committee, along with Commissioners Gary White and Mary Buckelew. (All three commissioners have since been indicted or plead guilty to federal criminal charges.)" That article is like a who's who of politicians that I had always assumed were corrupt. And the fact that Richard Scrushy's name comes up isn't exactly surprising.
posted by This Guy at 10:51 AM on November 10, 2011
Speaking more to the corruption side of things: you know the story is going to be a good one when you read lines like The civil lawsuit revealed that Katopodis had spent charity money for personal expenses and once hired a gay porn star to work for him. (second link)
posted by selenized at 11:07 AM on November 10, 2011
posted by selenized at 11:07 AM on November 10, 2011
Living only about 150 miles away from this fiasco has me wondering if I too, should quake in my boots, as we've elected governor, a man who declared personal bankruptcy, has cronies out the ying-yang and is on record as being perfectly okay with his private companies being enriched with government money.
My favorite perk is that in exchange for advocating for a 30 million-dollar tax break for Delta Airlines, Mr. Deal and his wife have both been granted Diamond Medallion status.
Remind me again why I live in the South? Oh yeah, because it's like this everywhere.
Imagine the work Diogenes has to do in this day and age.
posted by Ruthless Bunny at 12:07 PM on November 10, 2011
This "declaring war on" analogy is getting fucking old and tiresome. It was old and tiresome in the 80s with the "war on drugs", it's only gotten moreso since.
posted by wilful at 2:11 PM on November 10, 2011
posted by wilful at 2:11 PM on November 10, 2011
I'm declaring war on the declaring war analogy!
posted by Devils Rancher at 2:13 PM on November 10, 2011 [4 favorites]
posted by Devils Rancher at 2:13 PM on November 10, 2011 [4 favorites]
Or we could roll it all it up one big one; "the war on each other".
posted by Dark Messiah at 3:20 PM on November 10, 2011 [1 favorite]
posted by Dark Messiah at 3:20 PM on November 10, 2011 [1 favorite]
The wealthy in Alabama are clearly paying a disproportionatly high amount of taxes.
posted by imjustsaying at 8:22 PM on November 10, 2011
posted by imjustsaying at 8:22 PM on November 10, 2011
Talk about municipal corruption is just about the only thing that makes me glad to live in Saginaw, Michigan, otherwise the poster child for decaying midwestern industrial cities almost on par with Detroit itself. But unlike Detroit, Chicago, Birmingham, or the other localities that are mired in neck-deep political corruption, we simply aren't, because there isn't enough money around to support all that much corruption. About while ago, before I can remember, a ballot initiative went through to general increases in tax assesments for thirty years. Instead, we have to vote for ever nickel-and-dime project and program as a millage on the ballot, which of course always fail because nobody will ever vote for their tax bill increasing by a nontrivial amount to pay for services which don't benefit them directly. That's why on Tuesday we rejected two millage proposals: one for maintenance and repairs to our crumbling City Hall, and another to continue providing special education services at their current level in our public shcools.
So, our city is falling apart. Our roads and buses are a joke, and City Hall will probably have to be abandoned as unsafe in the near future. But at least there's no money to dole out to political cronies. Being a Saginaw City Councilman is basically a hobby for the few rich folks whose houses happen to fall on this side of the city limit. They don't make any money, legitimitely or otherwise (though it's always fun to see outrage at the fact that they get City-payed cell phones, in addition to their $45 per meeting salary).
Basically, we're so fucked that we can't even afford corruption on a respectable scale.
The School Board, on the other hand, is crookeder than a barrel of fish hooks.
posted by LiteOpera at 5:22 AM on November 11, 2011
So, our city is falling apart. Our roads and buses are a joke, and City Hall will probably have to be abandoned as unsafe in the near future. But at least there's no money to dole out to political cronies. Being a Saginaw City Councilman is basically a hobby for the few rich folks whose houses happen to fall on this side of the city limit. They don't make any money, legitimitely or otherwise (though it's always fun to see outrage at the fact that they get City-payed cell phones, in addition to their $45 per meeting salary).
Basically, we're so fucked that we can't even afford corruption on a respectable scale.
The School Board, on the other hand, is crookeder than a barrel of fish hooks.
posted by LiteOpera at 5:22 AM on November 11, 2011
Isn't this a good thing? The corrupt government gets exposed for what it is, and hopefully a bunch of key people are retired or go to jail and are replaced with honest, competent civil servants. The scummy banks that took advantage of the corrupt government lose their money. Hopefully Alabama will enact reforms that make it impossible for this to ever happen again.
It's way better for a big scandal to burst than for a low-level scandal to go on for decades without any media attention.
posted by miyabo at 9:21 AM on November 11, 2011
It's way better for a big scandal to burst than for a low-level scandal to go on for decades without any media attention.
posted by miyabo at 9:21 AM on November 11, 2011
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posted by dig_duggler at 6:48 AM on November 10, 2011