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"This is an open-and-shut case of anti-competitive behavior"
April 12, 2010 6:15 AM   Subscribe

"What happened here in Jefferson County would turn out to be the perfect metaphor for the peculiar alchemy of modern oligarchical capitalism: A mob of corrupt local officials and morally absent financiers got together to build a giant device that converted human shit into billions of dollars of profit for Wall Street" - "Looting Main Street" Matt Taibbi takes an in-depth look into how finance, deregulation, corruption, synthetic rate swaps, and greed decimated Birmingham, AL.

Taibbi expands on and answers criticism over at True/Slant
posted by The Whelk (42 comments total) 14 users marked this as a favorite

 
Free enterprise had had magnificent successes, far greater than the failed ideology of Marxism has ever had. Nonetheless, all the defects of capitalism which Marx described in the 19th century are real, and they are potentially just as disastrous as communism proved to be. All political and economic systems are subject to corruption and abuse. I can honsestly say, from my observation, that from the very moment any new system is implemented, people are already figuring out how it can be turned to their own personal benefit, at the expense of everyone else. Ironically, the end result of the Cold War is that both sides lose. Communism failed by 1980, and capitalism is failing 30 years later. We do have other competing models. Currently theocracy is making a big come-back in some parts of the world, but that is yielding even worse results. It is going to be quite a struggle to salvage human civilization, if that is even possible.
posted by grizzled at 6:34 AM on April 12, 2010 [1 favorite]


Communism failed by 1980, and capitalism is failing 30 years later.

Capitalism was failing 100 years ago. We managed to salvage something using regulation, but that got jettisoned. Interestingly, that happened in the 1980s...
posted by DU at 6:43 AM on April 12, 2010 [2 favorites]


But then Wall Street got really creative. Having switched the county to a variable interest rate, it offered commissioners a crazy deal: For an extra fee, the banks said, we'll allow you to keep paying a fixed rate on your debt to us. In return, we'll give you a variable amount each month that you can use to pay off all that variable-rate interest you owe to bondholders.

In financial terms, this is known as a synthetic rate swap — the spidery creature you might have read about playing a role in bringing down places like Greece and Milan. On paper, it made sense: The county got the stability of a fixed rate, while paying Wall Street to assume the risk of the variable rates on its bonds. That's the synthetic part. The trouble lies in the rate swap. The deal only works if the two variable rates — the one you get from the bank, and the one you owe to bondholders — actually match. It's like gambling on the weather. If your bondholders are expecting you to pay an interest rate based on the average temperature in Alabama, you don't do a rate swap with a bank that gives you back a rate pegged to the temperature in Nome, Alaska.

Not unless you're a fucking moron. Or your banker is JP Morgan.


Fucking moron is a bit harsh, but this is instructive.

The entire Tea Party movement seems to think there is virtue to putting the average Joe-sixpack/hockey mom into government, they love the idea of term limits and all sorts of restrictions that would prevent someone from making a career in government. They scoff at the idea of an "educated elite" having a role in government.

But they fail to appreciate that if you elect unsophisticated people to short-term assignments in government all you get unsophisticated people in short-term assignments working for government and then it is only reasonable to expect to see your limited government fucked by the unlimited corporations.
posted by three blind mice at 6:46 AM on April 12, 2010 [14 favorites]


... and then it is only reasonable to expect to see your limited government fucked by the unlimited corporations.
But that's a feature, not a bug.
posted by vivelame at 6:53 AM on April 12, 2010 [6 favorites]


Yeah, boys, take this down to Maleboge, #5. Care of a one "Malacoda." Invoice here says these tankers are nothin' but pitch. No word on the heating oil yet.
posted by adipocere at 7:05 AM on April 12, 2010 [2 favorites]


They scoff at the idea of an "educated elite" having a role in government.

Yes, because the solution to the wealthy graduates of elite schools looting the coffers of local government is to restrict the practice of local government to the wealthy graduates of elite schools. Hell, if they'd all gone to Choate together they could have relied on school spirit and class solidarity to reach their little understanding and J.P. Morgan wouldn't have needed to bribe the locals:
There was so much money to be made bilking these dizzy Southerners that banks like JP Morgan spent millions paying middlemen who bribed — yes, that's right, bribed, criminally bribed — the county commissioners and their buddies just to keep their business.
Never mind locking these fuckers up for fraud and collusion, what this really illustrates is the need to concentrate more power and money in the hands of the rich and powerful.
posted by enn at 7:14 AM on April 12, 2010 [2 favorites]


We're in the unfortunate and paradoxical predicament of simultaneously having too much and too little democracy. Too much, because every major overhaul of anything now requires bribing a majority of legislators in two houses; and too little because the actual voice of the people (left and right and centrist) is overwhelmingly in favour of not letting Wall Street run roughshod over the citizenry; but that voice never quite seems to get taken seriously.

It's been said before on MeFi, but it needs to be said again: this Tea Party, it is a failure of the Left. These are people who have been screwed over by their government and, Stockholm-syndrome-like, keep coming back for more pain. The Democratic Party, if it has acquired any sort of tactical or pragmatic skill, will keep hammering this point home: sensible regulation is the only sensible solution.
posted by tivalasvegas at 7:17 AM on April 12, 2010 [7 favorites]


Yes, because the solution to the wealthy graduates of elite schools looting the coffers of local government is to restrict the practice of local government to the wealthy graduates of elite schools.

No, but having the guy or gal who runs the local bar or real-estate agency whose anti-tax furor gets him or her elected to the local board of county commissioners negotiate with Wall Street investment bankers on a necessary and needed municipal bond is the sort of exercise in citizen-government that everyone should be spared.

"Synthetic rate swap? What's that?"

"Your monthly payment goes down for the next 11 2/3rds months."

"Just like the mortgage I have. Sounds good to me. Where do we sign."
posted by three blind mice at 7:29 AM on April 12, 2010 [3 favorites]


I don't understand what point you're trying to make, tbm. What's that got to do with being educated? These guys could have gone to the Kennedy School at Harvard and I bet they still would not have heard the phrase "synthetic rate swap" at any point during their schooling, unless they happened to graduate in the last year or so. That's what professional staffers are for. We don't expect elected officials to be licensed engineers before we let them approve a new bridge, either.
posted by enn at 7:35 AM on April 12, 2010 [2 favorites]


Fucking moron is a bit harsh, but this is instructive.
I don't know about instructive. In typical Taibbi fashion, he gives up explaining to switch to a ludicrous analogy (interest rates based on average temperatures--what?) followed by some swearing. We don't learn what the bankers were actually doing. Instead, we learn what Taibbi thinks it's like, and how angry he is about it.
posted by planet at 7:37 AM on April 12, 2010 [7 favorites]


(And, in any case, the fact that they had to be bribed to take these deals suggests to me that they did in fact have some kind of idea that what they were doing was not in the best interests of their constituents.)
posted by enn at 7:37 AM on April 12, 2010 [3 favorites]


Thanks, Whelk, for the link. Birmingham is my home town, and I'd heard a bit about this from relatives there, but really had no idea of the scope and magnitude of it.
posted by flapjax at midnite at 7:37 AM on April 12, 2010 [1 favorite]


Speaking of educated elite, don't miss Taibbi's takedown of David Brooks also on True/Slant:

But it strikes me that David Brooks actually enjoys his chosen profession. In fact, he strikes me as the kind of person who even in his spare time would pay a Leona Helmsley lookalike a thousand dollars to take a shit on his back.
posted by Esteemed Offendi at 7:45 AM on April 12, 2010 [1 favorite]


That's what professional staffers are for.

Oh, you mean "government bureaucrats." Yeah, pretty sure the tea-partiers hate them, too.
posted by (Arsenio) Hall and (Warren) Oates at 7:50 AM on April 12, 2010 [5 favorites]


I read Taibbi's articles mostly for that one line that I know will be in there somewhere that will make me almost shit my pants laughing.

Blount is a stocky, stubby-fingered Southerner with glasses and a pale, pinched face — if Norman Rockwell had ever done a painting titled "Small-Town Accountant Taking Enormous Dump," it would look just like Blount.

Annnnnd, there it is.
posted by The Straightener at 7:52 AM on April 12, 2010 [4 favorites]


Oh, you mean "government bureaucrats." Yeah, pretty sure the tea-partiers hate them, too.

Well, of course they do, they're morons. I'm certainly not defending them.
posted by enn at 7:52 AM on April 12, 2010


(The tea partiers, not the bureaucrats.)
posted by enn at 7:53 AM on April 12, 2010


Capitalism has flaws, no doubt about that, as does every other system. But it is far superior to any other alternative.
posted by republican at 7:59 AM on April 12, 2010


HEY-OH!
posted by The Straightener at 8:05 AM on April 12, 2010


"I don't know about instructive.

Yeah, there's a time for the snark born of righteous anger, and there's a time for "just the facts, ma'am". In this case, the mere story would've been able to speak for itself more eloquently than Taibbi's cutesy analogies and colour did.

On preview: "...for that one line that I know will be in there somewhere that will make me almost shit my pants laughing.

See, I get how this can be construed as highly amusing. But actually this was the point in the article where I rolled my eyes and started skimming. I'm not sure what this guy's apparently constipated-looking face, shorter-than-average fingers or rural Southern heritage has to do with the fact that he is a corrupt sleazeball.

I do have a sense of humour, really! maybe, there's just not enough coffee in my body yet....
posted by tivalasvegas at 8:06 AM on April 12, 2010 [1 favorite]


Blount is a stocky, stubby-fingered Southerner with glasses and a pale, pinched face — if Norman Rockwell had ever done a painting titled "Small-Town Accountant Taking Enormous Dump," it would look just like Blount.
posted by Pirate-Bartender-Zombie-Monkey at 8:11 AM on April 12, 2010 [6 favorites]


Free enterprise had had magnificent successes, far greater than the failed ideology of Marxism has ever had.

Marxism in the form of social democracy is the government of choice for the majority of developed states, and the legacy of social democracy can be directly traced back to Marx, right down to organizations such as the SI. But the first steps in dismantling class activism were to convince you that all Marxism was channeled into the Soviet legacy, and make you forget about working people's victories, and distrust the language used to achieve them.

You are being deceived.
posted by mobunited at 8:34 AM on April 12, 2010 [17 favorites]


Taibbi makes a compelling case, but the article suffers from a tendency to paint Birmingham as the hapless victim of evil forces. This view is too sympathetic. No one running the city of Birmingham or Jefferson County was qualified to lead. Not a single one of them. Corrupt, incompetent fools the lot. It is the county's own damn fault for electing patients to run the asylum.
posted by jefficator at 8:36 AM on April 12, 2010 [1 favorite]


That is a fascinatingly bad article about a fascinating subject.

I'd live to read an investigative piece without all the melodrama and bad analogies.
posted by madajb at 8:38 AM on April 12, 2010 [1 favorite]


An insane ultra-right wing guy I know (unfortunately) linked me to Taibbi's big anti-Obama article that was published late last year, and I can see him reading this and taking the exact same thing from it.

In fact, reading this if I didn't know Taibbi I would almost say that he could be a teapartier, or at least someone sympathetic with their intentions. The anti-enviromental thing especially.
posted by codacorolla at 8:39 AM on April 12, 2010


Capitalism has flaws, no doubt about that, as does every other system. But it is far superior to any other alternative.

Increasingly, what we have now isn't, strictly-speaking, capitalism. Or at least, that term is too broad to be useful in describing what we now have. Our system now, thanks to regulatory capture that's undermined the potency of anti-trust regulations and diminished the influence of the labor unions, is a particular form of Capitalism known as Monopolism, where large trusts (or in their modern legal form, corporations) are the primary economic players, rather than individual entrepreneurs. All those mergers we started hearing about back in the 80s through the late 90s, with all the associated talk about synergies and the vertical integration of the markets and what not? Yeah, that was all basically code talk for monopoly building. And now, in no small stroke of coincidence, we're starting to see the same patterns of disastrous economic outcomes as we saw back in the Gilded Age, when the original Progressive Movement began.
posted by saulgoodman at 8:59 AM on April 12, 2010 [4 favorites]


Two side notes on this story that have nothing to do with B'ham, but everything to do with the rampant corruption in many cities and the corporate tie-ins, as reported by Taibbi, and of course reported elsewhere by others.

Detroit Public Schools are going through a massive and by any measure much needed closing of schools. The Detroit Free Press ran a story this weekend on the depth of some of the graft & corruption. The gist: In 2005, DPS risk management official hires local company run by a friend "to educate roughly 3,000 employees on the benefits of a healthy lifestyle for $150,000." By 2006, the amount billed to DPS and paid by this risk management official ran up to $3.32 million and "fewer than 150 DPS employees had taken part in a health-assessment survey that was the key to the company's proposal." Here's where the corporate greed and malfeasance come in--Stephen Hill, the risk manager, had left DPS to take a job with Marsh McLellan, but still approved the payments to Associates for Learning, Washington's company.

Washington is small potatoes in the overall investigation of Hill, who is accused of bilking DPS for $57 million through an elaborate scheme of secret offices and hidden computers. Marsh & McLellan sort of defended Hill by saying that at the time he approved the payments, MMC had "loaned him" to DPS to (wait for it) do the same job he was doing while employed by DPS!

Yes, some enterprising folks figured out how to outsource their bureaucrats to corporations under the guise of saving money by privatizing and consolidating.

I don't mean to fault MMC directly here--but they symptomatic of the idee-au-courant that private enterprise saves local government money. Private enterprise is never in business to provide the public good at the most efficient (for the public) point. Not that it can't or doesn't happen, just that private enterprise is in business to maximize profit.

Here's point two: Recently, Michigan has had a spate of former government officials at all levels speaking out against the false promise of term limits--which were voted in nearly 20 years ago, and have been effectively in place for 12 (the first of the class of affected legislators reached their expiry date in 1998). These are former elected officials from all parties, and all wings of the parties, including former governors Jim "The Boy Guv" Blanchard and John "Dutch Boy" Engler. Why? Because, they say, with inexperience rampant and the long view of a life of service not in play, the lobbyists simply help get their "representatives" up to speed by providing them with pre-written legislation and cash-filled coffers for reelection.

I personally don't think the solution ultimately rests with a repeal of term limits or a ban on outsourcing. I believe it starts with teaching about personal responsibility and the public good, starting at birth, with setting examples at home and reinforced with teaching and with public service as a part of school curricula.
posted by beelzbubba at 9:03 AM on April 12, 2010 [3 favorites]


Taibbi is talking about this on Democracy Now today.
posted by homunculus at 9:04 AM on April 12, 2010


I read Taibbi's articles mostly for that one line that I know will be in there somewhere that will make me almost shit my pants laughing it really easy for detractors to dismiss him as a smirking, potty-mouthed kid.
posted by Halloween Jack at 9:11 AM on April 12, 2010


beelzbubba, teaching won't be enough, you need to put in place incentives (and their opposite, penalties) for good behavior. The Michigan term limits seems to be a case in point: there's no incentive for good behavior, personal responsibility and so on (and it's a stretch to teach, all the while praising corporations for being only about maximizing profit, eh..), and every reason to cut corners and not do the right thing.
posted by vivelame at 9:22 AM on April 12, 2010


I've got a friend who's a legislative attorney here in Florida, and he loathes term limits. I've had a lot of on-the-job experience myself with the political system in this state, and I can tell you, in my own experience, term limits have not had the intended effect, and have instead only made it easier for those who benefit from the pay-for-play system of political influence to get their guys into positions of power.

Why? Because when you have a lot of turnover in the system but can't rely on name recognition or political track-record to sort out who floats to the top, you end up with the best funded new candidates quickly floating to the top. And guess what kind of candidates tend to appeal most to the wealthy interests best positioned to marshal financial resources quickly in support of political unknowns?
posted by saulgoodman at 9:32 AM on April 12, 2010


To mobunited, who thinks that I have been deceived, it's true that there is a strong socialist element in many successful countries, particularly in Europe, although that too gets out of hand, as it has done in Greece (their situation might be described as a failure of both socialism and capitalism) and it's true that working people have had important victories, although I would not credit all of those victories to Marx. If Marx had not been a perceptive social critic I would not even have had reason to mention him in my previous comment - and note that I did say that his criticism of capitalism is valid. It is also true that any nation that has actually called itself Marxist (or Marxist-Leninist, or any other Marxist combination) has turned out to be a disaster. In that sense Marxism has failed. But in a broader sense, we do still have things to learn from Marx. No one has stampeded me into an anti-communist hysteria.
posted by grizzled at 10:24 AM on April 12, 2010 [1 favorite]


In typical Taibbi fashion, he gives up explaining to switch to a ludicrous analogy (interest rates based on average temperatures--what?) followed by some swearing. We don't learn what the bankers were actually doing. Instead, we learn what Taibbi thinks it's like, and how angry he is about it.

You do realize the latter is a perfectly valid use of the written word, right? That not all journalism is explanatory journalism? That Taibbi isn't even trying to do what Michael Lewis does - let alone what the business reporters at the Wall St. Journal do? I mean, you can argue about his skill as a reporter/essayist/satirist hybrid - me, I think he's one of the most insightful and flat-out funniest feature writers working today - but do you really think "wasn't enough like a dispassionate investigative piece" is a stinging rebuke?

Don't mean to go on about this, but it always pops up around here when Taibbi and journalist-provocateurs of his sort are linked on the blue. And I always wind up wondering whether these critics even understand what guys like Taibbi are trying to do. It'd be like routinely dismissing some web designer's eye-candy site for not being a very good file management tool.
posted by gompa at 10:53 AM on April 12, 2010 [4 favorites]


That not all journalism is explanatory journalism?

Of course not all journalism is explanatory, but Taibbi is tackling a complicated and (to most readers) previously unknown story. If he wants the reader to have a clue what he's talking about, he needs to explain it first. I know perfectly well what he's doing, it's just that he needs to do something else before he can do what he wants to do. He can be a "journalist-provocateur" all he wants, but unless I understand what he's trying to be provacative about, I'm not going to care, nor should I.
posted by Bulgaroktonos at 11:14 AM on April 12, 2010


I'm proud to have been "stampeded into an anti-communist hysteria" because I believe Socialism IS better than Pure Capitalism, and Big-C Communism is NOT Socialism. It is basically a Totalitarian system run by committees poorly disguised as Socialism. And despite its abject failure in Russia and its colonies (aka "Soviet Union"), which has been replaced by an honest, open Kleptocracy, Communism is still alive and too damn healthy in China, where the "introduction of Capitalistic elements" is not much more than a relatively cheap and efficient way to bribe entrepreneurial people into supporting the Totalitarianism. IMO, Marx would be ashamed of all the nations that arose using his name in vain, but Mao, being a solid Totalitarianist, would be proud of what his successors have done.
posted by oneswellfoop at 11:23 AM on April 12, 2010


We don't learn what the bankers were actually doing. Instead, we learn what Taibbi thinks it's like, and how angry he is about it.

aibbi is tackling a complicated and (to most readers) previously unknown story. If he wants the reader to have a clue what he's talking about, he needs to explain it first.


Did you read. the. fucking. article? Because the article I read explained the details of what occurred quite plainly and accessibly.
posted by HP LaserJet P10006 at 12:10 PM on April 12, 2010 [2 favorites]


To oneswellfoop, communism means a lot of different things to different people (it's a bit like arguing about God in that respect). In my opinion, China is not a communist state even though they still claim to be one. But Cuba is. And in Cuba, communism is a form of socialism, as well as a form of totalitarianism. In any event, communism, whatever it really is, did suffer a global decline around the year 1980. Socialism is still a very important element of global politics.
I might as well point out that some kind of blend of socialism and the free market seems to be the best economic strategy yet devised. Getting the blend right is a bit tricky.
posted by grizzled at 12:17 PM on April 12, 2010 [1 favorite]


I chuckle when people use the words "socialism" and "communism" (and "anarchism", let's be honest) as if they had singular, unitary meanings- almost always defined in terms of the USSR or Sweden.

Then I cry a little.
posted by Pope Guilty at 12:36 PM on April 12, 2010 [1 favorite]


Uh, I wasn't talking in some abstract feel good sense of Marxism being a big tent, and it meaning many things to many people, because that's bullshit.

Modern social democracy stems directly from the efforts of Socialist International. The SI is the direct descendant of the Second International, which grew from the First, and Marx's direct supervision. The Comintern, which people are popularly duped into thinking is Marxism, was an open splinter group created by Bolsheviks abandoning the Second International (see http://en.wikipedia.org/wiki/Zimmerwald_Conference).

In short, the average person's understanding of the history and success of Marxism is very, very wrong. Most people living in democracies live in places where Marxism *was* victorious to one degree or another. But this fact is inconvenient for many people who would be answerable to class conscious values if it was widely understood that these values shaped the institutions they run. Just look at goddamn UK Labour.
posted by mobunited at 5:57 PM on April 12, 2010


Marx was pretty clear on what he meant by "socialism". It was where the means of production were controlled by the proletariat. Any form of social democracy was a means of preventing (or more strictly delaying) the onset of socialism. So countries like Sweden are not socialist but the opposite.

Indeed, all modern developed states are doing all they can to stave off revolution by making whatever concessions are necessary. These concessions are about getting the best possible outcome for the ruling class. Sure you might think that capitalists would just want to deny the workers everything, but that would hasten the revolution and therefore not be in their real interest.

The big differences seem to be that in the US the revolution is prevented primarily by the use of propaganda whereas in places like Sweden it's done by actual distribution of some of the means of production.

No doubt a real Marxist will be along soon to give a better account.
posted by GeckoDundee at 7:07 PM on April 12, 2010


You can't even claim that "communism" failed economically in China. In the collective years between 1949 and 1978 the economy grew at a healthy clip and life expectancy more than doubled; at the same time the country created a greatly expanded industrial base and a military that was capable of taking on the imperialists in Korea and thereafter protecting the nation from the many perceived threats from overseas. But therein lies a clue to the actual failure, of politics. China followed the Soviet model of a developmentalist and productivist strategy (with some reason, as they considered that the nation had to be wealthy and strong to withstand attacks from the imperialist camp). Having limited options for primitive accumulation, this was achieved through the 'price scissors' that exploited the peasantry in favour of industry and urbanites. That the state was established in such a way to extract surplus from the peasantry lay behind the most famous failing of the PRC, the famines during the Great Leap, which were exacerbated by the grain quotas - both in the incentives the bureaucracy created for false reporting that set unsustainable quotas prior to the famine, and in the inflexible authoritarianism that saw continued attempts to extract grain even as the famine began to bite heavily in several of the most populous provinces.
Obviously, there's all sorts of arguments to be had about almost every aspect of the above; I'm setting it out in a bald short narrative mostly to add weight to the idea that the Cold War anti-communist narrative is reductionist in the extreme. We could as well be discussing the failings of 'actually existing capitalism', tied so inextricably as it was to endemic undernourishment in the colonised nations, expansionist warfare, aerial bombardment of peasant communities and the toppling of any regime that failed to serve the interests of capital's global ambitions if all we want is trite talking points rather than a look at what was actually going on.
And that brings us to Marx, because that's what he did - looked at what was happening in a world that even in his time was increasing dominated by capital and engaged in a serious attempt to analyse what it was and what made it different too what had gone before. His genius lay in providing an analysis of capital as a new type of social relation and in the way he showed how this relationship begins by first subsuming existing productive relations then moves on to a real subsumption where the totalising power of capitalist relations begin to shape our whole lives - in the globalising process this can be seen in the way that "modern" forms of time-keeping, work and even dress spread and dominate diverse societies in every corner of the world.
posted by Abiezer at 12:58 AM on April 13, 2010 [2 favorites]


well that was frankly unreal. great article, wtf subject. and i liked the swearing and explanations given.

this was a story i knew nothing about until today. just unbelievable.
posted by marienbad at 3:34 PM on May 6, 2010


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