Brown Water and Red Ink In the Yellowhammer State

"If you want to get all Glenn Beck about it," Matt Taibbi writes in Rolling Stone, "you could lay the blame for this entire mess at the feet of weepy, tree-hugging environmentalists."

In this case, getting "all Glenn Beck about it" seems to mean "accurately stating what happened." In a very entertaining story on the travails of an Alabama county ordered by the Environmental Protection Agency to install a new water treatment facility, Taibbi calls the story of Jefferson County "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."

As you may have guessed already, a consent decree the county entered with the EPA, which was concerned about some fish native to a nearby river, ended up generating a massive debt-churning exercise in which corrupt local officials got richer (and many ended up going to prison), a small-scale project put the county $5 billion in debt, and local water bills ballooned from about $14 to more than $60 a month:

The original cost estimates for the new sewer system were as low as $250 million. But in a wondrous demonstration of the possibilities of small-town graft and contract-padding, the price tag quickly swelled to more than $3 billion. County commissioners were literally pocketing wads of cash from builders and engineers and other contractors eager to get in on the project, while the county was forced to borrow obscene sums to pay for the rapidly spiraling costs.

I understand Taibbi's appeal rests in large part on his style—a combination of extreme dudgeon, over-the-top ad hominems and lotsa cussin'—but I wish he would get out of his own way a little more. There's an interesting story in here, but in Taibbi's hurry to let you know that he's really really mad about stuff, the most interesting details get lost.

Jefferson County officials apparently were so reluctant to let utility customers know the true cost of the upgrade (padded out with whatever the politicians were five-fingering), that they refinanced the project's debt 23 times. That's a lot of refinancing, and it's possible that that alone could have exploded the cost by a factor of 12 or 20, but the narrative here doesn't make that very clear. What does come across is a string of old fashioned crookedness that Taibbi describes in a yokels-vs-city slickers dichotomy that includes phrasings like "dizzy Southerners" and "stocky, stubby-fingered Southerner," at least one comparison of Jefferson County to a crack addict, and descriptions of people getting both "bilked" and "bribed" (shouldn't it be one or the other?) by shady bankers:

[JP Morgan banker Charles] LeCroy paid [local fixer Bill] Blount millions of dollars, and Blount turned around and used the money to buy lavish gifts for his close friend Larry Langford, the now-convicted Birmingham mayor who at the time had just been elected president of the county commission. (At one point Blount took Langford on a shopping spree in New York, putting $3,290 worth of clothes from Zegna on his credit card.) Langford then signed off on one after another of the deadly swap deals being pushed by LeCroy. Every time the county refinanced its sewer debt, JP Morgan made millions of dollars in fees. Even more lucrative, each of the swap contracts contained clauses that mandated all sorts of penalties and payments in the event that something went wrong with the deal.

All well and good, but the meat of the narrative is in the synthetic rate swaps that allowed local officials to disguise how deep in the hole they were getting:

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…

It gets worse. Remember the swap deal that Jefferson County did with JP Morgan, how the variable rates it got from the bank were supposed to match those it owed its bondholders? Well, they didn't. Most of the payments the county was receiving from JP Morgan were based on one set of interest rates (the London Interbank Exchange Rate), while the payments it owed to its bondholders followed a different set of rates (a municipal-bond index). Jefferson County was suddenly getting far less from JP Morgan, and owing tons more to bondholders.

Maybe this is the first time local pols got in hot water by trying to mask the true costs of a wasteful public works project, and I'm sure the corrupt behavior of Langford and other politicians is unique in the Heart of Dixie's otherwise spotless 191-year history.  Taibbi argues that the bankers should be facing prison time too, and that this situation is an indictment of our whole "gangster state." He may well be right on both points, but the descriptions of the actual financial transactions are so opaque it's never clear what is old-fashioned local crime and what is symptomatic of large-scale crony capitalism. The narrative here quickly starts sounding like the story of how these big companies write everything off, because they know what a writeoff is, and they're the ones writing it off.