Brown Water and Red Ink In the Yellowhammer State


Bill Blount showing off his stubby fingers.

"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.

Does this man look like a corrupt mayor to you?

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.

NEXT: Lean, Unlovely English

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  1. I can’t believe Rolling Stone still exists. Also, Matt Taibbi’s mom should have washed his mouth out with soap a few times, but she was always too busy sucking her daily mile of syphilitic cock. What a foul whore.

    1. Hey *I* don’t have syphilis. Oh wait…

      1. Poor Warty. All these years and his heart still bleeds for her.

  2. Predictably, he turns a story about local government corruption into a morality play about how capitalism is evil.

    Because all of those sainted government officials were just being corrupted by those heartless, greedy jews bankers.

  3. So the gov’t entered into a standard interest rate swap based on LIBOR, when they should have had a custom swap made based on muni bonds. They saved money by making it based on LIBOR, because there is tons of demand for that type. The banks probably already had several customers lined up on the opposite side of that trade. A custom muni-based swap would have required them to take the other side and hedge it, or seek out another person to sell it to. Naturally, the fees for the custom swap are much larger than the standard one.

    Anyhow, I was just a few hours ago bitching to my friends about how much I despise Taibbi’s writing because he refuses to let facts or context get in the way of his story.

  4. This is par for the course in Birmingham – politicians there think they can get away with murder. I remember one deal a few years back where the city sold a small plot of land to a politically connected individual for $90k, and then bought it back from him a year or two later for $900k – and no changes had been made to the land.

    Kevin is spot on in this one. Blame should be put on the pols, not the bankers…

  5. It’s especially ironic given that I’m getting a targeted ad telling me that I should re-elect Alabama Attorney General Troy King because he personally opposes gambling and thinks it’s a sin.

    1. It’s been a while since I read much of it, but wasn’t the Bible pretty clear that God was the guy who was to judge others? And didn’t he not appreciate it when humans thought they could take that role from him?

      Once again, I’m almost sad I’m an athiest and don’t believe in hell.

      1. Depends on which part of the Bible you quote.

        1. Inconsistencies? In my Bible?

          (It’s more likely than you think.)

  6. Behold the future of “green jobs”.

    1. Consider it beheld.

  7. Whatever happened to Kyle Witmeir?
    Where is he when we need him?
    He could write circles around Tabbi, while keeping the smut out, and still make it fun to read.
    Guess Birmingham just doesn’t deserve better.

  8. it’s never clear what is old-fashioned local crime and what is symptomatic of large-scale crony capitalism.

    yeah if we can only catch this crony capitalist guy, we’d be living in a libertarian dream state. i’m still waiting for my copy of reason’s “the end of corporate money in politics” edition.

  9. Apropos of Matt Taibbi, he last week wrote an article that somehow made me side with both Duke basketball and David Brooks at the same time. He’s persuasive, but not always intentionally so.

  10. This is why I had to stop reading Taibbi. It didn’t matter so much when he was wrong, because he was still entertaining. But his writings on the financial crisis are dull-witted.

  11. The funny thing about the Taibbi piece is that it could have been 10X as long and still not capture the amount of corruption and graft that were involved in the Birmingham sewer fiasco.

    Not particularly a Taibbi fan, but he did a fair job of identifying a number of the key points about this situation.

    The best summary of the entire deal for anyone who is interested is that over 20 private and government employees are in jail as a result building the sewer. And every single one of the local politicians in charge of refinancing the debt are also in jail.

    The question in my mind is why should the taxpayers of Jefferson County now be on the hook for almost 4 Billion dollars of debt when almost every penny of the debt is a result of bribery, graft, corruption, and malfeasance?

    The best estimates I have read put the legitimate construction costs of the sewer in the 250 million dollar range. My math puts that at about 6% of the total debt?.

    94% of the total bill is a hell of a finance charge!

    Not particularly a Taibbi fan, but he did capture a number of the key points about this situation.

    The best summary of the entire deal for anyone who is interested is as follows:

    1. Delete the last two lines!

  12. why should the taxpayers of Jefferson County now be on the hook for almost 4 Billion dollars of debt when almost every penny of the debt is a result of bribery, graft, corruption, and malfeasance?

    Declare bankruptcy and sell the county to the highest bidder (at pennies on the dollar).

  13. Yeah, nobody here in Alabama refers to it as the “Yellowhammer state.” Just sayin’.

  14. The question in my mind is why should the taxpayers of Jefferson County [insert state/county/municipality here] now be on the hook for almost 4 Billion [insert amount here] dollars of debt public sector pension liability when almost every penny of the debt is a result of bribery, graft, corruption, and malfeasance?

  15. But Bill Clinton said that government and public officials protect our freedoms!

  16. The corrupt politicians (bribees) are in prison. There is no story there. The story is that the investment bankers (bribers) are not even charged with anything.

    You left out the part about JP Morgan paying Goldman Sachs $3 million to get out of the way — clearly anti-competitive behavior. Also, you neglected to mention the wiretaps incriminating JP Morgan.

    Did you actually read the article?

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