High Finance Backfires on Alabama County (With a little help from JP Morgan)

New York Times ^ | 12 March 2008 | KYLE WHITMIRE and MARY WILLIAMS WALSH

[LomanBill]

BIRMINGHAM, Ala. — In 2002, a banker named Charles E. LeCroy arrived here with a novel pitch to ease taxpayers’ burden. Some Wall Street wizardry, he said, could lighten their load.

...

Six years on, officials here are still struggling to untangle the financial web that Mr. LeCroy and his fellow bankers spun. Jefferson County is teetering on the brink of bankruptcy after a series of exotic bond deals that the bankers concocted went wrong

...

During the last few years, Jefferson County entered into a series of complex transactions, called swaps, worth a staggering $5.4 billion. The accusations and recriminations are flying. Talk of Wall Street tricks — and local corruption — has captivated residents and left many wondering how the county will pay its bills.

...

At the heart of this story are Mr. LeCroy, who arranged many of the transactions; a Montgomery investment banker, William Blount, whose firm, Blount Parrish & Company, earned larger fees than any other adviser on the transactions; and Larry P. Langford, the local official who signed off on the deals.

...

As a managing director at JPMorgan Chase, Mr. LeCroy persuaded the county to convert its debt from fixed interest rates to adjustable rates. He also recommended that the county use interest-rate swaps that he said would protect it if interest rates rose.

...

 

[LomanBill]

"As a managing director at JPMorgan Chase, Mr. LeCroy persuaded the county to convert its debt from fixed interest rates to adjustable rates. He also recommended that the county use interest-rate swaps that he said would protect it if interest rates rose. "

 

Jefferson County Alabama is not Mr. LeCroy's and JP Morgans only municipal prey:

 

http://www.google.com/search?hl=en&safe=off&q=LeCroy+JP+Morgan+Philadelphia+Indicted&btnG=Search

[Sicon]

“Ya know what this county needs, sir? A monorail!”

[Ron Jeremy]

Look, fixed vs. floating is a pretty simple concept. Now, I know what JPM would have showed them, as I saw these pitches numerous times from 2002-2005 or so.

A very simple presentation showing that, over time, going variable is the right thing to do. You almost always end up ahead by going variable.

Sometimes you don’t, but, for various reasons X,Y, and Z, we, JP Morgan, don’t think that there is much of a threat of significantly rising interest rates.

That is all the pitch would have been. It’s not a difficult concept. Jefferson County took a bet, and lost. It’s their fault, not JPM’s.

[LomanBill]

"The money powers prey upon the nation in times of peace and conspire
against it in times of adversity.  It is more despotic than a monarchy, more
insolent than autocracy and more selfish than a bureaucracy.  It denounces,
as public enemies, all who question its methods or throw light upon its
crimes.  I have two great enemies, the Southern Army in front of me and the
bankers in the rear.  Of the two, the one at the rear is my greatest foe."

-- President Abraham Lincoln, letter to William Elkins, Nov 21, 1864

 

[LomanBill]

>>Jefferson County took a bet, and lost.

Based upon the advise of Mr. LeCroy.

Not a very honorable man, given his prison record.

[NVDave]

The problem here really goes like this:

Most politicians are really pretty simple-minded people. They’re not the sharpest tools in the shed.

And the closer you get to the local level, the more you find people who have NO idea of the intricate nature of modern finance.

So you get what we have here: A bunch of people who are familiar with modern financial products pitching high-risk products to people who still think that the banking system works the way it did in the 1930’s. The local pols see the immediate pot of money they get by selling a swap (or dabbling in some other instrument) and that’s where their attention span ends. They literally cannot foresee the net:net effects of “what happens if...?” They have the attention span of less than one term in office and this is where things bite them.

As such, political sovereigns should not be allowed to “invest” in such instruments - at all. The whole issue should simply be removed from the local level and legislated away.

[Ron Jeremy]

As such, political sovereigns should not be allowed to “invest” in such instruments - at all. The whole issue should simply be removed from the local level and legislated away.

fair enough, perhaps. But JPM shouldn't be sued for selling the same product they sell to every corporation out there.

[NVDave]

Yea, that’s true. I completely agree with you.

But we’re now a lawsuit-happy society. There’s nothing that can return us to the days of common sense prevailing before someone picks up a phone and dials a lawyer. Those days seem long gone.

To quote Ron White: “There’s no fixin’ stupid.”

And in politics in the US now, at all levels, we seem to have an “abundance of stupid.”

[bpjam]

BINGO!!!!

[em2vn]

Shades of Joplin, Missouri.

[AndyJackson]

monorail

Is that what you call one of those fence rails you carry the tarred and feathered bankers, consultants, attorneys and public officials out of town on?

[AndyJackson]

But JPM shouldn't be sued for selling the same product they sell to every corporation out there.

They were just trying to help out a struggling county raise some funds for a county project. Right!

[Ron Jeremy]

They were just trying to help out a struggling county raise some funds for a county project. Right!

Huh? No, they were trying to make money. So what? A customer takes a bet, and then sues if they lose on the bet? Why should JPM be held responsible for that?

[Sicon]

No, it's what a con-man would have (and probably could have, judging by the current situation there) sold to Jefferson County before the bankers came along to swindle them out of whatever they might have had left after the monrail deal was done.

I'm guessing Jefferson County is run be dimmocrats, but I could be wrong. Anyway, they probably could have been conned into buying something like this with the taxpayer's money. Hope this isn't a copyright infringment:

[Ron Jeremy]

Well, It Put Ogdenville, North Haverbrook, and Brockway On The Map.

[LomanBill]

 

So when LeCroy got indicted and pleaded guilty to municipal fraud in Philadelphia,  he was acting completely on his own? 

 

I guess for those of us in the peanut gallery, it's hard to separate the actions of Senior Corporate Executives, such as Mr. LeCroy - from the corporate entities they represent.

 

At Argent Mortgage the official line was "Do the right thing" - but the reality seemed to be more like "Do the right thing (nudge nudge wink wink) and don't get caught".

 

Does anybody in the financial industry understand the concepts of Truth and Honor these days?  Because, if so, it surely does not seem to be apparent upon observation of their actions.

 

This routine exploitation of the inequity in financial knowledge is repugnant and disgusting.   Whether done by a subprime boiler-room peon or by a managing director at JP Morgan Chase, as Mr. LeCroy was - it's still repugnant and disgusting.

 

 

This is the day after Memorial day.  Such behavior is a disgrace to the memory of every American soldier who has ever sacrificed in order to create the environment of freedom which these predators exploit. 

 

Is THIS what they died for?

 

 

 

 

[WarEagle]

Is Larry Langford a crook or a schmuck? The JPMC guy and Blount have raked in millions in commissions, and the SEC is alleging that Langford got $54,000 total in the deal.

I vote for schmuck.

What the article doesn't say is now he's Mayor of Birmingham. It will be interesting to see if the city manages to escape bankruptcy under his stellar leadership.

[Toddsterpatriot]

Based upon the advise of Mr. LeCroy.

They based such a huge decision on the advice of one man? A man who could get a large fee from their business? They're dumber than I initially suspected.

[LomanBill]

>>I vote for schmuck.

I vote for Judas Goat. Langford and his ilk have betrayed the fiduciary trust of their constituents and led them straight into the jaws of a financial meat grinder.

[LomanBill]

>>They’re dumber than I initially suspected.

Is the exploitation of stupidity honorable?