Will: In lame defense of tax inversions

In defense of foreign tax inversions by U.S. corporations, conservative George Will is obliged to argue that company managers have an obligation to company shareholders to maximize returns. Yet this is an assumed obligation, not a legal obligation, and not necessarily a moral one either, as the case of social enterprises proves. 

Moreover, I haven't heard about any shareholders' meetings where the crowd clamored for the corporation to abandon America and set up shop in Ireland or the Bahamas. Or about a Wall Street corporate analyst who ever urged such? Have you?  

The public's urging corporations like Walgreen's to remain in the U.S. and pay taxes where they actually operate and retain their headquarters is likewise a moral argument. Which is a stronger moral argument, patriotism or maximizing shareholder value? That's for individual companies' directors to decide; but nobody should dismiss patriotism as irrelevant. Nor should conservatives like Will, so fond of moralizing in other contexts, criticize our leaders such as President Obama for first exercising moral suasion to curb tax inversions before resorting to the big hammers of legislation or executive orders.

Next, Will labels the "race to the bottom" (something I have written about often) as "entrepreneurial federalism." This term is the acme of goobledygook: take two unrelated words that mean something, cram them together, and forfeit the meaning of both. Conservatives like Will assure us all the time that government cannot be entrepreneurial; that's business's turf. And federalism refers to various forms of political organization where national sub-units are subordinated to the national government in some matters, but retain their right to act freely in others. Federalism has nothing to do with states' respective policies and incentives meant to attract capital investment; nor does federalism refer to interstate economic competition. So, put these two terms together and you get... nothing. (Tom Friedman probably wishes he'd thought of it first.)

Also, Will summarily dismisses the idea that corporations that get rich partly thanks to U.S. roads, ports and other infrastructure, the U.S. legal system, patent protection, U.S. trade negotiations, not to mention U.S. public schools that educate their workers to be the most productive in the world, have some moral obligation to the U.S. to pay taxes or give something back. Corporations aren't people! say progressives. So Will replies, Then non-people cannot have any moral obligations!  Such petulance is typical of Will. 

Moral obligations are of the company's directors, primarily, and secondarily of the shareholders to keep the directors in line. Moral obligations are not necessarily legal obligations. Whereas the Citizens United and the Hobby Lobby cases turned on whether corporations had some of the same legal (First Amendment) rights as people: to make political donations and practice religion, respectively. Morality and law should not be conflated.

Beyond that, Will unwittingly offers up two contradictions in his own op-ed, and perfectly illustrates why the U.S. cannot win the race to the bottom. 

First, he tells the story how Airbus located a subsidiary in Alabama, a right-to-work state, "because capital, being mobile, goes where it is wanted and stays where it is treated well." Will picked an unfortunate example, because Airbus, as a consortium of European aviation firms, is heavily dependent on EU subsidies and contracts for its survival. Moreover it is headquartered in France. And Airbus employs over 60,000 workers in pro-union, "socialistic" Europe.  So Airbus would never dare to "invert" outside the EU to win some tax benefits! Obviously, multinational companies make their plans based on much more than tax rates and cost of wages.

Second, he tells the story how Maytag moved its production from Illinois to Mexico because, allegedly, Illinois was not a right-to-work (read: anti-union) state. Yet he doesn't attempt to explain why Maytag didn't move to a right-to-work state instead. Because he can't. Because no matter how low wages and taxes will be in Alabama or elsewhere, they will always be lower in some poorer, developing nation.  The U.S., the largest economy in the world, cannot hope to attract and retain businesses by trying to be "poorer" than poorest nations; or lower its taxes to the rates of tiny islands like Bermuda or New Zealand.  That's idiotic. Yet that's just what conservatives like Will advise: "the sensible corporate tax rate would be zero." Whoa! "This is so because," explains Will, "corporations do not pay taxes, they collect them, necessarily passing on the burden as a cost of doing business."

Hmm... I suppose that likewise, ordinary citizens do not actually pay taxes; they simply collect them from their employers, passing on the burden as a cost of staying alive.

Moreover, the Maytag example betrays Will's muddled thinking: he starts out discussing tax inversions, then switches to unions and labor. These are completely separate issues! Indeed, Walgreen's and other tax inverters have not publicized any plans to shut down their U.S. locations; they simply wish to re-locate on paper, for the tax benefit. And in fact Whirlpool Corporation, which owns Maytag, is based in Benton Harbor, Michigan, not Bermuda or Ireland.

Will's lame defense of tax inversions betrays an inverted worldview unfortunately shared by many conservatives: Government is but a burden and an annoyance barely tolerated by corporations, for whom the nation exists.  

This is not to say that the nation exists to serve the government. No.  Even so, I'll put Big Government above Hobby Lobby, Walgreen's or the Kochs any day, because at least I have some say in what my government does; and government is legally accountable to all its citizens, not just the wealthy.

In a stew over inversions

By George Will

August 15, 2014 | Washington Post

URL: http://wapo.st/Vt8dhN

An annual tradition: And the poorest states are...

In 2013, I neglected one of my annual rituals: reminding everybody that the poorest U.S. states vote Republican. Nine out of 10, to be exact, and that's backed up by PolitiFact.  Here it is, the Top 10 list of shame:  

10. Oklahoma

9.  South Carolina

8.  Louisiana

7.  Tennessee 

6.  New Mexico - The only state in the top 10 not in the South. West side represent!

5.  Kentucky - Just like in neighboring Tennessee, 1/4 of children live in poverty.

4.  Alabama - Median household income: $41,574, despite having the lowest property tax, and being the second most religious state.

3.  West Virginia

2.  Arkansas

1.  Mississippi - Median household income: $37,095. Official motto: "Making other states feel better about themselves."

Next in the ritual comes the part when I remind you how Red States are also more likely to be federal welfare queens, i.e. they receive more federal money than they pay to Washington in taxes.

This year I'll offer a rebuttal to that: Granted, if you look at all elections, or number of registered Republicans, and not just how these states voted in presidential races, then defining a "Red State" gets trickier. But since Republicans and Democrats use the same Red-Blue state labels, that argument doesn't hold much water with me.  

Finally, I conclude this ritual by lamenting all those poor, hypocritical reactionaries in Flyover Country who vote against their own economic interests.

Till next year!....

NRA and the next Civil War

[Sigh].  I debated with myself whether to comment on the first speech of new NRA President and Alabama good old boy Jim Porter.

I mean, he's obviously following the new NRA playbook which is to sound as inflammatory as possible, scare as many gun owners as possible, in order to sell as many expensive, militarized firearms as possible to a shrinking pool of gun-owning households.

But Big Jim went over the top.  He flirted with Birtherism.  He sided with Iran, N. Korea and Syria in opposing the UN small arms treaty that concerns arms dealers, not citizens.  But worst of all, he brought up the Civil War.  That tore it.

Sure, give a crusty old Alabaman a mic and a national audience and he's going to mention either Bear Bryant or the Civil War. I get it.

But he told a bald lie: that "down South," they call the Civil War the "War of Northern Aggression."  I'm from the South, I lived 4 years in Alabama, and I never heard anybody call it that, not even a so-called Professor of Southern Studies.  

But even worse was his obvious implication: that another Civil War is coming. Between North and South, or Blue and Red states, or urban and rural counties, or a disappearing white majority and everybody else.  It's being fought on all those fronts and more.

This is indeed where we're headed, folks.  And remember, 29 percent of Americans think armed insurrection against our government may be necessary.

Understand, I'm not terribly worried about real armed rebellion, although enough violent kooks will take matters into their own hands.  No, such polls are a testament to the violence being committed against our political culture, our sense of national unity.  Our nation is being torn apart, politically, and increasingly, culturally.  It was already divided economically and ethnically.    

What's going to hold us all together?  What do we all agree on anymore?  How are we going to solve our real problems, like persistent unemployment (especially youth unemployment), ballooning student debt, caring for our elderly, addressing the rising cost of health care and education, wrapping up two disastrous wars, and having a long-term plan for our budget and national debt?  And when will we ever have a chance to talk about all this without killing each other?

Partly, I think it's the media's fault; they've been divided for a long time, because sensation and shouting is better for their ratings.  The media, especially cable news and talk radio, spend hours a day trying to get us all riled up about stupid shit like birth certificates so that there's no time left to talk about substance.  It's a distraction technique, it creates an addiction to anger and a belief in quick, easy answers, and it works terribly well.  That's why I was hesitant to even comment on Jim Porter's buffoonish remarks that were meant to divide us.

But it's also our fault.  Or mostly our fault.  Yes, ordinary Americans.  When there is no occasion or need for liberals, conservatives and independent to talk to each other anymore, then rigid stereotypes and political caricatures replace "the other guy," the cable-radio echo chamber replaces citizens' dialog and debate, and civility breaks down.  

When I'm at home in the South, which isn't often these days, and politics comes up at a gathering of polite semi-strangers, (for me, that's usually in a bar), at the first opportunity I tell the other guys, usually Republicans, "I have to admit, I'm a big lefty liberal and I voted for Obama twice."  After they get over the shock of my admitting that so openly on "enemy" territory, with a smile on my face, the conversation usually goes pretty well.  Nobody has yet spit on the ground and walked away.  

We usually end up agreeing we share most of the same values, like the importance of family, hard work, liberty, tolerance and neighborliness... as well as taking care of our weak and unfortunate brothers and sisters.  

What we certainly disagree about is how our common values should be expressed in terms of government policy.  But it makes for an entirely different and more productive conversation when we seek to define common ground, and don't start the discussion with "liberals hate America," or "conservatives are Nazis."  

The point is that it's OK to be partisan, it's OK to have strong opinions, as long as we're honest, forthright, fair and we listen.  That's the essence of civility.  We used to have that in America.  I hope we haven't lost it, myself included.

Meet Your New NRA President-A Man Still Fighting The Civil War From The Losing Side

By Rick Ungar

May 3, 2013 | Forbes

URL: http://www.forbes.com/sites/rickungar/2013/05/03/meet-your-new-nra-president-a-man-still-fighting-the-civil-war-from-the-losing-side/

Racist tweets against Obama mostly from Alabama - SHOCKER!

And a nice death wish for our lawfully elected POTUS from Alabama to boot:

UPDATE: This loss isn't going to help.  Now, with no hope for a BCS title, Alabamans have nothing to live for.  One of them might say, "Aw, f--k it" and do something drastic.

Obama Effigy with the Words ‘Pray 4 Assassin’ Spotted in Alabama

By Neetan Zimmerman

November 9, 2012 | Gawker

URL: http://gawker.com/death-threat/

1/3 of Alabamans on food stamps

This makes perfect sense (?!?) because Alabamans hate lazy welfare queens and Big Government, and love the GOP and Tea Parties.

Nearly third of Alabamians receive food stamps

August 7, 2011 | Associated Press

Nearly one-third of Alabama's residents received food stamps in May.

The state Department of Human Resources reports there were a record 1.43 million Alabamians in the Supplemental Nutritional Assistance Program. The number was higher than normal because 43 of Alabama's 67 counties were receiving disaster assistance due to the deadly tornadoes in April.

While the tornadoes had a big effect, the number of Alabamians on food stamps has been growing in recent years. Department spokesman Barry Spear told the Montgomery Advertiser (http://bit.ly/quyHuy ) that the number of Alabamians in the program grew from more than 546,000 in fiscal year 2006 to 805,000 in fiscal year 2010.

Spear said rising unemployment is a factor, along with efforts to make more people aware that they can qualify for the assistance.

Apr. 27 in Tuscaloosa, AL

Source: AP

Taibbi: How Wall St. bribed and looted Birmingham

Meanwhile Glenn Beck and the teabaggers are spitting mad at "progressives." That's like yelling at the firemen for trampling your lawn as your house is on fire!


Looting Main Street
How the nation's biggest banks are ripping off American cities with the same predatory deals that brought down Greece

By Matt Taibbi
March 31, 2010 Rolling Stone

If you want to know what life in the Third World is like, just ask Lisa Pack, an administrative assistant who works in the roads and transportation department in Jefferson County, Alabama. Pack got rudely introduced to life in post-crisis America last August, when word came down that she and 1,000 of her fellow public employees would have to take a little unpaid vacation for a while. The county, it turned out, was more than $5 billion in debt — meaning that courthouses, jails and sheriff's precincts had to be closed so that Wall Street banks could be paid.

As public services in and around Birmingham were stripped to the bone, Pack struggled to support her family on a weekly unemployment check of $260. Nearly a fourth of that went to pay for her health insurance, which the county no longer covered. She also fielded calls from laid-off co-workers who had it even tougher. "I'd be on the phone sometimes until two in the morning," she says. "I had to talk more than one person out of suicide. For some of the men supporting families, it was so hard — foreclosure, bankruptcy. I'd go to bed at night, and I'd be in tears."

Homes stood empty, businesses were boarded up, and parts of already-blighted Birmingham began to take on the feel of a ghost town. There were also a few bills that were unique to the area — like the $64 sewer bill that Pack and her family paid each month. "Yeah, it went up about 400 percent just over the past few years," she says.

The sewer bill, in fact, is what cost Pack and her co-workers their jobs. In 1996, the average monthly sewer bill for a family of four in Birmingham was only $14.71 — but that was before the county decided to build an elaborate new sewer system with the help of out-of-state financial wizards with names like Bear Stearns, Lehman Brothers, Goldman Sachs and JP Morgan Chase. The result was a monstrous pile of borrowed money that the county used to build, in essence, the world's grandest toilet — "the Taj Mahal of sewer-treatment plants" is how one county worker put it. 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 — and misery for people like Lisa Pack.

And once the giant shit machine was built and the note on all that fancy construction started to come due, Wall Street came back to the local politicians and doubled down on the scam. They showed up in droves to help the poor, broke citizens of Jefferson County cut their toilet finance charges using a blizzard of incomprehensible swaps and refinance schemes — schemes that only served to postpone the repayment date a year or two while sinking the county deeper into debt. In the end, every time Jefferson County so much as breathed near one of the banks, it got charged millions in fees. 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. Hell, the money was so good, JP Morgan at one point even paid Goldman Sachs $3 million just to back the fuck off, so they could have the rubes of Jefferson County to fleece all for themselves.

Birmingham became the poster child for a new kind of giant-scale financial fraud, one that would threaten the financial stability not only of cities and counties all across America, but even those of entire countries like Greece. While for many Americans the financial crisis remains an abstraction, a confusing mess of complex transactions that took place on a cloud high above Manhattan sometime in the mid-2000s, in Jefferson County you can actually see the rank criminality of the crisis economy with your own eyes; the monster sticks his head all the way out of the water. Here you can see a trail that leads directly from a billion-dollar predatory swap deal cooked up at the highest levels of America's biggest banks, across a vast fruited plain of bribes and felonies — "the price of doing business," as one JP Morgan banker says on tape — all the way down to Lisa Pack's sewer bill and the mass layoffs in Birmingham.

Once you follow that trail and understand what took place in Jefferson County, there's really no room left for illusions. We live in a gangster state, and our days of laughing at other countries are over. It's our turn to get laughed at. In Birmingham, lots of people have gone to jail for the crime: More than 20 local officials and businessmen have been convicted of corruption in federal court. Last October, right around the time that Lisa Pack went back to work at reduced hours, Birmingham's mayor was convicted of fraud and money-laundering for taking bribes funneled to him by Wall Street bankers — everything from Rolex watches to Ferragamo suits to cash. But those who greenlighted the bribes and profited most from the scam remain largely untouched. "It never gets back to JP Morgan," says Pack.

If you want to get all Glenn Beck about it, you could lay the blame for this entire mess at the feet of weepy, tree-hugging environmentalists. It all started with the Cahaba River, the longest free-flowing river in the state of Alabama. The tributary, which winds its way through Birmingham before turning diagonally to empty out near Selma, is home to more types of fish per mile than any other river in America and shelters 64 rare and imperiled species of plants and animals. It's also the source of one of the worst municipal financial disasters in American history.

Back in the early 1990s, the county's sewer system was so antiquated that it was leaking raw sewage directly into the Cahaba, which also supplies the area with its drinking water. Joined by well — intentioned citizens from the Cahaba River Society, the EPA sued the county to force it to comply with the Clean Water Act. In 1996, county commissioners signed a now-infamous consent decree agreeing not just to fix the leaky pipes but to eliminate all sewer overflows — a near-impossible standard that required the county to build the most elaborate, ecofriendly, expensive sewer system in the history of the universe. It was like ordering a small town in Florida that gets a snowstorm once every five years to build a billion-dollar fleet of snowplows.

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. Jefferson County, in effect, became one giant, TV-stealing, unemployed drug addict who borrowed a million dollars to buy the mother of all McMansions — and just as it did during the housing bubble, Wall Street made a business of keeping the crook in his house. As one county commissioner put it, "We're like a guy making $50,000 a year with a million-dollar mortgage."

To reassure lenders that the county would pay its mortgage, commissioners gave the finance director — an unelected official appointed by the president of the commission — the power to automatically raise sewer rates to meet payments on the debt. The move brought in billions in financing, but it also painted commissioners into a corner. If costs continued to rise — and with practically every contractor in Alabama sticking his fingers on the scale, they were rising fast — officials would be faced with automatic rate increases that would piss off their voters. (By 2003, annual interest on the sewer deal had reached $90 million.) So the commission reached out to Wall Street, looking for creative financing tools that would allow it to reduce the county's staggering debt payments.

Wall Street was happy to help. First, it employed the same trick it used to fuel the housing crisis: It switched the county from a fixed rate on the bonds it had issued to finance the sewer deal to an adjustable rate. The refinancing meant lower interest payments for a couple of years — followed by the risk of even larger payments down the road. The move enabled county commissioners to postpone the problem for an election season or two, kicking it to a group of future commissioners who would inevitably have to pay the real freight.

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.

In a small office in a federal building in downtown Birmingham, just blocks from where civil rights demonstrators shut down the city in 1963, Assistant U.S. Attorney George Martin points out the window. He's pointing in the direction of the Tutwiler Hotel, once home to one of the grandest ballrooms in the South but now part of the Hampton Inn chain.

"It was right around the corner here, at the hotel," Martin says. "That's where they met — that's where this all started."

They means Charles LeCroy and Bill Blount, the two principals in what would become the most important of all the corruption cases in Jefferson County. LeCroy was a banker for JP Morgan, serving as managing director of the bank's southeast regional office. Blount was an Alabama wheeler-dealer with close friends on the county commission. For years, when Wall Street banks wanted to do business with municipalities, whether for bond issues or rate swaps, it was standard practice to reach out to a local sleazeball like Blount and pay him a shitload of money to help seal the deal. "Banks would pay some local consultant, and the consultant would then funnel money to the politician making the decision," says Christopher Taylor, the former head of the board that regulates municipal borrowing. Back in the 1990s, Taylor pushed through a ban on such backdoor bribery. He also passed a ban on bankers contributing directly to politicians they do business with — a move that sparked a lawsuit by one aggrieved sleazeball, who argued that halting such legalized graft violated his First Amendment rights. The name of that pissed-off banker? "It was the one and only Bill Blount," Taylor says with a laugh.

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. LeCroy, his sugar daddy at JP Morgan, is a tall, bloodless, crisply dressed corporate operator with a shiny bald head and silver side patches — a cross between Skeletor and Michael Stipe.

The scheme they operated went something like this: LeCroy paid 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. In the mortgage business, this process is known as churning: You keep coming back over and over to refinance, and they keep "churning" you for more and more fees. "The transactions were complex, but the scheme was simple," said Robert Khuzami, director of enforcement for the SEC. "Senior JP Morgan bankers made unlawful payments to win business and earn fees."

Given the shitload of money to be made on the refinancing deals, JP Morgan was prepared to pay whatever it took to buy off officials in Jefferson County. In 2002, during a conversation recorded in Nixonian fashion by JP Morgan itself, LeCroy bragged that he had agreed to funnel payoff money to a pair of local companies to secure the votes of two county commissioners. "Look," the commissioners told him, "if we support the synthetic refunding, you guys have to take care of our two firms." LeCroy didn't blink. "Whatever you want," he told them. "If that's what you need, that's what you get. Just tell us how much."

Just tell us how much. That sums up the approach that JP Morgan took a few months later, when Langford announced that his good buddy Bill Blount would henceforth be involved with every financing transaction for Jefferson County. From JP Morgan's point of view, the decision to pay off Blount was a no-brainer. But the bank had one small problem: Goldman Sachs had already crawled up Blount's trouser leg, and the broker was advising Langford to pick them as Jefferson County's investment bank.

The solution they came up with was an extraordinary one: JP Morgan cut a separate deal with Goldman, paying the bank $3 million to fuck off, with Blount taking a $300,000 cut of the side deal. Suddenly Goldman was out and JP Morgan was sitting in Langford's lap. In another conversation caught on tape, LeCroy joked that the deal was his "philanthropic work," since the payoff amounted to a "charitable donation to Goldman Sachs" in return for "taking no risk."

That such a blatant violation of anti-trust laws took place and neither JP Morgan nor Goldman have been prosecuted for it is yet another mystery of the current financial crisis. "This is an open-and-shut case of anti-competitive behavior," says Taylor, the former regulator.

With Goldman out of the way, JP Morgan won the right to do a $1.1 billion bond offering — switching Jefferson County out of fixed-rate debt into variable-rate debt — and also did a corresponding $1.1 billion deal for a synthetic rate swap. The very same day the transaction was concluded, in May 2003, LeCroy had dinner with Langford and struck a deal to do yet another bond-and-swap transaction of roughly the same size. This time, the terms of the payoff were spelled out more explicitly. In a hilarious phone call between LeCroy and Douglas MacFaddin, another JP Morgan official, the two bankers groaned aloud about how much it was going to cost to satisfy Blount:

LeCroy: I said, "Commissioner Langford, I'll do that because that's your suggestion, but you gotta help us keep him under control. Because when you give that guy a hand, he takes your arm." You know?

MacFaddin: [Laughing] Yeah, you end up in the wood-chipper.

All told, JP Morgan ended up paying Blount nearly $3 million for "performing no known services," in the words of the SEC. In at least one of the deals, Blount made upward of 15 percent of JP Morgan's entire fee. When I ask Taylor what a legitimate consultant might earn in such a circumstance, he laughs. "What's a 'legitimate consultant' in a case like this? He made this money for doing jack shit."

As the tapes of LeCroy's calls show, even officials at JP Morgan were incredulous at the money being funneled to Blount. "How does he get 15 percent?" one associate at the bank asks LeCroy. "For doing what? For not messing with us?"

"Not messing with us," LeCroy agrees. "It's a lot of money, but in the end, it's worth it on a billion-dollar deal."

That's putting it mildly: The deals wound up being the largest swap agreements in JP Morgan's history. Making matters worse, the payoffs didn't even wind up costing the bank a dime. As the SEC explained in a statement on the scam, JP Morgan "passed on the cost of the unlawful payments by charging the county higher interest rates on the swap transactions." In other words, not only did the bank bribe local politicians to take the sucky deal, they got local taxpayers to pay for the bribes. And because Jefferson County had no idea what kind of deal it was getting on the swaps, JP Morgan could basically charge whatever it wanted. According to an analysis of the swap deals commissioned by the county in 2007, taxpayers had been overcharged at least $93 million on the transactions.

JP Morgan was far from alone in the scam: Virtually everyone doing business in Jefferson County was on the take. Four of the nation's top investment banks, the very cream of American finance, were involved in one way or another with payoffs to Blount in their scramble to do business with the county. In addition to JP Morgan and Goldman Sachs, Bear Stearns paid Langford's bagman $2.4 million, while Lehman Brothers got off cheap with a $35,000 "arranger's fee." At least a dozen of the county's contractors were also cashing in, along with many of the county commissioners. "If you go into the county courthouse," says Michael Morrison, a planner who works for the county, "there's a gallery of past commissioners on the wall. On the top row, every single one of 'em but two has been investigated, indicted or convicted. It's a joke."

The crazy thing is that such arrangements — where some local scoundrel gets a massive fee for doing nothing but greasing the wheels with elected officials — have been taking place all over the country. In Illinois, during the Upper Volta-esque era of Rod Blagojevich, a Republican political consultant named Robert Kjellander got 10 percent of the entire fee Bear Stearns earned doing a bond sale for the state pension fund. At the start of Obama's term, Bill Richardson's Cabinet appointment was derailed for a similar scheme when he was governor of New Mexico. Indeed, one reason that officials in Jefferson County didn't know that the swaps they were signing off on were shitty was because their adviser on the deals was a firm called CDR Financial Products, which is now accused of conspiring to overcharge dozens of cities in swap transactions. According to a federal antitrust lawsuit, CDR is basically a big-league version of Bill Blount — banks tossed money at the firm, which in turn advised local politicians that they were getting a good deal. "It was basically, you pay CDR, and CDR helps push the deal through," says Taylor.

In the end, though, all this bribery and graft was just the table-setter for the real disaster. In taking all those bribes and signing on to all those swaps, the commissioners in Jefferson County had ­basically started the clock on a financial time bomb that, sooner or later, had to explode. By continually refinancing to keep the county in its giant McMansion, the commission had managed to push into the future that inevitable day when the real bill would arrive in the mail. But that's where the mortgage analogy ends — because in one key area, a swap deal differs from a home mortgage. Imagine a mortgage that you have to keep on paying even after you sell your house. That's basically how a swap deal works. And Jefferson County had done 23 of them. At one point, they had more outstanding swaps than New York City.

Judgment Day was coming — just like it was for the Delaware River Port Authority, the Pennsylvania school system, the cities of Detroit, Chicago, Oakland and Los Angeles, the states of Connecticut and Mississippi, the city of Milan and nearly 500 other municipalities in Italy, the country of Greece, and God knows who else. All of these places are now reeling under the weight of similarly elaborate and ill-advised swaps — and if what happened in Jefferson County is any guide, hoo boy. Because when the shit hit the fan in Birmingham, it really hit the fan.

For Jefferson County, the deal blew up in early 2008, when a dizzying array of penalties and other fine-print poison worked into the swap contracts started to kick in. The trouble began with the housing crash, which took down the insurance companies that had underwritten the county's bonds. That rendered the county's insurance worthless, triggering clauses in its swap contracts that required it to pay off more than $800 million of its debt in only four years, rather than 40. That, in turn, scared off private lenders, who were no longer ­interested in bidding on the county's bonds. The banks were forced to make up the difference — a service for which they charged enormous penalties. It was as if the county had missed a payment on its credit card and woke up the next morning to find its annual percentage rate jacked up to a million percent. Between 2008 and 2009, the annual payment on Jefferson County's debt jumped from $53 million to a whopping $636 million.

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. In other words, the bank and Bill Blount made tens of millions of dollars selling deals to local politicians that were not only completely defective, but blew the entire county to smithereens.

And here's the kicker. Last year, when Jefferson County, staggered by the weight of its penalties, was unable to make its swap payments to JP Morgan, the bank canceled the deal. That triggered one-time "termination fees" of — yes, you read this right — $647 million. That was money the county would owe no matter what happened with the rest of its debt, even if bondholders decided to forgive and forget every dime the county had borrowed. It was like the herpes simplex of loans — debt that does not go away, ever, for as long as you live. On a sewer project that was originally supposed to cost $250 million, the county now owed a total of $1.28 billion just in interest and fees on the debt. Imagine paying $250,000 a year on a car you purchased for $50,000, and that's roughly where Jefferson County stood at the end of last year.

Last November, the SEC charged JP Morgan with fraud and canceled the $647 million in termination fees. The bank agreed to pay a $25 million fine and fork over $50 million to assist displaced workers in Jefferson County. So far, the county has managed to avoid bankruptcy, but the sewer fiasco had downgraded its credit rating, triggering payments on other outstanding loans and pushing Birmingham toward the status of an African debtor state. For the next generation, the county will be in a constant fight to collect enough taxes just to pay off its debt, which now totals $4,800 per resident.

The city of Birmingham was founded in 1871, at the dawn of the Southern industrial boom, for the express purpose of attracting Northern capital — it was even named after a famous British steel town to burnish its entrepreneurial cred. There's a gruesome irony in it now lying sacked and looted by financial vandals from the North. The destruction of Jefferson County reveals the basic battle plan of these modern barbarians, the way that banks like JP Morgan and Goldman Sachs have systematically set out to pillage towns and cities from Pittsburgh to Athens. These guys aren't number-crunching whizzes making smart investments; what they do is find suckers in some municipal-finance department, corner them in complex lose-lose deals and flay them alive. In a complete subversion of free-market principles, they take no risk, score deals based on political influence rather than competition, keep consumers in the dark — and walk away with big money. "It's not high finance," says Taylor, the former bond regulator. "It's low finance." And even if the regulators manage to catch up with them billions of dollars later, the banks just pay a small fine and move on to the next scam. This isn't capitalism. It's nomadic thievery.

Ames: Posse Comitatus violated after murder rampage

If you're a gun/militia nut, chances are you know what the Posse Comitatus Act is, and what violating it means: every right-winger's worst nightmare (or the best day of his life, depending on how nutty and eager he is to fight).

It's the rest of this article that interests me more, since I lived in Alabama, and since I sympathize with exploited workers, not with rich managers who bankrupt companies and whole counties yet manage to retain their $ millions. But probably gun/militia nuts won't give a s*** about that part.

After the Billionaires Plundered Alabama Town, Troops Were Called in ... Illegally

By Mark Ames

October 24, 2009 AlterNet

URL: http://www.alternet.org/workplace/143485/after_the_billionaires_plundered_alabama_town%2C_troops_were_called_in_..._illegally?page=entire

Ames: AL shooting another battle in long war

This will drive my conservative friends nuts....

If Ames has misdiagnosed the disease, he's certainly right about the symptoms & warning signs repeating over and over.

Alabama Shootings: Just Another Battle In America's Thirty Years' Class War

By Mark Ames
March 2009 | Exiledonline.com