The magic of the free market and the wisdom of our Wall Street producers/betters at work:
Earlier this year I wrote about the Jefferson County story in a piece called “Looting Main Street” in Rolling Stone. In this tale employees of a group of high-powered Wall Street banks, led in particular by JP Morgan Chase, funneled money to local politicians in Alabama, who in turn signed off on toxic interest-rate swap deals that left the county saddled with monstrous debt for a generation.
Jefferson County is essentially the world’s worst credit card story. The local pols ran up massive bills to build a “Taj Mahal of sewer-treatment plants,” then saddled future voters with a blizzard-worth of rate hikes, punitive fees and late charges. Alabamans who should have paid $250 million for their new sewer system now owe over $3 billion, thanks to their corrupt politicians and the greedy carpetbagger banks who dragged these local hicks into deadly derivative deals.
These types of finance scams are the template for a whole new type of symbiotic relationship between politicians and the financial services industry: deals like the JeffCo interest-rate swaps allow politicians to borrow vast sums essentially without immediate consequence, making it possible to green-light politically-popular programs during their terms but leaving future leaders holding the bag when the bills come due. We saw similar stories in Greece and in the Denver school system; hundreds of communities in Italy and other European countries are also experiencing similar debt-blowups thanks to rate swaps and other deadly deals.
Anyway, back in the mid-nineties, the average sewer bill for a Jefferson County family of four was only $14.71. By the time I wrote my story earlier this year, most citizens were paying about four times that amount – and as of this summer, the average JeffCo sewer bill was $63. Well, the news now comes out that rates will go up again, and in the best case scenario they will jump 25% a year. The worst case? Jefferson County sewer rates could jump as much as 527%, with some estimates placing the average monthly bill as high as $395 a month.
At some point, people are going to figure out that our current corrupt capitalist system isn’t about the efficient allocation of capital, but straight up robbery and thieving. Not any time soon, I suspect, but some day.
Rosalita
and here I thought you had caught the trash bandit
gex
Bah. The problem wasn’t the market place, it was the government. If we privatized the running of the county this would never have happened.
/libertarian
Mogden
The collusion between corrupt politicians and big business / Wall Street amounts to a crime.
Breezeblock
I really don’t think people will figure that out. It’s much easier to blame “The Others”.
Jay in Oregon
The residents of Jefferson Country are, of course, just free to not utilize the sewer system. It’s like living in the Middle Ages again — they can just dump their waste out of a second-story window!
They can offset the increased expense by publishing a local version of this book.
licensed to kill time
If anything will bring out the peasants with pitchforks you’d think a sewer bill increase from $14.71 to $395 a month would do the trick. Holy shit.
Jay in Oregon
@Breezeblock:
OK, I’ll admit that Ben Linus was kind of a twerp at the end, but I liked Richard.
Mark S.
$3 billion? Oh Jesus.
But that’s the magic of the free market. Everyone will just move out of Birmingham rather than pay $4,000 a year to flush their toilets.
low-tech cyclist
Jefferson County is about 60% white, 40% black. Betcha the white majority keeps on voting Republican between now and the end of time.
PurpleGirl
@licensed to kill time: They will only see it as the government not being able to do anything right. They won’t understand the complex financial shenanigans and if they blame the bankers it will be much milder than the hate they will exhibit for the government agency.
comrade scott's agenda of rage
You are far more optimistic about that than I am.
“People” in this country will never figure that out. Never.
The Dangerman
There would appear to be an extreme shortage of the number of pitchforks and pikes necessary.
licensed to kill time
@PurpleGirl: Sigh. I’m sure you’re right. The peasants with pitchforks will be screaming “Throw the bums out!” and vote in a bunch of ‘baggers, no doubt. That’ll fix it.
Culture of Truth
I’m not clear where all the money went, but they should probably just default.
Jewish Steel
I smell an opportunity for the market to swoop down and undercut the…wait. No, sorry. That’s just shit again.
Of course it will be either the state or the feds who will bail out these dumb hillbillies. I’ve got no problem with that. People make mistakes and when they do to socialize the problem eases everyone’s pain. No sweat.
I just want the hillbillies to reciprocate and let us provide healthcare to the poor.
Jrod the Cookie Thief
But but but, you linked to Matt Taibbi! If Taibbi, the worst human being alive, said it, it must not be true.
Anyone who thinks otherwise is just a crazy frrrrrbagger.
BGinCHI
And of course for the Fonzies of Freedom, these are exactly the kinds of Producers that earn millions a year and that if taxed at a slightly higher rate will bring the economy to its knees.
Zam
This is OT, but does anyone have any good solutions to get a red stain out of a white carpet? The solutions I found from google seem to have failed me.
Legalize
Yeah, when we’re hunting squirrels for food and the only remaining economy is trade in raccoon pelts and bottle caps. It’ll still be Obama’s fault because he tried to make rich people pay less than what Reagan asked of them, and force Real Americans to keep their 26 year olds on their insurance.
Kirk Spencer
$395 a month. Septic tank systems, depending on size, type, and various local issues, can run from $3000 to $10,000. Alabama is not an expensive state for these, usually.
Betcha two small thing are going on in Jeffco. First, septic tank installers are running full time and even looking at more hiring. Second, the same government is looking at restrictions that’ll kill septic tanks.
bkny
how soon do you think it will be before outhouses/washer tubs make a comeback.
those responsible were sentenced to prison yesterday:
Bobby Rast was sentenced to serve 51 months in prison. Danny Rast was sentenced to a 41-month prison term. Dougherty was given a 51-month sentence. Swann, former head of Jefferson County’s sewer department, was given an 8-1/2-year sentence. Pugh was given a 45-month sentence.
http://blog.al.com/spotnews/2010/09/federal_judge_orders_four_in_j.html
Violet
Clearly this is the government’s fault. Time to vote in Republicans who will fix things with their free market capitalgasm.
@Zam:
What’s the stain from?
GeneJockey
I used to think that Capitalism was good because it primarily rewarded hard work and innovation. I now realize that it primarily rewards wealth, with still more wealth. Rewarding hard work and innovation is more of a side effect – an increasingly infrequent one, at that.
Joshua
No they won’t. This will just be blamed on “broken government.” People don’t think about that stuff, because hey, they might be rich someday too.
In fact, it wouldn’t surprise me if people down there think the new sewer system could have been paid for if the government just “eliminated fraud” or “was more efficient.” Instead, gubment being gubment, they had to take on all these fancy loans…
Joshua
No they won’t. This will just be blamed on “broken government.” People don’t think about that stuff, because hey, they might be rich someday too.
In fact, it wouldn’t surprise me if people down there think the new sewer system could have been paid for if the government just “eliminated fraud” or “was more efficient.” Instead, gubment being gubment, they had to take on all these fancy loans…
Kirk Spencer
@Zam: Call a pro who gives a written guarantee. Otherwise look at ways to dye the whole carpet to match the stain — or camouflage it in tie dye fashion.
gmf
“people are going to figure out that our current corrupt capitalist system isn’t about the efficient allocation of capital, but straight up robbery and thieving. ”
I’m sorry, but they won’t. They’ll blame ACORN, the liberals, and teh gheys. Fox news tells the if only the banksters could get a fair shake all would be better.
Villago Delenda Est
The teabaggers are utterly incapable of the 5th grade level of thought needed to realize that this is exactly what is going on.
They’re too busy worrying about that Kenyan socialist imposing Shaira law on the consecrated ground of the lower Manhattan Burlington Coat Factory.
sven
I’m with PurpleGirl on this one, I wouldn’t be shocked if some of the very same politicians who caused this problem use it as a symbol to run against in the next election.
As we speak, Ralph Reed is proving once again that conservative activists won’t ever hold their leaders accountable. Besides, what do you expect of anyone working in government? Anyone who plays with concentrated evil will eventually get burned…
Bill Arnold
@Zam:
I removed a red wine stain from a white napkin recently with hydrogen peroxide (the dilution that can be used for washing wounds).
gmf
@Joshua: Dangit – i should really read through other folk’s comments before I go shooting my mouf off.
Cat
This is silly. Capitalism can’t be corrupt. It can have actors that break laws making the actors corrupt, but if there weren’t laws making their behavior illegal it wouldn’t be corrupt.
Whose to say charging some poor guy $14 a flush isn’t an efficient allocation of capital? It may suck for him, but enrich society as a whole.
Capitalism as practiced by American’s is almost Capitalism in its purest form, which is to say, the elite exploiting the weaker members of society.
To call it corrupt is to not understand what Capitalism actually is.
MikeJ
Any time you hear somebody talking about innovation in financial markets, this deal is exactly what they’re talking about.
bkny
@Zam:
did you see this:
http://www.thisoldhouse.com/toh/article/0,,20224251,00.html
or, you could just rearrange the furniture …
Alex S.
My sympathy is limited. Some people don’t seem to want it any other way. I can understand why people might have voted for the Dixie/New Deal Democrats, but the Dixie/plutocrat alliance post-1968 is just baffling. It’s like getting punished for racism, but enjoying it.
Roger Moore
@Culture of Truth:
It’s hard to argue with that solution. It’s hard to get too indignant about defaulting on a debt that’s only as big as it is because of crazy behavior on the part of the people lending the money.
BombIranForChrist
I am just going to be a giant asshole and say, good. The sooner the conservative states are forced to deal with the pure consequence of their ideology, the better.
R-Jud
@Zam:
First, hide the corpses.
Bob Loblaw
Oh, come now, Cole. We just need more voters like you. A few more cycles of crawling through broken glass to vote in the Mike Olivierios of the world, and things should shape right the fuck up.
KG
There are two fundamental flaws in capitalism. The first is that it is based, to a certain extent, on trust. I trust you not to screw me over and you trust me not to screw you over. The second is that it assumes people, either individually or in the aggregate, will act rationally. We know that individuals do not always act rationally, and evidence suggests that more often than not, they act irrationally. The question, then, is how do we get from individuals acting irrationally to the population, in the aggregate, acting rationally? I’m still not sure about that point.
On the other hand, we know about these two fundamental flaws, so we set up things like the court system, and we’ve spent a few hundred years working out the law of contracts. But, then we run into the problem where one side has significantly more information than the other, or significantly more bargaining power. So we have things like fraud (including the failure to disclose relevant information) and adhesive contract laws. The problem is that litigation is expensive, and those in power have no problem in driving up the costs of litigation (and threatening the other side with the recovery of statutory or contractual attorney fees).
On the rationality point, we have bankruptcy laws and consumer protection laws, and whatnot. But now we’ve seen those watered down or otherwise defanged and we’re screwed again.
I still call myself a libertarian. But I am not the same as I was say, six or seven years ago. I no longer see it as tyranny vs liberty. I see it as tyranny vs license, with liberty as the fulcrum point. To borrow a line from the original Mr. Miagi, “balance is the key.”
This is Plato’s Republic, really… democracy leads to oligarchy.
Cat
@Roger Moore:
This doesn’t make sense to me either. How can a loan where the several parties committed crimes to get the deal done be legal?
Zifnab
Yeah, well $63 / month might seem like a lot now. And $395 sounds like even more. But what happens when they raise your taxes? What then?
I’m sure someone has a perfectly good reason why Jefferson County doesn’t just flip Wall Street the bird and fill for bankruptcy on the whole mess. What are the banks going to do? Foreclose on the sewage treatment plant? Sell it at auction? Ha.
I mean, I think that whole septic tank idea is sounding better and better. But it’s a bit ludicrous that you should go back to 1950s plumbing because of 21st Century banking.
wengler
Capitalism is rule by those that have capital. It may have been an innovative system in the 19th Century, but it sure as hell ain’t one now. These Capitalist fundamentalists just love them some old-time religion.
Uloborus
@bkny:
That is nice to know. Of course, these poor people are still screwed, but if some of the people involved get a few years of jail time it might discourage repeats.
wengler
@Zifnab
Yes, they will. If you want to see the direction that the US is going just look at what these same people have been doing in South America for the last four decades. In Bolivia they privatized the water treatment plants, fired the unionized workers and then made it a crime to collect rainwater. If you want to go further back you can only look at Gandhi’s march to the sea to protest the crime of evaporating seawater to collect salt. This is the way the banksters have been operating for the last 300 years.
Villago Delenda Est
@KG:
Well, if you go back to those obscure guys collectively called “The Founding Fathers”, you’ll note that they were VERY concerned about balances of power, which is why they took great pains to establish three co-equal branches of government. If they were around today, they’d be concerned, I’m sure, with the tremendous power of large blocks of capital and the way that giant piles of money create new power imbalances that they could not have foreseen, because after all, Adam Smith was just freshly published as they were issuing their Declaration of Independence. But they’d understand the fundamental issue of a power imbalance just fine thank you.
BTW, they had no love at all for corporations in general, having had some unpleasant experiences (see “direct action” in Boston Harbor a few years prior) with the Honorable British East India Company.
Zifnab
@Cat:
Everything is legal until a court says otherwise.
Uloborus
@Villago Delenda Est:
On the plus side, the system was created with the idea that corruption was impossible to prevent, and money and aristocracy would always have undue weight on government. They hoped to build a system where different types of money and influence would fight against each other, leaving the deciding vote in the hands of the people.
Whether or not it worked is not a debate I’m entering into right now.
Zifnab
@wengler:
And then Bolivia backlashed into Socialism. The public services have since been re-nationalized.
Hell, the entire South American continent is a tangled web of corporately owned politicians and socialist demagogues. And I don’t think I have to remind you of the history of India after Ghandi.
If the city bucks the banks, it will demonstrate that the city is in control. I think it was Donald Trump that once opined, “When you owe someone a million dollars, they own you. When you owe someone a hundred million dollars, you own them.” God knows what kind of crazy derivative deals got spun out of that Alabama treatment plant. Bucking the bank in that one community could cause all sorts of havok in JPM.
Roger Moore
@KG:
To summarize your point, Capitalism works by harnessing people’s greed. That only works because we have a legal and social system that is supposed to channel that greed into forms that have a side effect of benefiting others. But people have tended to catch on to the “greed is good” part of that equation while missing the “when operating within constraints”. As a result, the greediest people have tried to undermine the constraints on the grounds that they’re interfering with their greed.
Zifnab
@wengler:
And then Bolivia backlashed into Soci alism. The public services have since been re-nationalized.
Hell, the entire South American continent is a tangled web of corporately owned politicians and socialist demagogues. And I don’t think I have to remind you of the history of India after Ghandi.
If the city bucks the banks, it will demonstrate that the city is in control. I think it was Donald Trump that once opined, “When you owe someone a million dollars, they own you. When you owe someone a hundred million dollars, you own them.” God knows what kind of crazy derivative deals got spun out of that Alabama treatment plant. Bucking the bank in that one community could cause all sorts of havok in JPM.
Zifnab
@wengler:
And then Bolivia backlashed into Soci alism. The public services have since been re-nationalized.
Hell, the entire South American continent is a tangled web of corporately owned politicians and socia list demagogues. And I don’t think I have to remind you of the history of India after Ghandi.
If the city bucks the banks, it will demonstrate that the city is in control. I think it was Donald Trump that once opined, “When you owe someone a million dollars, they own you. When you owe someone a hundred million dollars, you own them.” God knows what kind of crazy derivative deals got spun out of that Alabama treatment plant. Bucking the bank in that one community could cause all sorts of havok in JPM.
LanceThruster
Bu-b-b-bu-b-bu-b-bu-but the free market! That and lower taxes solves everything. It just hasn’t been implemented correctly thanks to those meddling socialists.
Quaker in a Basement
The solution seems simple enough to me.
Don’t flush, collect waste in ziploc bags, deliver directly to city hall.
Linda Featheringill
You’re coming along nicely, John.
Kat
@Kirk Spencer: $395 a month. Septic tank systems, depending on size, type, and various local issues, can run from $3000 to $10,000. Alabama is not an expensive state for these, usually.
That statue of Vulcan is there for a reason — Birmingham basically sits on the solid rock of Red Mountain.
@Mark S: Everyone will just move out of Birmingham rather than pay $4,000 a year to flush their toilets.
One option for some of the people of Birmingham, Alabama may be to give up their indoor toilets and go back to using out-houses. An out-house might actually be feasible, if unpleasant, for those who live in houses, but for the foreseeable future, businesses and people who live in apartments are going to be financially screwed by outrageous sewer bills.
For most people, $395 a month in sewer fees would be financially impossible, so their only option – which many Birmingham residents are already talking about – would be to move out of Jefferson County, which would essentially turn one of the biggest cities in Alabama into a bankrupt ghost town. The more people who move out of the County, the lower and faster property values will fall, which would bankrupt the public school system; and the more businesses would go bankrupt — which would force even more people to move.
Reminds me of the white flight of the 60s and 70s, but with an added incentive. For those of you who don’t remember, one black family would move into a white neighborhood, and all the whites, even those who didn’t mind having black neighbors, would immediately put their houses up for sale because they knew their property values were about to plummet. In the current situation, there would be an additional escalation in home sales caused by the $395-a-month incentive to move out fast.
Linda Featheringill
@sven:
Ralph Reed hasn’t been on the side of the good people for a long, long time. I don’t care what he says, he is up to no good.
Linda Featheringill
@wengler:
Seventeenth Century.
db
If sewage bills in JeffCo are based on water usage like most places I have lived, then I smell a tremendous opportunity for:
a) to swoop in with bottles of evian to sell when sewage bills do hit $395
and
b) swoop in with a private police force to prevent people from stealing water from neighbors
I am going to get rich off other people’s misery!
Emma
Joshua: I had a PoliSci teacher who used to say that if Americans ever woke up this country was going to have the biggest, baddest explosion since the French Revolution. Then he would shake his head and say sadly, but that’s a very big if.
bcinaz
What would happen if/when Jefferson Co. decides/is forced to default on this debt?
JP Morgan repossesses the sewer system?
Phoenician in a time of Romans
It’s unfair to expect Republicans to pay for this sewage system.
They never use it. That’s why they’re so full of shit…
Mark S.
@bcinaz:
Considering they owe $3 billion on a plant that presumably costs around $250 million, they’d be better off just building another one.
Francis
@bcinaz: The County is in default. The power to set rates has been turned over to the bankruptcy trustee.
SiubhanDuinne
@Zam #18: Blood, or wine?
Francis
@bcinaz: hmm, I was completely wrong.
The County has not declared bankruptcy. Instead, the trustee for the bondholders (the trustee is the legal entity that represents the interests of the bondholders as a whole) has prevailed in state court in getting the judge to place the sewer system into receivership and naming a receiver.
I’m not qualified to practice law in Alabama, but here in Cal., receivership is a kind of state-law parallel to federal bankruptcy. I strongly suspect the key question is going to be the extent of the powers of the receiver to set rates. According to one newspaper article, under the contract between the county and the trustee [called an indenture], the trustee is allowed to go to court and obtain appointment of a receiver if the county refused to set rates at a level which would repay the bonds. What happens if the receiver decides that the appropriate rate is $60 per month, which generates an income stream that pays off the bonds never? Dunno, but the trustee will appeal. What happens if the receiver decides that the appropriate rate is $400 per month — the amount needed to pay off the bonds? Dunno, but the County will appeal.
Anyone here know the history of WPPSS (pronounced whoops)? It stands, for now, as the largest municipal bond default in US history. We’ll see if JeffCo can surpass it.
Jbird
I wholeheartedly agree with Matt Taibbi that the Democrats have sold out the party’s platform for cheap bucks from the financial and health care industries.
gex
@wengler: Hmm… Some civil authority considered taking action against someone in Colorado for collecting rainwater on their property. I don’t think they followed through with it, but yes, they will go there.