JPMorgan Chase & Co. (JPM)’s Charles LeCroy said the key to landing bond deals in Jefferson County, Alabama, was finding out whom to pay off. In one example, that meant a $2.6 million payment to Bill Blount, a local banker and longtime friend of County Commissioner Larry Langford.
“It’s a lot of money, but in the end it’s worth it on a billion-dollar deal,” LeCroy told a colleague in 2003, according to a complaint filed by the Securities and Exchange Commission.
That’s because in the $2.9-trillion market for state and local government debt, where 80 percent of all financings are negotiated in private, conflicts of interest prevail. While Langford and Blount are in jail, LeCroy is fighting an SEC action. JPMorgan, which provided most of the toxic debt that devastated Jefferson County, has suffered no loss of business as the nation’s third-largest underwriter of municipal bonds, according to data compiled by Bloomberg.
Just 21 months ago, JPMorgan agreed to a $722 million SEC settlement to end a case over secret payments to friends of Jefferson County commissioners. The financings arranged by JPMorgan, a package of floating-rate debt and derivatives, exposed taxpayers to the 2008 credit crisis and dealt a blow that may lead the county to approve the biggest U.S. municipal bankruptcy as soon as today.
Wow. This is impressively evil on the part of JP Morgan, although really it’s the commissioners’ fault too. Even the ones who weren’t massively corrupt were totally incompetent. I’m not even going to try to explain how the deal worked, but basically they tried to finance a new sewer system using an elaborate system of securities and derivatives. Along they way they managed to pay JP Morgan, Bear Stearns, Bank of America, and Lehmann around $120 million in fees, which is pretty ridiculous on a $3 billion project.
Anyway, now the county is going bankrupt and will therefore be unable to finance normal operations for decades, and JP Morgan is doing just fine. That seems to be par for the course on how these things go lately.