Back when rates looked cheap, it became habit to sell financing and swaps and the like to municipalities (perhaps not the brightest municipalities) for infrastructure projects. Now that the terms of the related debt are blowing up badly, states like Alabama want their money bank, and JP Morgan on a platter.
The potential sanctions by the U.S. Securities and Exchange Commission, disclosed yesterday in two sentences of a 162-page quarterly regulatory filing, relate to a series of bond and interest-rate swap sales in 2002 and 2003 for sewers in Jefferson County, which covers about 1,125 square miles including Birmingham, the state's largest city with more than 240,000 residents.Since credit markets seized up in 2007, Jefferson County's annual sewer debt payment more than doubled. At least seven former JPMorgan bankers are under scrutiny in a Justice Department criminal antitrust investigation of the sale of unregulated derivatives to local governments across the U.S., federal regulatory records show.
We suspect this will be but the first of these, as the big banks shamelessly pursued business in this area and there are a lot of deals that have blown up badly since municipalities signed on the dotted line.
JPMorgan May Face SEC Charges Over Alabama Bond Deals [Bloomberg]
Posted by Anal_yst , May 08, 2009 10:28AM
Heaven forbid the citizenry holds their elected and appointed officials responsible for signing up for sh*t they didn't understand...
Posted by guest , May 08, 2009 10:29AM
don't sign it if you don't understand it - it's really that easy
Posted by guest , May 08, 2009 10:32AM
PAY MY MORTGAGE!!!
Posted by guest , May 08, 2009 10:32AM
1, 2:
Officials were bribed.
The current mayor was then the county commissioner and sold out the county for $200,000 worth of CLOTHES
Posted by guest , May 08, 2009 10:32AM
@1 This is the same mayor that was arrested by the FBI for conspiracy, bribery, fraud, money laundering and filing false income tax returns.
Personally, I'm suprised he wasn't given a cabinet position in the Obama administration.
http://www.cnn.com/2008/CRIME/12/01/birmingham.mayor/index.html
Posted by guest , May 08, 2009 10:40AM
PPIP that POOP.
Posted by wcburrs87 , May 08, 2009 10:43AM
The rumor is the town will start imposing a pay per flush tax to offset the costs. However, the wealthy will pay for 95% of the flushes, while only taking 2.5% of the shits (Rich people shit less).
Posted by trojan , May 08, 2009 10:45AM
george wallace would never have fallen for these financial shenanigans
Posted by guest , May 08, 2009 10:47AM
PAY MY GAS TOO!!
Posted by guest , May 08, 2009 10:48AM
The real people that got the jam job here are the holders of the aution rate securities. "Oh I am sorry Mrs. Client you thought this was liquid, well it was until the banks in NYC backed out of the market they had been supporting for years." Oops my bad
Posted by guest , May 08, 2009 10:49AM
I'ze innocent, I tell ya. Nobody forced them widdas an' orfuns to bah mah snake oil. Besides, if Gawd hadn't intended fools to be fleeced, He wouldn't a given 'em money. Nuff said.
Posted by Joseph di Jersey City , May 08, 2009 10:57AM
Now how long is it going to take for Alabama to get indoor plumbing?
Posted by guest , May 08, 2009 11:06AM
The Ghost of Robert Citron now appears...
Posted by guest , May 08, 2009 11:07AM
@10 - illiquid yes, but they are still highly rated, paying dividends, and will likely pay the principal back in full.
Let's compare them to, say, Fannie Mae preferreds which were also considered safe and liquid. Which would you rather be holding?
Posted by EvilBuzzard , May 08, 2009 11:11AM
Because someone has to say it: "JPM is in deep Sh--!"
Posted by guest , May 08, 2009 11:12AM
@2 must work for BP
Posted by guest , May 08, 2009 11:12AM
Don't forget what JPMorgan did to North Haverbrook with those swaps on the monorail project.
Posted by guest , May 08, 2009 11:15AM
@14, highly viscous, malodorous liquidity
Posted by guest , May 08, 2009 11:16AM
@13: Classic!! Props to you sir or madame!! Don't forget the recent troubles at San Diego County's Employee Retirement Association.
Posted by guest , May 08, 2009 11:24AM
17:
But the precedent set in City of Ogdenville vs. JPMorgan should exonerate them in this case.
Posted by guest , May 08, 2009 12:25PM
Trading options with a counterparty who can change the rules on you? What could possibly go wrong? And they're in trouble in Italy for the exact same thing.
Banks suffering MASSIVE CANCELLED SWAP PWNAGE at the hands of municipal counterparties is not even new (see Hammersmith & Fulham council in the 80's) so JPM has no excuse for not seeing this one coming.
Posted by guest , May 08, 2009 12:28PM
@16
suck my ballllllllllllllllllz
Posted by guest , May 08, 2009 12:36PM
I want my money baNk too!!!!!
-TGFH
Not hating. Just saying.