JP Morgan And Alabama Swaps
The Market Ticker - Commentary on The Capital Markets
Login or register to improve your experience
Main Navigation
Sarah's Resources You Should See
Full-Text Search & Archives
Leverage, the book
Legal Disclaimer

The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions. For investment, legal or other professional advice specific to your situation contact a licensed professional in your jurisdiction.

NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES.

Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility; author(s) may have positions in securities or firms mentioned and have no duty to disclose same.

Market charts, when present, used with permission of TD Ameritrade/ThinkOrSwim Inc. Neither TD Ameritrade or ThinkOrSwim have reviewed, approved or disapproved any content herein.

The Market Ticker content may be sent unmodified to lawmakers via print or electronic means or excerpted online for non-commercial purposes provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media, to republish full articles, or for any commercial use (which includes any site where advertising is displayed.)

Submissions or tips on matters of economic or political interest may be sent "over the transom" to The Editor at any time. To be considered for publication your submission must be complete (NOT a "pitch"), include full and correct contact information and be related to an economic or political matter of the day. Pitch emails missing the above will be silently deleted. All submissions become the property of The Market Ticker.

Considering sending spam? Read this first.

2009-11-04 13:26 by Karl Denninger
in Corruption , 230 references Ignore this thread
JP Morgan And Alabama Swaps *
Category thumbnail

Amazing story here.... you really need to read the whole thing.  The salient point is here:

The county paid JPMorgan and a group of banks $120.2 million in fees for $5.8 billion of derivatives, according to a series of stories published by Bloomberg News in 2005. The payments were about $100 million more than they should have been based on prevailing rates, according to estimates in 2007 by James White, an adviser the county hired after the SEC said it was investigating the deals.

That's six times what they should have cost - that is, six hundred percent of market price or a 500% overcharge.

Must be nice eh?  What did they do to get this?  Allegedly:

The SEC alleged that JPMorgan, Charles LeCroy, the banker who pitched the refinancing to Jefferson County, and Douglas MacFaddin, the former head of the New York-based banks municipal derivatives desk, made more than $8 million in undisclosed payments to close friends of county commissioners. The associates owned or worked at local-broker dealer firms that didnt do any work on the deals, the SEC said.

Not bad.  Pay $8 million in kickbacks and get $100 million in overcharge.  The allegedly-bribed weren't very good negotiators - you'd think they would have gotten half, right?

And again, we settle for a fine and of course admit no guilt.

Nov. 4 (Bloomberg) -- JPMorgan Chase & Co. agreed to pay $75 million and forfeit another $647 million in interest-rate swap termination fees to settle a U.S. Securities and Exchange Commission probe into the sale of derivatives that helped push Alabamas most populous county to the brink of bankruptcy.

If I pulled something like this as a person I'd go to prison for a number of years - maybe 10 or more.

Why don't government officials revoke the corporate charters of firms that pull this sort of crap?

It's pretty hard to argue that executives at the top level of a company "didn't know" when you overcharge someone by 500%.  It's one thing if you charge someone $100 for a $90 product - it's quite another when you charge someone $120 million for something that is trading in the market for $20 million.

"I didn't know about it" looks awfully thin from where I sit.

Go to responses (registration required to post)
 



 
Comments on JP Morgan And Alabama Swaps
Login Register Top Blog Top Blog Topics FAQ
Page 1 of 2  First12Last
Phirang 10k posts, incept 2008-10-25

I first thought it said, "swamps"... would've been very apropos!

----------
I'm not special, and I am not likely to accomplish anything extraordinary in my life. If you are reading this comment, the case is most likely that neither will you. http://www.cracked.com/artic
Tesla 15k posts, incept 2008-04-03

Municipal finance managers need to stick with what they understand.

----------
"Even a dog knows the difference between being stumbled over and being kicked." -Justice Oliver Wendell Holmes

"Neither the wisest Constitution nor the wisest laws will secure the liberty and h
Kab 1k posts, incept 2009-04-02

They are Tesla: bribes.
Jstanley01 8k posts, incept 2008-07-30

Excuse me, but where the fuck is the FBI? You mean to tell me that LeCroy, MacFaddin and the commissioners involved aren't legally culpable for making and receiving bribes?

I guess like 007 has a license to kill, the pigmen have a license to gang rape.

----------
They assume an authority which is nowhere so dangerous as in the hands of those who have folly and presumption enough to fancy themselves fit to exercise it. --Adam Smith
Tesla 15k posts, incept 2008-04-03

smiley that's what I meant. They weren't even good at that - a measly 8 mil in return for a 120 mil payoff ?

----------
"Even a dog knows the difference between being stumbled over and being kicked." -Justice Oliver Wendell Holmes

"Neither the wisest Constitution nor the wisest laws will secure the liberty and h
Throxxofvron 10k posts, incept 2009-02-17

The Municipalities should tell the Banks "GO FUCK YOURSELF; WE AREN'T PAYING FOR THESE SWAPS" just as China did.

What happened to China when It said 'Fuck Off.' ?

-NOTHING.

The Chinese Swaps are UNPAID; end of story.

----------
DIONYSUS: " Thou hast no knowledge of the life thou art leading; thy very existence is now a mystery to thee. " -from 'The Bacchantes' By Euripides During times of universal deceit, telli

Widgeon 13k posts, incept 2007-08-30

Yep ... Terminate Their Charters Immediately ... KAPOW.
Phirang 10k posts, incept 2008-10-25

I recall Jesse "the body" saying, "You can't legislate against stupidity."


----------
I'm not special, and I am not likely to accomplish anything extraordinary in my life. If you are reading this comment, the case is most likely that neither will you. http://www.cracked.com/artic
Rutben 1k posts, incept 2007-07-27

The biggest tragedy is that Jefferson County is represented by Spencer Bacchus, Co-Chair of the House Financial Services Committee and his Chief of Staff Larry Lavender who is conversant in derivatives. Not a public peep from either as far as I know. If these two aren't outraged and don't do something about this, then taxpayer lethargy to date is understandable. Perhaps the first sign of "discontent" will be a homicide. We will just skip all the preliminaries.
Raingod 1k posts, incept 2008-08-29

500% above market, not 600%.

----------
Still waiting on Bohemian to name a single case filed by the NRA against the federal government, prior to Parker/Heller v. D.C., to expand gun rights in the U.S.A.
Tickerguy 202k posts, incept 2007-06-26

Clarified - 600% OF market price.

----------
"Perhaps you can keep things together and advance playing DIE games.
Or perhaps the truth is that white men w/IQs >= 115 or so built all of it and without us it will collapse."
Sondog 75 posts, incept 2009-05-18

Wow... Karl I don't know how you can blog this stuff day in and day out and keep your sanity. The moral decay is just incredible. These guys would have done a better service to their people to just pay the going rate and give themselves an $8 million raise.
Montysano 134 posts, incept 2009-02-23

Quote:
The SEC alleged that JPMorgan, Charles LeCroy, the banker who pitched the refinancing to Jefferson County, and Douglas MacFaddin, the former head of the New York-based banks municipal derivatives desk, made more than $8 million in undisclosed payments to close friends of county commissioners.

One of those "close friends" was Larry Langford, then a county commissioner who later became mayor of Birmingham. William Blount, an investment banker, pocketed $7M in the swaps deal, paid bribes to Langford, then pleaded guilty and turned state's evidence against Langford. Langford was recently convicted of 60 counts of fraud and accepting bribes, and faces 100s of years of prison time. Blount was convicted of 1 count and faces 10 years.

Meanwhile, Jefferson County, Alabama is still broke.

----------
"You get up on your little twenty-one inch screen and howl about America and democracy. There is no America. There is no democracy. There is only IBM and ITT and AT&T and DuPont, Dow, Union Carbid
Reddweb 436 posts, incept 2008-01-20

yep, i cant imagine how karl stays sane day-in-day-out reading/writing all this fraud. It just boils the blood just reading. Kind of like slavery, modern version. U see the fraud/rape, but cant do anything - the masses dont-know or just simply accept-it.

what do u do? complain to police/FED/SEC ? They dont have a clue what a "derivative" is. Bring it up with your congressmen/senator? they were brainwashed or already-paid. Atleast the last loan-crisis in 90s, some people went to jail. The 2008 crash came and cost 1000s Billions, nobody was held accountable/jailed. They were actually bailed out.

Where is the accountability.
Steelhead23 2k posts, incept 2008-09-09

Monty - Thanks for the details. God, I hope this gets around to local units of government around the country. Give a sweetheart deal in exchange for kickbacks and your ass, not the banker's, goes to jail. My resume includes some time working for another Jefferson County, this one in Colorado where I witnessed a stunning amount of self-dealing and kickback cronyism. I suspect that outcomes like the one you have detailed would bring just a tad more honesty to local units of government. But there remains a huge nest of cockroaches to be swept out.

----------
"Give me control of a nation's money and I care not who makes it's laws" Mayer Amschel Bauer Rothschild Benjamin BernankeFor-profit commercial banks are a menace and should
Jinroh 779 posts, incept 2009-05-05

There have got to be dozens,or more cases like this,where politicos accepted bribes,above and beyond the typical 'campaign contributions'. And yeah,where the hell is the FBI !??

Why has the FBI's white collar crime devision,been intentionally gutted ? And continues to stay that way under Obama ? The only thing one can glean from this state of affairs,is that TPTB want it this way.

William K Black is right,its a huge cover up,and a very intentional one.

They don't want to know the truth.

----------
Constitution Class taught by Michael Badnarik :
http://www.archive.org/details/Michael_Badnarik
I say we take off and nuke the entire site from orbit. It's the only way to be sure.
Rutben 1k posts, incept 2007-07-27

Black testified to the HFSC last week that FBI personnel investigating current fraud are one fifth the number investigating S&L fraud in 1989-1991.
Thumpher 62 posts, incept 2009-06-04

Rutben:
Quote:
Perhaps the first sign of "discontent" will be a homicide.


People are just beginning to wake up.
Soon they will get angry.
And as things slip further away they will get desperate.

I believe when there are enough wide awake, angry, desperate people, we will start to see homicides.
Phirang 10k posts, incept 2008-10-25

Quote:

we will start to see homicides.



I just hope we see the RIGHT ones...

----------
I'm not special, and I am not likely to accomplish anything extraordinary in my life. If you are reading this comment, the case is most likely that neither will you. http://www.cracked.com/artic
Curbyourrisk 4k posts, incept 2008-08-19

If they don't jail the bankers, release them into the custody of the people from the town they just ass raped.

----------
Time is up.
Global Day of Jubilee is on the way - there is no other choice
I hate to burst your bubble, but there is no Santa Claus, the tooth fairy does not exist and American justice does
Mtdm 1k posts, incept 2009-07-23

"Why has the FBI's white collar crime devision,been intentionally gutted?"

Because fighting the "war on terror" or pursuing spammers or paedophiles is considered sexier.
Ruffcut 2k posts, incept 2007-07-07

"bailiff, wack his pee pee."
The fbi can't fight an organized crime organization of this size.
If you can't beat em, join em.

----------
Support locally, and fuck off globally!
Lugnut 396 posts, incept 2008-09-24

More outrageous than the crime itself is the fact that no one from JPM is going to jail.

By collecting a $760MM 'fine' the governement is essentially taking a part of the county's money in exchange for not truly busting them. Its merely a different form of taxation. Its no different than a cop on the take who occasionally shakes down a drug dealer throws him up against the wall, takes the eightball of blow out of his pocket and the roll of 20s, put them in his own pocket and says 'Go on, get out of here ya punk....see you next week'.
Analyzer 4k posts, incept 2007-08-22

Quote:

And again, we settle for a fine and of course admit no guilt.


That's major problem. Makes it a small cost of doing business. What happened to treble penalties?

Let's assume the regulators did commence applying negative financial penalties. Would that make it "too high" a cost of doing business?

Consider that the penalty only applies to instances that are found, but no other stones are turned over.. and thus no additional penalties. I speculate it is likely they repeated the same offense at least 100 additional times. Considering only one instance results in a penalty, even if trebled, it would not be a deterrent to JPM (GS, Merrill, BAC, C etc) as the practice would still be lucrative, and require no admission of wrong doing, and no indictments, but only hefty profits. Any indictments in this specific case would likely be of politiciancs but not ANY members of the investment bank that initiated the bribery and excessive commissions.

----------
===========================================================
" October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May
Login Register Top Blog Top Blog Topics FAQ
Page 1 of 2  First12Last