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2009-11-04 13:26 by Karl Denninger
in Corruption , 231 references Ignore this thread
JP Morgan And Alabama Swaps *
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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.