Yesterday, Jefferson County, Alabama, filed the largest municipal bankruptcy in U.S. history, the final step in a sordid tale involving sewers, credit swaps, and some of the nation’s biggest banks. The bankruptcy became necessary “after an agreement among elected officials and investors to refinance $3.1 billion in sewer bonds fell apart.”
The swap deal that sunk Jefferson County was crafted by the mega-bank JP Morgan Chase (in concert with other banks, including Goldman Sachs). As Rolling Stone’s Matt Taibbi put it when describing JP Morgan’s actions in Jefferson County, “here you can see a trail that leads directly from a billion-dollar predatory swap deal cooked up at the highest levels of America’s biggest banks, across a vast fruited plain of bribes and felonies — ‘the price of doing business,’ as one JP Morgan banker says on tape.” And while Jefferson County was pushed over the cliff, JP Morgan has bounced back to record profits, and its municipal business has continued “unscathed.”
In a desperate attempt to avoid bankruptcy, Jefferson County furloughed employees and cut back on its police force so much that it no longer dispatched officers to traffic accidents. Of course, Jefferson County officials played their role in the fiasco, accepting bribes in connection with the deal. But JP Morgan was at the forefront, paying off officials, collecting tens of millions in fees, and foisting a risky deal onto the people of Jefferson County when there was no economic reason for it (other than to bolster the bank’s bottom line).
Adding insult to injury, House Financial Services Chairman Spencer Bachus (R-AL) — who represents Jefferson County — not only fought against passage of the Dodd-Frank financial reform law, but is still trying to slow down the regulation of derivatives like those that decimated his constituents’ community, leaving the door open for the same sort of toxic deal to take place again.