Bloomberg has done an excellent write-up of yet another gnarly development for Jefferson County, Alabama, the locale that was on the business end of a multibillion-dollar fleecing at the hands of J.P. Morgan Chase and other banks.
The citizens of the Birmingham, Alabama area years ago got themselves into trouble when corrupt local officials borrowed billions to pay for an elaborate new sewer system (which they'd been forced to build as a result of an EPA lawsuit). The local pols then doubled down on their corruption and stupidity when they ran to Wall Street to refinance the County's debt into the future, signing the citizens of JeffCo up for billions more in finance charges.
It has been established in various courts that bank officials literally bribed Jefferson County Commissioners to refinance using outrageously expensive interest rate swap deals, but despite a number of convictions of local pols like former Commissioner Larry Langford (who got 15 years for accepting bribes), Jefferson County will still be stuck paying this tab for the next gazillion years.
All of which sucks, of course, but the news keeps getting worse. The House Financial Services Committee has just voted to delay the scheduled implementation of reforms in the Dodd-Frank bill that would limit the ability of banks to pull Jefferson-County style scams in the future. Among other things, the new rules would have required banks to act in the best interests of their clients, and disclose daily pricing information about swaps, making it harder for banks to gouge clients.
In Jefferson County, the Alabamans were massively overcharged by Chase and other banks in large part because interest rate swaps, unlike, say, stocks, are not traded on open exchanges, so nobody knows how much they really cost. The situation is similar to what sports betting would be like if casinos did not publish the point spreads. If you walk into a casino the day before the Super Bowl and you're told the spread is Green Bay -6, you might think you're getting a good deal – but the actual spread might be nine or ten points. Wall Street is making a killing similarly overcharging states and cities and counties (and even countries like Greece) for interest-rate swaps, regularly stealing half a touchdown here and there in these billion-dollar finance transactions.
The Dodd-Frank bill, ball-less as it mostly was, did have a few provisions in it that would have tightened up the rules governing such derivative transactions. But the House Financial Services Committee voted to stall implementation of these new rules until September 2012, at the very least. The cruel irony here is that the Committee is chaired by... Jefferson County's own congressman!
That's right: Alabama Republican Spencer Bachus, who up until recently was sounding like a a real critic of these banking practices. This was Bachus a few years ago, making his own casino comparison:
When you have a county or city that is basically unsophisticated dealing with Wall Street professionals it's very similar to a person walking into a casino where the house always wins. Simply, the county and the Wall Street firms gambled with ratepayers money. While interest rates were low in the beginning, things ultimately blew up when the auction rate securities market collapsed.
That was then. Now, Bachus is the driving force behind this latest move to delay reforms. Wonder why? Just look to see who happens to be the top contributor to Bachus's campaigns for his career: J.P. Morgan Chase. Bloomberg elaborated on Bachus's ties to Wall Street, describing him as the third-biggest recipient of Wall Street cash in the House:
During his two decades in Congress, Bachus – like Frank, his predecessor as chairman – has nurtured ties to Wall Street donors who have poured cash into campaign chests of both Democrats and Republicans. He has received more than $7.1 million from political committees of finance, real estate and insurance companies and their employees, according to the Center for Responsive Politics, a Washington group that tracks campaign donations. That’s more than any House member since 1989 aside from the Republicans’ two top leaders, Speaker John Boehner and Majority Leader Eric Cantor.
If you read the whole Bloomberg piece you'll see other villains here, including Barney Frank and Michelle Bachmann(who is seeking to have all of Dodd-Frank overturned). But Bachus is the big story here. Here you have a congressman who represents a district that just happens to be the most conspicuous group of Main-Street victims of predatory banking practices in all of America -- and even he can't find a way to man up and do the right thing for his voters.
The other angle here is how finance reform inevitably gets whittled down into nothing. Dodd-Frank to begin with was maybe a ten-percent reform effort; the finance lobby killed about 90 percent of the real stuff before it even got voted on. The ten percent that did make it into "law" was still in limbo, as it always is after such laws are passed, while regulators hammered out the actual procedures for implementing the new legislation. These rulemaking processes inevitably take place in conference sessions heavily attended by industry stooges and lobbyists, with reform advocates seldom having even one or two voices at the table. You can count on another five percent disappearing in that process, if not more.
And now here comes the way to deal with the last five percent: stall. When all else fails, go into the four-corner offense and wait out the public. They will eventually forget, or else the political winds will change. It's really a beautiful demonstration of political organization and willpower – too bad it's, you know, evil. All this for a new sewer!
For more on the Jefferson County mess, check out the Rolling Stone story we did on it last year.