The Ruthless Truth blog

Wednesday, September 1, 2010

10 Highest-Paid CEOs Who Laid Off The Most Workers

Institute for Policy Studies

Nathaniel Cahners Hindman – Huffington Post

Ivan Seidenberg – Verizon

A grim fact of the recession is that it pays to lay people off.

The CEOs who laid off the most employees during the recession are also the CEOs who took home the biggest pay checks, according to a study released last week.

CEOs of the 50 U.S. firms that slashed the most jobs between November 2008 and April 2010 took in 42 percent more than the average CEO at an S&P 500 firm, according to the 17th annual Executive Excess studyby the Institute for Policy Studies, a progressive Washington think tank.

The study (PDF) also found that 36 of the 50 layoff leaders "announced their mass layoffs at a time of positive earnings reports," suggesting a trend of "squeezing workers to boost profits and maintain high CEO pay."

The 10 "highest-paid CEO layoff leaders" ranked in the report include the CEO of Hewlett-Packard, Mark Hurd, who earned $24.2 million in 2009 as the company laid off 6,400 workers and Walmart CEO Michael Duke, who earned $19.2 million as the company laid off 13,350 workers. No Wall Street banks were included in this list, but three banks — Citigroup, Bank Of America and JP Morgan — showed up on the study’s list of the 50 firms that laid off the most employees.

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Posted by Activist at 12:03 PM Labels: CEO layoff leaders, companies with most layoffs, highest paid CEOs, Institute for Policy Studies 0 comments

10 Highest-Paid CEOs Who Laid Off The Most Workers

Doomsday Scenario: Food Prices Shoot Through the Roof

Pravda
The worst weather on record coupled with the practice of speculation in the commodities markets are set to send food prices skyrocketing, bringing misery and starvation to large swathes of the world’s population. Are we set to see food riots this winter?
In the USA, Walmart has already announced a price hike of 5.8% on average for a 31-item basic basket for this Autumn. The long-term rise, however, is far more frightening, with the UNO predicting an increase of 60 per cent by 2030.
What is happening?
When there is a massive price spike, such as the case in recent years, followed by more price rises (as is the case today) the markets panic and speculative buying sends the prices through the roof. The market economy system is indeed not all about supply and demand but is also, and fundamentally, fuelled by speculative trading, with spot buyers buying future positions of commodities. When they are scarce, and the more so when the market senses that a scarcity exists, the price goes up.
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Related Article:
USDA Reports Food Shortages: Wall Street "Caught Off Guard" By Severity

Posted by Activist at 9:18 AM Labels: extreme weather, food prices rise, food prices skyrocketing, food shortages, scarcity 2 comments

Doomsday Scenario: Food Prices Shoot Through the Roof

Obama Needs Your 401(k) to Balance His Budget

Bob Adelmann
The New American
The Obama administration is “taking the first steps to confiscate retirement dollars,” according to Dr. Jerome Corsi who predicts that the end result will be retirees with 401(k) plans holding near-worthless government debt “that will be paid off in a devalued currency worth … pennies on the dollar.”
The move to confiscate those retirement dollars for government purposes was best illustrated by Christina Kirchner, President of Argentina, in 2008 when she announced plans to seize her citizens’ private pension funds. Writers at the Heritage Foundation said that while Kirchner claimed such seizure was necessary to protect her citizens’ investment accounts from the global meltdown, “most observers believe[d] her real motive [was] to use the $30 billion in seized assets to ease the massive debt obligations her leftist spendthrift government [had] run up.” The Wall Street Journal agreed, saying that “taking over the … pension fund assets [would] ease the cash crunch faced by [her] government.”
Corsi said he has a letter from the Treasury Department, Bureau of Public Debt, informing U.S. citizens that the federal government is rolling out a new program called “Treasury Direct” that will allow citizens “to purchase, manage, and redeem…savings bonds” electronically, as well as offering an option to purchase such bonds automatically through payroll savings or a personal checking account. This happened to coincide nicely, according to Corsi, with a bill offered by Senator John Kerry (D-Mass.) to create “Automatic IRAs” that would require all employers and employees to invest in IRAs using that automatic deduction option, “whether they want to do so or not.”
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Related Article:
Capital Controls: The Final Phase in the Great Looting of America

Posted by Activist at 9:03 AM Labels: 401k, Automatic IRAs, capital controls, forced investment into Treasury bonds, retirement funds 0 comments

Obama Needs Your 401(k) to Balance His Budget

Global Collapse of the Fiat Money System

Too Big To Fail Global Banks Will Collapse Between Now and First Quarter 2011 When Quantitative Easing Has Run Its Course and Fails

Mathias Chang
Global Research
Readers of my articles will recall that I have warned as far back as December 2006, that the global banks will collapse when the Financial Tsunami hits the global economy in 2007. And as they say, the rest is history.
Quantitative Easing (QE I) spearheaded by the Chairman of Federal Reserve, Ben Bernanke delayed the inevitable demise of the fiat shadow money banking system slightly over 18 months.
That is why in November of 2009, I was so confident to warn my readers that by the end of the first quarter of 2010 at the earliest or by the second quarter of 2010 at the latest, the global economy will go into a tailspin. The recent alarm that the US economy has slowed down and in the words of Bernanke “the recent pace of growth is less vigorous than we expected” has all but vindicated my analysis. He warned that the outlook is uncertain and the economy “remains vulnerable to unexpected developments”.

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Posted by Activist at 8:20 AM Labels: dollar collapse, economic collapse, economic crisis, fiat currency, fiat money, monetary system, stock crash 2 comments

Global Collapse of the Fiat Money System

Can Legalizing Marijuana Save California, Our Republic?

Eric Blair
Activist Post
America, and especially California, are in dire economic straits.  Their day of fiscal reckoning is coming and it’s not going to be pretty.  Consequently, it is has been suggested that something dramatic will have to happen for Congress to pass any form of relief because the American public was bitterly against the TARP and the Stimulus bill.  I’m not advocating another massive bailout for the states, but it seems that if something meaningful is not done soon to restore economic viability to the United States,  it will shatter into a million pieces.
Perhaps a shattering of current systems is what is needed to rebuild local economies with truly free markets. We certainly can’t count on the anti-capitalism mega-monopolies, who have merged with Federal and state governments, to fix this mess and provide for our local well-being.  The economy must grow one town, one city, and one state at a time in a free and organic way.  Incidentally, our Republic was designed to allow this local freedom to govern and grow the economy as they see fit.

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Posted by Activist at 7:57 AM Labels: California, drug war, legalize weed, Marijuana, marijuana decriminalization, marijuana policies, medical marijuana, Prop 19 3 comments

Can Legalizing Marijuana Save California, Our Republic?

Midwest survey suggests major recession fears

Associated Press
OMAHA, Neb. — More than a third of supply managers in nine Midwest and Plains states surveyed for a regional business index expect a recession in 2011.
As part of the Mid-America report released Wednesday, supply managers were asked their expectations for 2011, and 35 percent said a recession was likely or very likely.
The August overall economic index dipped to 55.8 from 60.8 in July.
The report uses a collection of indexes ranging from zero to 100. Any score above 50 suggests economic growth in the next three to six months, while a score below 50 suggests a contracting economy. The report is overseen by Creighton University economist Ernie Goss.
States in the survey are Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota.

Posted by Activist at 7:45 AM Labels: Great Recession, midwest states, recession, survey suggests recession fears 0 comments

Midwest survey suggests major recession fears

Excuse to Expand the War?: US adds Pakistani Taliban to terrorism blacklist

Matthew Lee
Associated Press
WASHINGTON — The Obama administration on Wednesday added the Pakistani Taliban to its international terrorism blacklist, targeting the group blamed for the failed car bombing in New York’s Times Square and its leaders with financial and travel sanctions.
The group, known as the Tehrik-e-Taliban or TTP, threatens U.S. national security, Secretary of State Hillary Rodham Clinton said in a notice published in the Federal Register. She designated the group a "foreign terrorist organization" under U.S. law.
In addition, Clinton named the group and its top leaders, Hakimullah Mehsud and Wali Ur Rehman, "specially designated global terrorists," a classification that imposes additional State and Treasury department sanctions.

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Posted by Activist at 7:40 AM Labels: expanding wars, foreign terrorist organization, Pakistan, pakistani taliban, terrorist blacklist 0 comments

Excuse to Expand the War?: US adds Pakistani Taliban to terrorism blacklist

Problem bank list climbs to 829

Hibah Yousef

CNN Money

The government’s list of troubled banks hit its highest level since 1993 during the second quarter, although the pace of growth continued to slow, according to a government report released Tuesday.

The number of banks at risk of failing rose by 53 to 829, the Federal Deposit Insurance Corp. said in its quarterly survey of the nation’s banking system. That increase marks the smallest rise since the first quarter of 2009.

However, it’s still nearly double the 416 banks that were on the FDIC’s watch list a year ago and is up from 775 in the first quarter of this year.

Banks that end up on the problem list are considered the most likely to fail. But few of the lenders on the list actually reach the point of failure. On average, just 13% of banks on the FDIC’s problem list have been seized and shuttered by regulators.

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Posted by Activist at 7:12 AM Labels: bank closures, FDIC, FDIC watch list, problem banks, troubled banks 0 comments

Problem bank list climbs to 829

Survival Personality: Develop Your Intuition – Modern Homesteading

Matthew Stein
Mother Earth News
The following is an excerpt from When Technology Fails by Matthew Stein (Chelsea Green, 2008). This comprehensive primer on sustainable living skills — from food and water to first-aid and crisis management skills — will prepare you to live in the face of potential disasters coming in the form of social upheaval, economic meltdown or environmental catastrophe. This excerpt is from Chapter 4, “Emergency Measures for Survival.”
The best survivors spend almost no time, especially in emergencies, getting upset about what has been lost, or feeling distressed about things going badly … Life’s best survivors can be both positive and negative, both optimistic and pessimistic at the same time. — Al Siebert, Ph.D., The Survivor Personality
The struggle for survival is a fascinating and inspiring subject, forming the basis for many of the most memorable books and movies. Psychologist Al Siebert’s personal fascination with survivors began when he received his military training from a group of veteran paratroopers. His teachers were legendary members of the 503rd Airborne Infantry Regiment. They had lost nine out of 10 members in combat in the Korean War. Siebert found that these “survivors” were not the crusty, yelling drill sergeants that he had anticipated. They were tough, yet showed patience. They had a good sense of humor and were likely to laugh at mistakes. They were positive, yet also looked at the downside of things. They didn’t act mean or tough, even though they could be as mean and tough as anyone. Siebert noticed that each of these men had a type of personal radar that was always on “scan.” He realized it was not dumb luck that had brought these men through their ordeals, but a synergistic combination of qualities that tilted the odds in their favor. Al believes that we can all benefit in our daily lives by nurturing and developing these positive character traits within our own personalities.

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Posted by Activist at 7:02 AM Labels: homesteading, modern homesteading, self sufficiency, self sufficient lifestyle, survival, survival skills, Survivalists 0 comments

Survival Personality: Develop Your Intuition – Modern Homesteading

Vaccine jabs being pushed by medical-industrial complex

Andrew Griffin
Oklahoma Watchdog
OKLAHOMA CITY — As we noted here at Oklahoma Watchdog a week or so ago, the pharmacy chain Walgreens has been aggressively pushing this season’s combined seasonal/H1N1 flu vaccine. This, after 2009′s swine-flu scare that resulted in tons of vaccine that was left to rot in warehouses, resulting in lost revenue for vaccine manufacturers and others who profit off of health-related scaremongering.
And while reading USA Today this morning I couldn’t help but notice the full-page Walgreens ad on 7A where a “mom” says she is arming herself for the ones she loves, saying, “I got a flu shot for my daughter.” That last part was underlined in the ad.
And now we see there is a strong effort afoot to make vaccine mandatory for health workers. As a Los Angeles Times story reported today that hospital chains are increasingly forcing employees to get vaccines or lose their job. The State of New York is working on a plan to make state health workers get the jab.
Notes the LAT: “Most studies suggest that healthcare workers should be vaccinated to help stop the spread of flu. But surveys show a sizable portion of people who work in hospitals, clinics and doctor’s offices don’t want to get an annual flu shot. According to a Rand Corp survey issued last year, 39% of healthcare professionals said they would not get a flu vaccine, even with the threat of pandemic flu.
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Posted by Activist at 6:50 AM Labels: flu shots, flu vaccines, H1N1, mandatory vaccines, seasonal flu, swine flu, Walgreens 0 comments

Vaccine jabs being pushed by medical-industrial complex

"Brave New World" Psychiatry Pushing Nerve Drugs

Micheal Sunanda

Activist Post

Our growing national epidemic of psychiatric drugs smothers natural human emotions, sensitivity, and openness in relationships.  After shrinks have labeled someone as high anxiety, troubled, manic, depressed, bipolar, etc., they have the cure ready to adjust the behavior to their liking. 

Big Pharma has hundreds of psychiatric terms defining victims’ psyche and behavior to treat (or poison?) them to adjust, be nice, obey, consume, work, be normal and numb, thus belonging to our "great society."  The billions in profits for Pharma-Chem motivates them to diagnose emotional problems with shrink terms that the makers themselves have designed drugs to control.  Victims of domestic violence are treated with strong nerve drugs to relax, go to work, to sleep, or to school.  Millions of U.S. school kids are drugged to pay attention and to follow class rules to learn subjects for corporate employment in the current U.S. war economy.

Some opponents of shrink drugs are exposing these medical diagnoses, treatments, and the labeling conditions of sick people, students, drug addicts, depressed women, mad teens, insomniacs, lost souls, the unsexual, and even menopause as mental disorders to treat with drugs.  The drug pushers want life-long dependency on prescriptions the patients or the government pays for.  This drugging further damages one’s natural wounded sensitivity after years of neglect and/or abuse from childhood on.  The truth is that many of emotional, hyper, or depressed people were victims of womb, birth and/or bonding trauma, circumcision, sexual abuse, or physical and mental punishments, which has damaged their psyche — sometimes for life.  Drugs to mask the effects only prolong and/or exacerbate the pain.

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Posted by Activist at 6:45 AM Labels: Big Pharma, Micheal Sunanda, natural living, Oness Press, pharmaceutical drugging of children, psychiatric drugs, psychiatry abuse 0 comments

"Brave New World" Psychiatry Pushing Nerve Drugs

The Greatest Covert Operation Ever: The Politics of Terror as the Business of Terror

Douglas Valentine
Global Research

The politics of terror are the greatest covert operation ever.
In explaining why, I’ll begin by defining some terms, because, when discussing the covert op called “the politics of terror,” words and their management are all important.
How are politics and terror actually defined: how are these meanings manipulated; for what purposes, and by whom?
Terrorism is defined as "violence against civilians intended to obtain a political purpose." This is an ambiguous phrase, which begs the questions: what are politics and violence?
Politics is defined as “the process by which groups of people make collective decisions.” And violence is the use of force to compel a person or group to do or think something against their will.  That includes the violence of words – of threatening to hurt – and of social structures, as well as the violence of deeds.  
So, by definition, terrorism is political violence – hurting people, or threatening to hurt them, in order to make them govern themselves against their will.
In America , terrorism is always condemned by the government, and, accordingly, America is never a perpetrator of terrorism, but always the victims of it.  The US war on terror is the ultimate expression of this principle: it is a military response to terrorism; violence in self-defense, not (ostensibly) violence for a political purpose.
That’s the official story – the assumption.  But I’m going to show that America does engage in terrorism – violence against civilians for political purposes.  This “state” terrorism, however, is covert, in so far as it is equated with national security, and thanks to that built-in ambiguity, it has both stated and unstated purpose.
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Posted by Activist at 6:43 AM Labels: conspiracies, covert operations, Douglas Valentine, politics of terror, state terrorism, terrorism, war on terror 0 comments

The Greatest Covert Operation Ever: The Politics of Terror as the Business of Terror

Death By Globalism: Economists Haven’t a Clue

Paul Craig Roberts
Prison Planet

Have economists made themselves irrelevant?  If you have any doubts, have a look at the current issue of the magazine, International Economy, a slick endorsed by former Federal Reserve chairmen Paul Volcker and Alan Greenspan, by Jean-Claude Trichet, president of the European Central Bank, by former Secretary of State George Shultz, and by the New York Times andWashington Post, both of which declare the magazine to be “ahead of the curve.”

The main feature of the current issue is “The Great Stimulus Debate” [PDF] Is the Obama fiscal stimulus helping the economy or hindering it?

Princeton economics professor and New York Times columnist Paul Krugman [Email him] and Moody’s Analytics chief economist Mark Zandi [Email him] represent the Keynesian view that government deficit spending is needed to lift the economy out of recession. Zandi declares that thanks to the fiscal stimulus, “The economy has made enormous progress since early 2009″[PDF], an opinion shared by the President’s Council of Economic Advisors and the Congressional Budget Office.

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Posted by Activist at 6:26 AM Labels: death

Activist Post

 

Russia got NATO secrets in Polish crash

In addition to the loss of nearly 100 pro-U.S. Polish leaders, the crash provided Moscow with a windfall of secrets.

Senate bank bill ‘sets up new supersnooping agencies’…

Criminal probe of Wall Street banks expands

U.S. authorities are expanding their probes of past mortgage securities deals, with New York’s attorney general opening an investigation into whether eight banks misled rating agencies, a source familiar with the matter said.

9 indicted on charges of accessing Obama records

Nine people were indicted Wednesday on federal charges of accessing President Barack Obama’s student loan records while they were employed for a Department of Education contractor in Iowa.

Gates Foundation Researches Nanoparticle Vaccines Triggered by Sweat

VIDEO: Raw Footage Of Violent Bailout Protests In Ireland

It’s not just Greece. Via The Daily Bail, here’s what the Irish street looks like, as protesters attempt to storm parliament in protest of bank bailouts.

Senate Rejects Regular Audits of Federal Reserve

The proposed legislation would only allow for a one-time examination by the Government Accountability Office that would focus on the Fed’s rescue of banks during the financial crisis of 2008.

Robot arm controlled by the mind

Experts at the medical technology company, Otto Bock Healthcare, which developed the mind-controlled arm, say it is the first project of its kind in Europe.

U.S. Probes Morgan Stanley

Prosecutors Look at Mortgage Securities; Firm Says It Hasn’t Been Contacted

Europe and America Morally and Financially Bankrupt

Big Brother Wants To Know How You Spend Your Money

Spanish prosecutors want 13 CIA agents arrested

California Now in Top Ten for Highest Government Default Probabilities in the World

Chief Justice Roberts: Kagan Asked Court to ‘Embrace Theory of First Amendment That Would Allow Censorship Not Only of Radio and Television Broadcasts, But Pamphlets and Posters’

US trade deficit biggest in more than two years

The US trade deficit widened for the second consecutive month in March to its highest level since December 2008, the Commerce Department reported Wednesday.

White House aims to use Deepwater disaster to win votes for US climate bill

Senators are set to take a last run at producing a climate and energy law tomorrow, betting on the spectre of environmental disaster raised by the BP oil spill to build support for a comprehensive overhaul of America’s energy strategy.

Panic Buying Of Physical Gold In Europe Threatens Depletion Of Austrian Mint

When global governments refuse to act responsibly toward their currency, the people will create their own currency. Welcome gold.
First Gold, Now Europe Running Out Of Silver

Bloomberg Wants ‘Big Brother Britain’ For NYC

Mayor Michael Bloomberg has his eye on more security against terror attacks. He went to London Tuesday to check out their surveillance camera system, one of the largest in the world.

NHS spending on ‘chemical cosh’ child-calming drugs soars by 60%

NHS spending on ‘chemical cosh’ drugs to treat hyperactivity has soared by two-thirds to £31million in just four years, new figures revealed yesterday.

Military Expands ‘Obama’s Gitmo’ in Afghanistan

The U.S. military is getting set to expand its controversial detention camp at Bagram Airfield in Afghanistan — just as new reports of a “black jail” inside the facility are surfacing.

They Walk. They Work. New DNA Robots Strut Their Tiny Stuff.

For the first time, microscopic robots made from DNA molecules can walk, follow instructions and work together to assemble simple products on an atomic-scale assembly line, mimicking the machinery of living cells, two independent research teams announced Wednesday.

Who’s running Europe? Now Obama pressures Spain over cuts after whispers he advised Merkel on saving the euro

Bankers jailed, sued as Iceland seeks culprits for crisis

More than a year and a half after Iceland’s major banks failed, all but sinking the country’s economy, police have begun rounding up a number of top bankers while other former executives and owners face a two-billion-dollar lawsuit.

Phantom Ray: Boeing unveils spy plane of the future… that doesn’t need a pilot

It may look like a futuristic starfighter, but this sleek gun-metal craft is Boeing’s latest unmanned spy plane.

Elena Kagan could reshape the US Supreme Court

For the first time since it was set up 221 years ago by America’s Protestant founding fathers, the US Supreme Court is poised to have a bench without a single Protestant justice, if Jewish candidate Elena Kagan is chosen.

Spain unveils billions in deficit cuts to halt eurozone crisis fears

Spain will slash public spending by €6bn and cut civil servants’ by 5pc salaries this year as part of a plan to ease fears the country could slide into a debt crisis like that of Greece.

‘We are once again the schmucks of Europe!’ German media’s verdict as anger at Greek bailout swells

Greece’s bailout marks a shift away from national control of budgetary policy

The European Commission and the IMF hope that a huge bailout package of €750 billion will stanch financial contagion in the eurozone from Greece to other Southern European economies.

Eastern Europe and the Balkans: From Socialist Bloc And Non-Alignment To U.S. Military Colonies

Eleven years ago today the North Atlantic Treaty Organization was in the seventh week of a bombing war against the Federal Republic of Yugoslavia, one which saw over 1,000 Western military planes fly over 38,000 combat missions, bombs dropped from the sky and Tomahawk cruise missiles launched from the Mediterranean Sea.

Intervention Alert – Here Comes The Bailout Bailout: European Cental Banks Gobbling Up Portuguese, Irish And Greek Government Bonds

The Second Leg of the Great Depression Was Caused by European Defaults

Hersh: US troops executing prisoners in Afghanistan

The journalist who helped break the story that detainees at the Abu Ghraib prison in Iraq were being tortured by their US jailers told an audience at a journalism conference last month that American soldiers are now executing prisoners in Afghanistan.

Europe Rewrites its Rule Book in Creating Fund to Contain Financial Crisis

The trillion-dollar program, to be underwritten largely by the 16 nations that use the euro and by the International Monetary Fund, represents a virtual discarding of Europe’s rule book.

Wall Street crash exposes world of stock market electronic trading

‘Vampire Squid’ Goldman Sachs confesses it is being investigated for helping Greece hide its debts

Stock market time bomb?

The derivatives market is now estimated at $700 trillion (notional, or face, value, not market value). The world’s gross domestic product in 2009: $69.8 trillion; America’s, $14.2 trillion. The total market cap of all major global stock markets? A mere $30 trillion. And the total amount of dollar bills in circulation, most of them abroad: $830 billion (not trillion).

Samuelson: Death Spiral of the Welfare State

Aging populations have been promised huge health and retirement benefits, which countries haven’t fully covered with taxes. The reckoning has arrived in Greece, but it awaits most wealthy societies.

BlackListed News

By MIKE WHITNEY

There’s something fishy about the SEC’s suit against Goldman Sachs. The timing seems particularly odd. Why did the SEC decide to drop this bombshell on a Friday, just when the market had reached a 12-month high and the economy was showing signs of improvement? Was it because they thought they might need the weekend to change course if the market suddenly plummeted 400 points? And why was Goldman picked over the other Wall Street banks? Was it because Obama knew that by targeting the most hated bank on Wall Street he could garner support for his reform agenda? The whole affair smacks of a political maneuver. Yes, the momentum IS building for regulatory reform, but the congress is still stuck in the mud, which makes the SEC suit look particularly suspicious, like a clever public relations ploy designed to push Obama’s toothless bill over the finish line.

There’s little doubt that Goldman is guilty of fraud. According to the SEC filing, they failed to make material disclosures about the synthetic collateralized debt obligations (CDO) they sold to their clients. These kamikaze CDOs were designed to blow up just months after they were constructed (which they did). According to former regulator William Black, "Goldman did not just withhold information, they told people, ‘Hey, the investment decisions are being made by experts who would only choose good quality stuff’, when in fact, the stuff that was put in was chosen because it was considered the most likely to suffer near-term downgrades." So they deliberately misled investors. That’s fraud. They also never told investors that the securities were selected (in part) by a prominent hedge fund manager, John Paulson, who planned to bet against the same CDO. That’s another no-no. So the suit looks reasonably straightforward. As SEC Director Division of Enforcement Robert Khuzami said, "The product was new and complex, but the deception and conflicts are old and simple." Indeed. What’s most shocking, is that Goldman was caught shafting its own clients to make a buck, which will no doubt haunt them for a very long time. Their reputation has suffered a major hit.

The New York Times Gretchen Morgenson and Louise Story co-authored a groundbreaking piece on CDO’s back in December 2009, which revealed the details of Goldmans activities. According to the Times:

"Goldman and other firms eventually used the C.D.O.’s to place unusually large negative bets that were not mainly for hedging purposes, and investors and industry experts say that put the firms at odds with their own clients’ interests.

“’The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,’ said Sylvain R. Raynes, an expert in structured finance at R & R Consulting in New York. ‘When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson’…..

"In early 2005, a group of prominent traders met at Deutsche Bank’s office in New York and drew up a new system, called Pay as You Go. This meant the insurance for those betting against mortgages would pay out more quickly….Other changes also increased the likelihood that investors would suffer losses if the mortgage market tanked.

"Banks also set up ever more complex deals that favored those betting against C.D.O.’s…..At Goldman, Mr. Egol structured some Abacus deals in a way that enabled those betting on a mortgage-market collapse to multiply the value of their bets, to as much as six or seven times the face value of those C.D.O.’s. When the mortgage market tumbled, this meant bigger profits for Goldman and other short sellers — and bigger losses for other investors." ("Banks Bundled Bad Debt, Bet Against It and Won", Gretchen Morgenson and Louise Story, New York Times.)

So, Goldman is a serial arsonist that has turned betting against its clients’ interests into a science. The Times article makes it clear that shorting subprime and luring gullible investors into the trap, was standard operating procedure. Goldman’s CEO Lloyd Blankfein dismisses the criticism with a wave of the hand saying, "They were sophisticated investors," which is the same as saying "buyer beware". It’s worth noting that shorting subprimes exacerbated the pain in housing by creating incentives for originators to issue more mortgages to people with poor credit. This prolonged the housing boom and deepened the recession when the bubble finally burst. The eventual downturn was largely engineered by Wall Street.

Still, this doesn’t explain why the SEC chose Goldman over the other investment banks that were engaged in the same type of activities. Keep in mind, the Abacus CDO deal only cost about $1 billion, small potatoes compared to the $100 billion hijinx at Lehman Bros. So, why isn’t Dick Fuld in leg-irons?

This is not a defense of Goldman. (They should throw the book at them) But Goldman is no guiltier than anyone else. So, what gives? The public is not ready to answer that question because they’re too swept up in schadenfreude; i.e., malicious pleasure in the misfortune of others. Everyone is savoring this intoxicating moment of payback where the deep-pocket bunko-artists finally get their comeuppance. But there may be more to this than meets the eye, part of a strategy to pass Obama’s reform bill or to give him a Teddy Roosevelt-makeover and to boost the Dems’ prospects for the upcoming midterms. After all, the Rubin-clones, Geithner and Summers, still haven’t gotten their pink slips. And Obama’s position on the main issues– "Too big to fail", OTC derivatives, off-balance sheet operations, securitization, ratings agencies and CFPA–hasn’t changed at all. Wouldn’t that be the logical place to start if Obama was serious about cleaning up Wall Street and reforming the system? Instead, all of the attention is focused the headline-grabbing slapdown of Goldman? Sorry, it doesn’t pass the smell test.

Many of the other banks were engaged in the same shenanigans as Goldman. Yves Smith at Naked Capitaism cites one example:

"The Wall Street Journal reports that Dutch bank Rabobank has filed a suit alleging that Merrill Lynch engaged in the same type of behavior as Goldman did with John Paulson, namely, devising a CDO on behalf of a hedge fund who was using it to take a short position, and not disclosing that fact to investors in the deal."

Of course, compared to Lehman Bros. $100 billion "Repo 105" off-balance sheet swindle, the Goldman scam looks trivial. So, where are the subpoenas, the indictments, the criminal prosecutions?

Last week, the Senate Subcommittee on Investigations exposed a veritable breeding-ground of larceny, malfeasance and fraud at Washington Mutual. Here’s a clip from Senator Carl Levin’s opening statement which sums up what was going on at WaMu:

"Tuesday’s hearing, shows how, over a 5-year period, from 2003 to 2008, Washington Mutual and its subprime lender, Long Beach, loaded up with risk. The bank dumped low-risk 30-year fixed loans in favor of high risk subprime, option ARM, and home equity loans. High risk loans grew from one-third to three-quarters of the bank’s home loan business.

"Those high risk loans were problem-plagued… In one instance, a year-long internal WaMu probe found that two of WaMu’s top loan producing offices were issuing loans with fraud rates of 58 per cent and 83 per cent…. At still another loan office, a sales associate admitted ‘manufacturing’ documents to support quick loan closings.

Washington Mutual’s shoddy lending practices affected more than its own operations. WaMu and Long Beach sold or securitized most of their loans. From 2000 to 2007, WaMu and Long Beach securitized at least $77 billion in subprime loans, stopping only when the subprime secondary market collapsed in September 2007. WaMu sold another $115 billion in Option ARM loans. Together, WaMu and Long Beach dumped hundreds of billions of dollars of toxic mortgages into the financial system like polluters dumping poison in a river." (Opening Statement of Sen. Carl Levin, D-Mich.: U.S. Senate Permanent Subcommittee on Investigations Hearing on Wall Street and the Financial Crisis: The Role of Bank Regulators)

Fake documents, bogus loans, fraud rates of 83 per cent, and West Coast boiler rooms dumping toxic sludge into the secondary market where it was scooped up by credulous investors. This is industrial scale white collar crime, and yet it barely found a spot on the back-pages of the nations newspapers. Why? Goldman’s puny CDO doesn’t hold a candle to WaMu’s gigantic ripoff? Is this selective justice or just public relations?

And then there’s Citigroup, which appeared before the Financial Crisis Inquiry Commission in early April. Here’s how ex-regulator William Black summarized Citi’s testimony:

"Citicorp’s top mortgage credit officer, Richard Bowen, testified on April 7 that while Citi represented to Fannie and Freddie that the toxic mortgages it was selling them were ‘conforming’ — 60 percent were not.

"He warned Citi’s top managers, including Robert Rubin. They jumped right on the problem (which will cost the taxpayers hundreds of billions of dollars) — by allowing things to get worse." (NY Times William Black, "So much we don’t know.")

Bowen admits that Citi was deliberately defrauding Uncle Sam by using Fannie as a toxic landfill to unload non-performing garbage that it knew was only worth pennies on the dollar. And, after Bowden issued his warning, the dumping actually intensified. So, where are the handcuffs, the SWAT Teams, the orange jumpsuits?

Lehman, Citi and WaMu; three examples of corruption in a sector where corruption is the norm. Nothing about the Goldman case stands out, except for the fact that the Goldman logo fuels populist rage. Corruption on Wall Street is pervasive and deeply-rooted. It is not the purview of any one institution.

Obama has the wind at his back. Now that he’s bloodied Goldman’s nose and gotten the public riled up, his reform bill will probably pass. But Obama’s financial reforms are much like Obama’s health care; half-loaf remedies that translate into a few extra votes on election day, but merely transfer more middle class wealth to giant corporations. It’s pathetic. It looks like we’ve entered another era of "triangulation".

Mike Whitney lives in Washington state. He can be reached at fergiewhitney@msn.com

 

http://www.counterpunch.org/whitney04192010.html

by Matt Taibbi

Global Research, April 12, 2010

Rolling Stone – 2010-03-31

How the nation’s biggest banks are ripping off American cities with the same predatory deals that brought down Greece
If you want to know what life in the Third World is like, just ask Lisa Pack, an administrative assistant who works in the roads and transportation department in Jefferson County, Alabama. Pack got rudely introduced to life in post-crisis America last August, when word came down that she and 1,000 of her fellow public employees would have to take a little unpaid vacation for a while. The county, it turned out, was more than $5 billion in debt — meaning that courthouses, jails and sheriff’s precincts had to be closed so that Wall Street banks could be paid.

As public services in and around Birmingham were stripped to the bone, Pack struggled to support her family on a weekly unemployment check of $260. Nearly a fourth of that went to pay for her health insurance, which the county no longer covered. She also fielded calls from laid-off co-workers who had it even tougher. “I’d be on the phone sometimes until two in the morning,” she says. “I had to talk more than one person out of suicide. For some of the men supporting families, it was so hard — foreclosure, bankruptcy. I’d go to bed at night, and I’d be in tears.”

Homes stood empty, businesses were boarded up, and parts of already-blighted Birmingham began to take on the feel of a ghost town. There were also a few bills that were unique to the area — like the $64 sewer bill that Pack and her family paid each month. “Yeah, it went up about 400 percent just over the past few years,” she says.

The sewer bill, in fact, is what cost Pack and her co-workers their jobs. In 1996, the average monthly sewer bill for a family of four in Birmingham was only $14.71 — but that was before the county decided to build an elaborate new sewer system with the help of out-of-state financial wizards with names like Bear Stearns, Lehman Brothers, Goldman Sachs and JP Morgan Chase. The result was a monstrous pile of borrowed money that the county used to build, in essence, the world’s grandest toilet — “the Taj Mahal of sewer-treatment plants” is how one county worker put it. What happened here in Jefferson County would turn out to be the perfect metaphor for the peculiar alchemy of modern oligarchical capitalism: A mob of corrupt local officials and morally absent financiers got together to build a giant device that converted human shit into billions of dollars of profit for Wall Street — and misery for people like Lisa Pack.

And once the giant shit machine was built and the note on all that fancy construction started to come due, Wall Street came back to the local politicians and doubled down on the scam. They showed up in droves to help the poor, broke citizens of Jefferson County cut their toilet finance charges using a blizzard of incomprehensible swaps and refinance schemes — schemes that only served to postpone the repayment date a year or two while sinking the county deeper into debt. In the end, every time Jefferson County so much as breathed near one of the banks, it got charged millions in fees. There was so much money to be made bilking these dizzy Southerners that banks like JP Morgan spent millions paying middlemen who bribed — yes, that’s right, bribed, criminally bribed — the county commissioners and their buddies just to keep their business. Hell, the money was so good, JP Morgan at one point even paid Goldman Sachs $3 million just to back the fuck off, so they could have the rubes of Jefferson County to fleece all for themselves.

Birmingham became the poster child for a new kind of giant-scale financial fraud, one that would threaten the financial stability not only of cities and counties all across America, but even those of entire countries like Greece. While for many Americans the financial crisis remains an abstraction, a confusing mess of complex transactions that took place on a cloud high above Manhattan sometime in the mid-2000s, in Jefferson County you can actually see the rank criminality of the crisis economy with your own eyes; the monster sticks his head all the way out of the water. 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 — all the way down to Lisa Pack’s sewer bill and the mass layoffs in Birmingham.

Once you follow that trail and understand what took place in Jefferson County, there’s really no room left for illusions. We live in a gangster state, and our days of laughing at other countries are over. It’s our turn to get laughed at. In Birmingham, lots of people have gone to jail for the crime: More than 20 local officials and businessmen have been convicted of corruption in federal court. Last October, right around the time that Lisa Pack went back to work at reduced hours, Birmingham’s mayor was convicted of fraud and money-laundering for taking bribes funneled to him by Wall Street bankers — everything from Rolex watches to Ferragamo suits to cash. But those who greenlighted the bribes and profited most from the scam remain largely untouched. “It never gets back to JP Morgan,” says Pack.

If you want to get all Glenn Beck about it, you could lay the blame for this entire mess at the feet of weepy, tree-hugging environmentalists. It all started with the Cahaba River, the longest free-flowing river in the state of Alabama. The tributary, which winds its way through Birmingham before turning diagonally to empty out near Selma, is home to more types of fish per mile than any other river in America and shelters 64 rare and imperiled species of plants and animals. It’s also the source of one of the worst municipal financial disasters in American history.

Back in the early 1990s, the county’s sewer system was so antiquated that it was leaking raw sewage directly into the Cahaba, which also supplies the area with its drinking water. Joined by well — intentioned citizens from the Cahaba River Society, the EPA sued the county to force it to comply with the Clean Water Act. In 1996, county commissioners signed a now-infamous consent decree agreeing not just to fix the leaky pipes but to eliminate all sewer overflows — a near-impossible standard that required the county to build the most elaborate, ecofriendly, expensive sewer system in the history of the universe. It was like ordering a small town in Florida that gets a snowstorm once every five years to build a billion-dollar fleet of snowplows.

The original cost estimates for the new sewer system were as low as $250 million. But in a wondrous demonstration of the possibilities of small-town graft and contract-padding, the price tag quickly swelled to more than $3 billion. County commissioners were literally pocketing wads of cash from builders and engineers and other contractors eager to get in on the project, while the county was forced to borrow obscene sums to pay for the rapidly spiraling costs. Jefferson County, in effect, became one giant, TV-stealing, unemployed drug addict who borrowed a million dollars to buy the mother of all McMansions — and just as it did during the housing bubble, Wall Street made a business of keeping the crook in his house. As one county commissioner put it, “We’re like a guy making $50,000 a year with a million-dollar mortgage.”

To reassure lenders that the county would pay its mortgage, commissioners gave the finance director — an unelected official appointed by the president of the commission — the power to automatically raise sewer rates to meet payments on the debt. The move brought in billions in financing, but it also painted commissioners into a corner. If costs continued to rise — and with practically every contractor in Alabama sticking his fingers on the scale, they were rising fast — officials would be faced with automatic rate increases that would piss off their voters. (By 2003, annual interest on the sewer deal had reached $90 million.) So the commission reached out to Wall Street, looking for creative financing tools that would allow it to reduce the county’s staggering debt payments.

Wall Street was happy to help. First, it employed the same trick it used to fuel the housing crisis: It switched the county from a fixed rate on the bonds it had issued to finance the sewer deal to an adjustable rate. The refinancing meant lower interest payments for a couple of years — followed by the risk of even larger payments down the road. The move enabled county commissioners to postpone the problem for an election season or two, kicking it to a group of future commissioners who would inevitably have to pay the real freight.

But then Wall Street got really creative. Having switched the county to a variable interest rate, it offered commissioners a crazy deal: For an extra fee, the banks said, we’ll allow you to keep paying a fixed rate on your debt to us. In return, we’ll give you a variable amount each month that you can use to pay off all that variable-rate interest you owe to bondholders.

In financial terms, this is known as a synthetic rate swap — the spidery creature you might have read about playing a role in bringing down places like Greece and Milan. On paper, it made sense: The county got the stability of a fixed rate, while paying Wall Street to assume the risk of the variable rates on its bonds. That’s the synthetic part. The trouble lies in the rate swap. The deal only works if the two variable rates — the one you get from the bank, and the one you owe to bondholders — actually match. It’s like gambling on the weather. If your bondholders are expecting you to pay an interest rate based on the average temperature in Alabama, you don’t do a rate swap with a bank that gives you back a rate pegged to the temperature in Nome, Alaska.

Not unless you’re a fucking moron. Or your banker is JP Morgan.

In a small office in a federal building in downtown Birmingham, just blocks from where civil rights demonstrators shut down the city in 1963, Assistant U.S. Attorney George Martin points out the window. He’s pointing in the direction of the Tutwiler Hotel, once home to one of the grandest ballrooms in the South but now part of the Hampton Inn chain.

“It was right around the corner here, at the hotel,” Martin says. “That’s where they met — that’s where this all started.”

They means Charles LeCroy and Bill Blount, the two principals in what would become the most important of all the corruption cases in Jefferson County. LeCroy was a banker for JP Morgan, serving as managing director of the bank’s southeast regional office. Blount was an Alabama wheeler-dealer with close friends on the county commission. For years, when Wall Street banks wanted to do business with municipalities, whether for bond issues or rate swaps, it was standard practice to reach out to a local sleazeball like Blount and pay him a shitload of money to help seal the deal. “Banks would pay some local consultant, and the consultant would then funnel money to the politician making the decision,” says Christopher Taylor, the former head of the board that regulates municipal borrowing. Back in the 1990s, Taylor pushed through a ban on such backdoor bribery. He also passed a ban on bankers contributing directly to politicians they do business with — a move that sparked a lawsuit by one aggrieved sleazeball, who argued that halting such legalized graft violated his First Amendment rights. The name of that pissed-off banker? “It was the one and only Bill Blount,” Taylor says with a laugh.

Blount is a stocky, stubby-fingered Southerner with glasses and a pale, pinched face — if Norman Rockwell had ever done a painting titled “Small-Town Accountant Taking Enormous Dump,” it would look just like Blount. LeCroy, his sugar daddy at JP Morgan, is a tall, bloodless, crisply dressed corporate operator with a shiny bald head and silver side patches — a cross between Skeletor and Michael Stipe.

The scheme they operated went something like this: LeCroy paid Blount millions of dollars, and Blount turned around and used the money to buy lavish gifts for his close friend Larry Langford, the now-convicted Birmingham mayor who at the time had just been elected president of the county commission. (At one point Blount took Langford on a shopping spree in New York, putting $3,290 worth of clothes from Zegna on his credit card.) Langford then signed off on one after another of the deadly swap deals being pushed by LeCroy. Every time the county refinanced its sewer debt, JP Morgan made millions of dollars in fees. Even more lucrative, each of the swap contracts contained clauses that mandated all sorts of penalties and payments in the event that something went wrong with the deal. In the mortgage business, this process is known as churning: You keep coming back over and over to refinance, and they keep “churning” you for more and more fees. “The transactions were complex, but the scheme was simple,” said Robert Khuzami, director of enforcement for the SEC. “Senior JP Morgan bankers made unlawful payments to win business and earn fees.”

Given the shitload of money to be made on the refinancing deals, JP Morgan was prepared to pay whatever it took to buy off officials in Jefferson County. In 2002, during a conversation recorded in Nixonian fashion by JP Morgan itself, LeCroy bragged that he had agreed to funnel payoff money to a pair of local companies to secure the votes of two county commissioners. “Look,” the commissioners told him, “if we support the synthetic refunding, you guys have to take care of our two firms.” LeCroy didn’t blink. “Whatever you want,” he told them. “If that’s what you need, that’s what you get. Just tell us how much.”

Just tell us how much. That sums up the approach that JP Morgan took a few months later, when Langford announced that his good buddy Bill Blount would henceforth be involved with every financing transaction for Jefferson County. From JP Morgan’s point of view, the decision to pay off Blount was a no-brainer. But the bank had one small problem: Goldman Sachs had already crawled up Blount’s trouser leg, and the broker was advising Langford to pick them as Jefferson County’s investment bank.

The solution they came up with was an extraordinary one: JP Morgan cut a separate deal with Goldman, paying the bank $3 million to fuck off, with Blount taking a $300,000 cut of the side deal. Suddenly Goldman was out and JP Morgan was sitting in Langford’s lap. In another conversation caught on tape, LeCroy joked that the deal was his “philanthropic work,” since the payoff amounted to a “charitable donation to Goldman Sachs” in return for “taking no risk.”

That such a blatant violation of anti-trust laws took place and neither JP Morgan nor Goldman have been prosecuted for it is yet another mystery of the current financial crisis. “This is an open-and-shut case of anti-competitive behavior,” says Taylor, the former regulator.

With Goldman out of the way, JP Morgan won the right to do a $1.1 billion bond offering — switching Jefferson County out of fixed-rate debt into variable-rate debt — and also did a corresponding $1.1 billion deal for a synthetic rate swap. The very same day the transaction was concluded, in May 2003, LeCroy had dinner with Langford and struck a deal to do yet another bond-and-swap transaction of roughly the same size. This time, the terms of the payoff were spelled out more explicitly. In a hilarious phone call between LeCroy and Douglas MacFaddin, another JP Morgan official, the two bankers groaned aloud about how much it was going to cost to satisfy Blount:

LeCroy: I said, “Commissioner Langford, I’ll do that because that’s your suggestion, but you gotta help us keep him under control. Because when you give that guy a hand, he takes your arm.” You know?

MacFaddin: [Laughing] Yeah, you end up in the wood-chipper.

All told, JP Morgan ended up paying Blount nearly $3 million for “performing no known services,” in the words of the SEC. In at least one of the deals, Blount made upward of 15 percent of JP Morgan’s entire fee. When I ask Taylor what a legitimate consultant might earn in such a circumstance, he laughs. “What’s a ‘legitimate consultant’ in a case like this? He made this money for doing jack shit.”

As the tapes of LeCroy’s calls show, even officials at JP Morgan were incredulous at the money being funneled to Blount. “How does he get 15 percent?” one associate at the bank asks LeCroy. “For doing what? For not messing with us?”

“Not messing with us,” LeCroy agrees. “It’s a lot of money, but in the end, it’s worth it on a billion-dollar deal.”

That’s putting it mildly: The deals wound up being the largest swap agreements in JP Morgan’s history. Making matters worse, the payoffs didn’t even wind up costing the bank a dime. As the SEC explained in a statement on the scam, JP Morgan “passed on the cost of the unlawful payments by charging the county higher interest rates on the swap transactions.” In other words, not only did the bank bribe local politicians to take the sucky deal, they got local taxpayers to pay for the bribes. And because Jefferson County had no idea what kind of deal it was getting on the swaps, JP Morgan could basically charge whatever it wanted. According to an analysis of the swap deals commissioned by the county in 2007, taxpayers had been overcharged at least $93 million on the transactions.

JP Morgan was far from alone in the scam: Virtually everyone doing business in Jefferson County was on the take. Four of the nation’s top investment banks, the very cream of American finance, were involved in one way or another with payoffs to Blount in their scramble to do business with the county. In addition to JP Morgan and Goldman Sachs, Bear Stearns paid Langford’s bagman $2.4 million, while Lehman Brothers got off cheap with a $35,000 “arranger’s fee.” At least a dozen of the county’s contractors were also cashing in, along with many of the county commissioners. “If you go into the county courthouse,” says Michael Morrison, a planner who works for the county, “there’s a gallery of past commissioners on the wall. On the top row, every single one of ‘em but two has been investigated, indicted or convicted. It’s a joke.”

The crazy thing is that such arrangements — where some local scoundrel gets a massive fee for doing nothing but greasing the wheels with elected officials — have been taking place all over the country. In Illinois, during the Upper Volta-esque era of Rod Blagojevich, a Republican political consultant named Robert Kjellander got 10 percent of the entire fee Bear Stearns earned doing a bond sale for the state pension fund. At the start of Obama’s term, Bill Richardson’s Cabinet appointment was derailed for a similar scheme when he was governor of New Mexico. Indeed, one reason that officials in Jefferson County didn’t know that the swaps they were signing off on were shitty was because their adviser on the deals was a firm called CDR Financial Products, which is now accused of conspiring to overcharge dozens of cities in swap transactions. According to a federal antitrust lawsuit, CDR is basically a big-league version of Bill Blount — banks tossed money at the firm, which in turn advised local politicians that they were getting a good deal. “It was basically, you pay CDR, and CDR helps push the deal through,” says Taylor.

In the end, though, all this bribery and graft was just the table-setter for the real disaster. In taking all those bribes and signing on to all those swaps, the commissioners in Jefferson County had ­basically started the clock on a financial time bomb that, sooner or later, had to explode. By continually refinancing to keep the county in its giant McMansion, the commission had managed to push into the future that inevitable day when the real bill would arrive in the mail. But that’s where the mortgage analogy ends — because in one key area, a swap deal differs from a home mortgage. Imagine a mortgage that you have to keep on paying even after you sell your house. That’s basically how a swap deal works. And Jefferson County had done 23 of them. At one point, they had more outstanding swaps than New York City.
Judgment Day was coming — just like it was for the Delaware River Port Authority, the Pennsylvania school system, the cities of Detroit, Chicago, Oakland and Los Angeles, the states of Connecticut and Mississippi, the city of Milan and nearly 500 other municipalities in Italy, the country of Greece, and God knows who else. All of these places are now reeling under the weight of similarly elaborate and ill-advised swaps — and if what happened in Jefferson County is any guide, hoo boy. Because when the shit hit the fan in Birmingham, it really hit the fan.

For Jefferson County, the deal blew up in early 2008, when a dizzying array of penalties and other fine-print poison worked into the swap contracts started to kick in. The trouble began with the housing crash, which took down the insurance companies that had underwritten the county’s bonds. That rendered the county’s insurance worthless, triggering clauses in its swap contracts that required it to pay off more than $800 million of its debt in only four years, rather than 40. That, in turn, scared off private lenders, who were no longer ­interested in bidding on the county’s bonds. The banks were forced to make up the difference — a service for which they charged enormous penalties. It was as if the county had missed a payment on its credit card and woke up the next morning to find its annual percentage rate jacked up to a million percent. Between 2008 and 2009, the annual payment on Jefferson County’s debt jumped from $53 million to a whopping $636 million.

It gets worse. Remember the swap deal that Jefferson County did with JP Morgan, how the variable rates it got from the bank were supposed to match those it owed its bondholders? Well, they didn’t. Most of the payments the county was receiving from JP Morgan were based on one set of interest rates (the London Interbank Exchange Rate), while the payments it owed to its bondholders followed a different set of rates (a municipal-bond index). Jefferson County was suddenly getting far less from JP Morgan, and owing tons more to bondholders. In other words, the bank and Bill Blount made tens of millions of dollars selling deals to local politicians that were not only completely defective, but blew the entire county to smithereens.

And here’s the kicker. Last year, when Jefferson County, staggered by the weight of its penalties, was unable to make its swap payments to JP Morgan, the bank canceled the deal. That triggered one-time “termination fees” of — yes, you read this right — $647 million. That was money the county would owe no matter what happened with the rest of its debt, even if bondholders decided to forgive and forget every dime the county had borrowed. It was like the herpes simplex of loans — debt that does not go away, ever, for as long as you live. On a sewer project that was originally supposed to cost $250 million, the county now owed a total of $1.28 billion just in interest and fees on the debt. Imagine paying $250,000 a year on a car you purchased for $50,000, and that’s roughly where Jefferson County stood at the end of last year.

Last November, the SEC charged JP Morgan with fraud and canceled the $647 million in termination fees. The bank agreed to pay a $25 million fine and fork over $50 million to assist displaced workers in Jefferson County. So far, the county has managed to avoid bankruptcy, but the sewer fiasco had downgraded its credit rating, triggering payments on other outstanding loans and pushing Birmingham toward the status of an African debtor state. For the next generation, the county will be in a constant fight to collect enough taxes just to pay off its debt, which now totals $4,800 per resident.

The city of Birmingham was founded in 1871, at the dawn of the Southern industrial boom, for the express purpose of attracting Northern capital — it was even named after a famous British steel town to burnish its entrepreneurial cred. There’s a gruesome irony in it now lying sacked and looted by financial vandals from the North. The destruction of Jefferson County reveals the basic battle plan of these modern barbarians, the way that banks like JP Morgan and Goldman Sachs have systematically set out to pillage towns and cities from Pittsburgh to Athens. These guys aren’t number-crunching whizzes making smart investments; what they do is find suckers in some municipal-finance department, corner them in complex lose-lose deals and flay them alive. In a complete subversion of free-market principles, they take no risk, score deals based on political influence rather than competition, keep consumers in the dark — and walk away with big money. “It’s not high finance,” says Taylor, the former bond regulator. “It’s low finance.” And even if the regulators manage to catch up with them billions of dollars later, the banks just pay a small fine and move on to the next scam. This isn’t capitalism. It’s nomadic thievery.

Matt Taibbi is a frequent contributor to Global Research. Global Research Articles by Matt Taibbi

http://www.globalresearch.ca/index.php?context=va&aid=18623

 

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