In a March 26 letter to shareholders Jamie Dimon, CEO of JPMorgan Chase, wrote:
“The crisis of the past couple of years has had far-reaching consequences, among them the declining public image of banks and bankers…[W]hen we vilify whole industries…we are denigrating ourselves and much of what made this country successful…We also should refrain from indiscriminate blame of any whole group of people…While JPMorgan Chase certainly made its share of mistakes in this tumultuous time, our firm always has remained focused on the fundamentals of banking and the part we can play to support our clients and communities.”
One example of JPMorgan’s “support” for their “clients and communities” and a reason for the “declining public image of banks and bankers” can be found in another in a long line of excellent pieces by Matt Taibbi at Rolling Stone, entitled “Looting Main Street: How the nation’s biggest banks are ripping off American cities with the same predatory deals that brought down Greece”
The article is lengthy, but a must-read, in my opinion. It’s the story of bribery, corruption, and fraud in Jefferson County, Alabama. Briefly (or maybe not so briefly), it goes like this.
In the early 90’s the EPA sued the county in order to bring its antiquated sewer system into compliance with the Clean Water Act. In 1996 county commissioners decided to build the “Taj Mahal of sewage treatment plants” with cost estimates of $250 million. Taibbi:
“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.”
Originally the plan was to pay for the project by increasing sewer rates. But as costs continued to escalate county commissioners knew that sooner or later customers would revolt over the ever-increasing rates, so they started looking for “creative financing.” That’s music to the banksters ears and, true to form, they came riding to the rescue with their gobbledegook of variable rate refinancing and “swaps.”
Here’s where local JPMorgan rep Charles LeCroy meets crooked politician, with local “wheeler-dealer” Bill Blount as the middle man:
“LeCroy paid Blount millions of dollars, and Blount turned around and used the money to buy lavish gifts for his close friend Larry Langford, who at the time had just been elected president of the county commission…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.”
But unbeknownst to LeCroy, Blount had a another suitor, Goldman Sachs. So:
“JP Morgan cut a separate deal with Goldman, paying the bank $3 million to [go away], with Blount taking a $300,000 cut of the side deal.”
The payoff for JPMorgan?:
“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 [lousy] 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.”
As happens sooner or later with all Wall Street scams, the whole thing collapsed in early 2008. And as also happens with Wall Street scams, the banksters got the gold mine and the taxpayers of Jefferson County got the shaft.
But don’t think this is an isolated incident. Taibbi concludes:
“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.”
Any questions about that “declining public image” of banks and bankers, Mr. Dimon?