• The Ballads Of Larry Langford and Jefferson County, Alabama.

    In late September, the SEC ended its case for disgorgement against former Birmingham mayor, former Jefferson County commission president and former Fairfield mayor Larry Langford, after the SEC discovered the only asset they could get as part of restitution was a 1/2-interest in his home. It's the only thing he has left, aside from a mess of debts stemming from criminal and civil penalties.

    Langford is currently serving a 15-year sentence in federal prison, after being convicted of over 60 counts of bribery and corruption. Given his age (65) and how he won't be eligible to walk out of prison until at least 2023, it's a possibility that this man will die in prison. On the other hand, the two men convicted alongside him, investment banker Bill Blount and former lobbyist Al LaPierre, earned much lighter sentences. True, they plead guilty and Langford didn't, but the disparity in sentencing only raises the usual conclusions about racially-motivated "justice" in this country.

    Most AL.com commentators have been chomping at the bit for Langford's demise and rolling around in his family's misery like happy pigs in slop. Blount and LaPierre never got this much bile thrown at them.

    Larry Langford's story meshes neatly with the story of Jefferson County's staggering debt and how it was finally forced to declare Chapter 9 bankruptcy. Rolling Stone magazine has a staggeringly comprehensive backstory on the entire saga, including what led Jefferson County to build a high-tech sewer system in the first place and how $250 million ballooned into over $4 billion in debt thanks to J.P. Morgan Chase & Co. and its three-card credit swap monte.

    Langford, Blount, LaPierre and J.P. Morgan Chase banker Charles LeCroy were instrumental in driving Jefferson County further into debt. To summarize, LeCroy would pay Blount millions of dollars to help grease the lending skids with whoever was in charge of signing off those deals. Blount then feted then-county commissioner Langford (with LaPierre as a go-between) with what would eventually total over $240,000 in clothing and other gifts. Langford would then effectively steer business back towards Blount's investment firm when he signed off on the deals that would eventually land the county in the financial shithouse. This happened quite a lot.

    And it kept happening until those bills came due.

    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.

    And to think this all started with a consent decree.

    In 1996, the EPA ordered Jefferson County to revamp its aging sewer system after a lawsuit involving the Cahaba River Society. Something about keeping waste out of the rather fragile Cahaba River, which also served as a source of the city's drinking water. Instead of ordering the city to repair that particular problem, the EPA issued a mandate to eliminate all sewer outflows. That would require a damn-near brand-new sewer system designed to be as environmentally friendly as possible. So the city of Birmingham set out to build the new sewer system, to the tune of $250 million.

    A $250 million estimate, turned into a $4 billion clusterfuck of epic proportions.

    Meanwhile, whatever chance JeffCo had of paying that debt off ended when its occupation tax did, started in 2005, the 1-cent tax was the county's attempt to recoup some income from the hordes of suburban commuters from outside of the county who still worked in the Birmingham/Jefferson County area. After a fair bit of whining from the usual anti-tax forces, the occupation tax was rendered unconstitutional and struck down, leaving Jefferson County with little to no options for paying down its debt.

    At some point, the sewer system fell under receivership and under control of John Young, state court-appointed and given the power to raise sewer rates as necessary. Second Front talks about how he endeared himself to the citizens of Jefferson County:

    Since appointed, Young has become one of the least popular public figures in the sewer debacle, mostly because he has been paid $500 per hour for his services, even when giving interviews to the media or speaking to civic groups. Last week, the receiver’s total compensation exceeded $1 million. Also, Young has told the state court that a sewer rate increase of 25 percent would be appropriate for the creditors and affordable for most ratepayers.

    In these economic times, seeing a guy get paid $500/hr to putz around with people's future sewer rates is a bit much to bear.

    Two county commissions spent three years coming to an amicable agreement on how to repay the debt, but it fell through at the last minute:

    Three of the commissioners interviewed by Reuters said the turning point came last Monday when creditors who include JPMorgan sent a document to commissioners outlining new settlement terms.

    They said the new terms weren't what they thought they had negotiated and they spent two days combing through the document with lawyers before deciding that bankruptcy was a better alternative to accepting a revised deal.

    Among the concerns, the creditors were insisting on being paid back $2.19 billion of the $3.14 billion debt, rather than the $2.05 billion the commissioners had expected. And the commissioners claim that the revisions meant an assistance program to help those on a low income pay higher sewerage rates would have to be shouldered by the county for 10 years.

    "When I read the document that came back Monday my blood pressure shot up. I felt like everything was in favor of the creditors and nothing was in favor of the county," said Republican Commissioner Joe Knight.

    The Commission President David Carrington, also a Republican, said he had been optimistic up until last Monday night. "When I left here (the commission offices) Monday night I thought we had an agreement. I felt good. But I got a call from one of our attorneys. It was about nine o'clock, saying there was these new revisions," he said.

    "They had these conditions and those conditions are unacceptable. I knew it wasn't going to happen," he said.

    In a last ditch effort, creditors urged governor Robert Bentley to call the state legislature to a special session:

    In the wake of the tentative deal, Alabama Governor Robert Bentley promised to call a special session of the state legislature to consider a bill to allow the county to raise fresh funds to address a shortfall in its general fund that could, in itself, have led to bankruptcy.

    Already, it has forced the county to cut jobs and services so that, to give one example, a long line snaked outside the courthouse early on Thursday morning of residents waiting to pay for their car tag renewal.

    No session was called, however, and there appeared to be little appetite in the Republican-controlled legislature for any increase in taxes. The source said the county voted for bankruptcy mainly because that special session looked increasingly unlikely to happen.

    When that didn't happen, Commission President David Carrington filed bankruptcy on behalf of the county and subsequently lost over $1 billion in concessions from creditors.

    The fallout's been horrific. Langford, LaPierre and Blount were convicted and sentenced. The old county commission was seen as a bunch of corrupt assholes. The Jefferson County government had to furlough employees, shut down courthouse satellites and even stop county sheriffs deputies from responding to traffic accidents. Sewer customers will most likely see their rates rise by 25% and even higher in subsequent years. This municipal bankruptcy is the largest in recent history, after Orange County's $1.5 billion bankruptcy.

    Now that the county's officially declared bankruptcy, the federal courts have stepped in to resolve the matter, first to determine if the county is actually eligible for bankruptcy and second to determine the best financial settlement terms possible for the county and its creditors. A bit of side drama is whether the sewer system remains under control of John Young or whether it defaults back under control of the county itself.

    Lots of lives and livelihoods were devastated by the willingness of several entities to engage in greed, and it seems the only people who aren't paying for it are those under employ of J.P. Morgan Chase & Co., although it was one of the institutions instrumental in causing the county's fiscal collapse.