Matt Taibbi: Looting Main Street
Matt Taibbi’s latest Rolling Stone article Looting Main Street focuses on a really complicated issue that Taibbi dumbed down today for the I-Man, and for everybody else.
Using the recent financial fiasco in Greece as an example, Taibbi said that banks offer countries, counties, and cities the option of refinancing their debt using something called interest rate swaps, which are intended to lower debt obligations but rarely do.
“Greece did it in a way that allowed them to get cash up front, exactly like those mortgage schemes,” said Taibbi. “In the long run, they ended up owing tons more money.”
These mechanisms “allow politicians to basically borrow for the present against the future,” said Taibbi. In the United States, ground zero for this behavior was Jefferson County, Alabama, where JP Morgan entered into a bunch of “swaps” that made the county “the brokest place in America,” according to Taibbi.
“Every single citizen in the county owes $7,000 towards this debt,” he continued. “It’s going to be a generation of hardship for that county, and it’s going on all over the place.”
The main reason Jefferson County borrowed the money was to finance building a new sewer system, a decision mandated by the Environmental Protection Agency. Though the initial estimate for the job was $250 million, the county borrowed $3 billion, and now owes around $5 billion back to JP Morgan.
“You know what the headline is there?” Imus broke in. “That they had a sewer system.”
There is an entire industry on Wall Street devoted to finding public debt in places like Jefferson County, locating consultants who are close to local politicians in power, and paying them enormous fees to agree on awful deals.
The biggest problem, Taibbi added, is that “You don’t always know it’s happening until after it happens.” The deals in Jefferson County were made 7 or 8 years ago, and since then there have been more than 20 convictions related to bribery and corruption.
“The citizens didn’t really find out about it until they were being presented with a bill for $650 million by JP Morgan,” said Taibbi. “It was already over.”
There have since been massive layoffs in the county, with policemen and sheriffs put on forced leave. “It affects the credit rating of the county, and suddenly it costs more to borrow, and you can’t basically keep your government running any more,” said Taibbi.
Stay tuned for Taibbi’s next book, hopefully out in the fall, which will feature unique, in-depth analysis of the recent financial crisis, and lots of name-calling.
-Julie Kanfer
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