Carns won't budge, nor should he
It's kind of a shame that Jim Carns serves on the Jefferson County Commission. The title besmirches his character. And that's saying something for someone who came to the county courthouse from the Alabama Legislature.
These days Carns is under a lot of pressure from a lot of people to do something against his conscience. The commission president, Bettye Fine Collins, has rearranged the commission's three-person committees to keep Carns separated from his ally, Bobby Humphryes. The governor wants Carns and Humphryes to acquiesce to Collins' mercurial leadership. And now US District Judge David Proctor has sent a veiled threat that "cowboy" behavior will send the county into receivership, essentially court-ordered dictatorship. Carns says he's been warned that speaking his mind might land him in contempt of court. Meanwhile, legislators and editorial writers waste good ink writing arguments as thin as the newsprint itself, saying that unity and bipartisanship are crucial to resolving the crisis.
Despite all the pressure, Carns is still standing his ground, and that resistance is the only thing keeping everyone else from doing something dumb.
Those other people and other forces want resolution to the Jefferson County sewer debt crisis. And with language like that, who could resist? Resolution. It sounds firm, formal, fair and final. But as is often the case in political speech, this call for resolution means something else. It means cutting a deal with the Wall Street banks before various federal investigations have a chance to reveal all aspects of this disaster - in particular the role the investment banks played in creating it.
Following federal investigations is much like tracking submarines. You see a periscope break the surface here, pop up there, peek again somewhere else. Then one morning the whole world explodes. Let's look at a few times this investigation has shown itself.
Earlier this year New Mexico Gov. Bill Richardson withdrew his name for nomination to President Obama's cabinet after it became public that federal investigators were looking at campaign contributions from CDR Financial Products. Richardson gave CDR state contracts there, and investigators want to know if there is a connection. Three years ago, federal investigators raided CDR's offices and ever since then curious observers have been waiting to see what that raid found.
How is this germane to Jefferson County? CDR was the county's advisor on many of the interest rate swaps-gone-bad. The firm issued fairness opinions passing off on the deals, even though the fees Jefferson County paid were often out of proportion swaps happening elsewhere in the country.
After the scandal hobbled Richardson, The New York Times took a closer look at the investigation. New Mexico is only a portion of something larger. According to the the newspaper, the investigation spans numerous jurisdictions and involves the Justice Department, the Securities and Exchange Commission, the IRS and multiple state attorneys general. And the investigation isn't looking only at CDR. The feds are probing for possible collusion among investment bankers to fix prices and to sell bogus products to gin up fees.
Whether this investigation includes the Jefferson County fiasco is not certain, but again, there are things we know.
JP Morgan has had lawyers in Birmingham to meet with the US Attorney's office. A lawyer for Charles LeCroy has been to Birmingham to meet with them, too. LeCroy was the JP Morgan banker who helped the county structure most of these deals. He has been to prison once already in connection to a political corruption case in Philadelphia. Wiretaps from that investigation have been mined for material pertaining to Jefferson County, and sources familiar with the transcripts say there is some ammunition for prosecutors there.
Several JP Morgan employees who worked on the Jefferson County deals have received target letters from the Justice Department and the civil-equivalent "Wells letters" from the SEC. Those employees have been fired from the bank, but the deals they set up remain intact.
Governor Bob Riley has argued that bankruptcy is morally abhorrent and endangers the credit of municipal governments across the state. That would be true if the bankers and banks that lent this money did so with clean hands. However, there is sufficient evidence to question if that's the case. Before the county pays another dime on its debt, someone needs to take a seat on a witness stand.
There are a few possibilities for that to happen. The Justice Department could bring some action against the banks. A civil action by the SEC or other plaintiffs could do the same. Or it could happen in bankruptcy court.
Anyone of those scenarios could be a nightmare for JP Morgan. The notional of Jefferson County's swaps is big - more than $5 billion. That number used to look bigger before bank bailouts and stimulus packages. However, the notional of all JP Morgan's similar swaps is astonishing still - almost $90 trillion. Yes, that's trillion with a "T." To put it another way, that's about three times the value of all the publicly traded stock in the world, or about one and half times the gross domestic product of the Earth. When you see numbers like that in these times, you begin to wonder which of your pets to eat first when the end finally comes. These derivatives are much more stable than the credit default swaps that blew up last year, but even a small threat to them is not worth the risk - especially not for JP Morgan.
It's a dangerous game we're playing, but to fold now would again victimize the rate payers and citizens of Jefferson County. Regardless of the risk, there is a significant cost morally, economically and politically to letting pinstriped scofflaws run free and wreck havoc. What's more, with some backbone in its leadership, Jefferson County might be able to walk away from this in one piece.
I wish more people had that kind of spine than just Jim Carns.
War on Dumb is a column about political culture. Write to firstname.lastname@example.org