In a classic episode of “The Simpsons,” the fictional town of Springfield finds itself with a surprising surplus of cash. When Springfield’s citizens gather to discuss how to spend the new bundle, a sensible verdict is reached. But a smooth-talking salesman bounds out of nowhere and announces that a “genuine, bona fide, electrified, six-car monorail” would really solve the town’s problems. So, the town inexplicably builds a monorail, with few people questioning why a small town needs a mass-transportation system.
As expected, the salesman is revealed to be a fraud. The monorail is a poorly designed wreck, with the salesperson having scammed the town for millions of dollars.
Fortunately, everything turns out well. But the point made by the episode — the ease with which people give authority to the undeserving — is especially relevant given the past decade of deregulation. For example, a scheme that disturbingly parallels Springfield’s monorail happened in Jefferson County, Ala.
In 1996, the county’s faulty sewer system was overflowing, angering the Environmental Protection Agency. The federal government required Jefferson County to comply with the Clean Water Act. Like the people of Springfield, the geniuses on the County Commission decided to build something they did not need and could barely afford — in this case, a state-of-the-art sewage treatment plant that put the county in debt.
And soon enough, a salesman appeared, ready to take the people of Jefferson County on a wild ride.
This salesman — or team, really — was comprised of three people. The first was Charles LeCroy, a managing director at JPMorgan Chase. Having nowhere else to turn, the county commissioners decided to put blind faith in Wall Street and LeCroy was only too happy to oblige.
The second was Larry Langford, mayor of Birmingham, Ala. Despite Langford’s only previous financial venture being a bankrupt amusement park, he was elected county commissioner. Upon meeting Langford, LeCroy convinced him that the county’s woes could be their gain.
In 2002, LeCroy suggested the county switch its interest rates from fixed to adjustable, while also utilizing the same synthetic rate swaps that caused similar turmoil in Greece. Jefferson County could pay off its interest at a fixed rate, while allowing Wall Street to give the county variable amounts each month to pay the variable-rate interest owed to bondholders. Yet the bank decided to give the county a different set of interest rates than the ones the bondholders received.
Langford willingly signed off on the bond swap deal, despite having no idea what was going on.
“I needed somebody to be able to tell me what all that stuff was,” he told The New York Times. “And even when they told me, I still don’t understand 99 percent of it.”
In order to make this deal, LeCroy required a crony to operate on a local level: Democratic Party chair Bill Blount.
“For years,” reported Matt Taibbi in Rolling Stone, “it was standard practice to reach out to a local sleazeball like Blount and pay him a shitload of money to help him seize the deal.”
Once LeCroy was successful in pelting the county with ever-increasing monthly fees, the bank would make millions, which LeCroy would use to pay Blount, who would buy gifts for Langford. It worked until 2005, when, according to the Securities and Exchange Commission, Blount and LeCroy were arrested for “[assuring] J.P. Morgan Securities the largest municipal auction rate securities and swap agreement in history.” Rampant deregulation has allowed the financial heads to think they can do whatever they want. And they can — at taxpayer’s expense.
Congress needs to show serious effort for reform. Thugs on Wall Street should be treated just as they would anywhere else. In a country that prides itself on capitalism, our wealth should be used to create, not destroy.
Isaac Stone is a sophomore in the School of International Service and the College of Arts and Sciences and a liberal columnist for The Eagle. You can reach him at edpage@theeagleonline.com.
