"Moral Obligation" to JP Morgan and Bondholders? Please be Serious!

It's been a long time since I have been in open praise of Democrats anywhere, but this story makes me want to stand up and salute: Jefferson County Democratic Lawmakers May Derail Debt Deal

The Democratic half of the Alabama Legislature’s 25-member Jefferson County delegation opposes a settlement with holders of $3.14 billion in debt, throwing the deal in doubt, according to three lawmakers.

Democratic state Representatives Patricia Todd, John Rogers and Mary Moore said in phone interviews this week that most of the delegation dislikes the terms of the deal. Their party in particular will oppose bills necessary for its success because they believe it gouges the poor, who would have to pay higher fees. In Alabama, one lawmaker can block legislation pertaining to a county, thanks to a tradition of “local courtesy.”

Without a settlement, Jefferson County might file the biggest municipal bankruptcy in U.S. history as early as December. Commissioners avoided a filing Sept. 16 by voting 4-1 for a deal with creditors, who agreed to concessions worth $1.1 billion. JPMorgan Chase & Co. (JPM), which arranged most of the debt, would take the biggest loss.

Jefferson County and its creditors set the end of this week as a deadline for an agreement. Officials had said they hoped to have a final draft by Oct. 15. At today’s meeting, however, lawmakers said they wouldn’t support the proposal’s sewer-rate increases. Not one spoke in favor of the deal.

Kenneth Klee, the county’s bankruptcy lawyer, told the lawmakers that a Jefferson County filing “would be like Chernobyl” for bond ratings in Alabama.

The settlement calls for three annual sewer-rate increases of as much as 8.2 percent, followed by annual boosts of no more than 3.25 percent. It requires the Legislature to approve “moral obligation” backing for new sewer debt and to create an independent authority -- a so-called government utility service commission -- to operate the system. It also requires a fix for a hole in the county operating revenue caused when a judge struck down a tax on wages.

Democratic lawmakers oppose the rate increases, a provision relieving JPMorgan of legal liability and the sewer authority, which Rogers said “is going to make somebody very, very wealthy on the backs of poor people.”

I am not in favor of a "moral obligation" to bondholders, especially JP Morgan, especially when I believe JP Morgan's actions with Jefferson county constituted fraud.

Flashback May 23, 2008: Fraud, Antitrust Investigation Involving JPMorgan, Jefferson County

This case has been lingering for years. This is what I said at the time ...

Clear Case Of Fraud

I am not an attorney but the facts presented suggest there is a clear case of fraud. Jefferson County should walk away from those deals and/or sue JPMorgan for fraud and antitrust violations.

JPMorgan for its part would be smart to absolve Jefferson County of those deals because there is no way for it to win. Even if JPMorgan won a lawsuit vs. Jefferson County, the county could simply declare bankruptcy.

The county wanted to declare bankruptcy but misguided fools in the Alabama legislature chose to bail out JP Morgan and bondholders instead of doing the right thing.

Fortunately the Democratic half of the Alabama Legislature’s 25-member Jefferson County delegation is standing up to absurd "moral obligation" talk as well as ridiculous talk of "Chernobyl” bond ratings for Alabama.

Bankruptcy is not only in the best interest of Jefferson County taxpayers, it is also what JP Morgan and the bondholders deserve.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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