Did Birmingham mayor bet city's future on a Wall Street scheme?
Birmingham Mayor Larry Langford has been charged with money laundering and bribery. No-bid bond financing schemes have led to billions of lost taxpayer dollars across the US.
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Those new instruments -- which include derivatives and interest rate swaps -- came on the scene as municipal governments started making no-bid agreements with bankers behind closed doors, says Mr. Brooks at the University of Alabama.Skip to next paragraph
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As the credit crisis undermined many of those deals, public borrowers began paying billions of dollars to escape the contracts.
Alabama’s unique Constitution, which leaves county government basically unregulated, has created a system “that’s structurally designed for corruption,” says Mr. Adams. But the Langford case proves that wherever the new bond financing deals involve collusion and corruption, the results can be dire.
Interest rate swaps
Specifically, the refinancing that Langford structured for Jefferson County involved interest-rate swaps, which JPMorgan Chase bankers said could reduce the county’s interest costs. (In SEC testimony last year, Langford, who attended Harvard’s Kennedy School of Government in 2000, said he couldn’t tell a bond swap advisor from a rubber band.)
Instead, rates skyrocketed after ratings for the county’s bond insurers fell during last year’s credit crisis. Debt payments for the county’s sewer system ballooned to $460 million a year -- twice the annual revenues of the system.
A former TV news anchor, Langford had emerged as a pragmatic pro-business visionary by the time he became president of the Jefferson County Commission in 2002.
Trusted by both the city’s majority black community and suburban whites, Langford pushed a vision that sleepy Birmingham could become “the best ‘New South’ city in the nation.” (He was easily elected mayor of Birmingham in 2007 and sustains a lot of political support even today.)
As county president in 2003 and 2004, Langford, according to prosecutors, received lavish gifts -- including cash, cars, and fancy shoes -- from Bill Blount, a former Democratic Party state chairman turned investment banker.
In return, Langford insisted that Wall Street banks do business directly with Mr. Blount, who racked up over $7 million in fees from the Jefferson County bond deals, according to testimony.
The two men would travel to New York and spend more time in the city’s shopping district than on Wall Street, Blount said in testimony this week. Langford would put clothes on the counter and Blount would pay with a credit card.
“Thank you,” Langford always said, according to testimony.
The Birmingham Weekly has continuous coverage of the trial, including a Live Blog feature here.
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