JPMorgan Swap Deals Spur Probe as Default Stalks Alabama County May 22 (Bloomberg) -- As nighttime temperatures plunged in Birmingham, Alabama, last October, Dora Bonner had a choice: either pay the gas bill so she could heat the home she shares with four grandchildren, or send the Birmingham Water Works a $250 check for her water and sewer bill. Bonner, who is 73 and lives on Social Security, decided to keep the house from freezing. ``I couldn't afford the water, so they shut it off,'' she says. Bonner's sewer bills have risen more than fourfold in the past decade. So have those of others in Jefferson County, which has 659,000 residents and includes Birmingham, the state's largest city. What's threatening to increase them even more isn't the high cost of treating waste; it's the way county officials chose to finance the $3.2 billion in debt they took on to build a new sewer system. The county relied on advice from a bank, JPMorgan Chase & Co., to arrange its funding, rather than use competitive bidding. Like homeowners who took out mortgages they couldn't afford and didn't understand, Jefferson County officials rejected fixed- rate debt and borrowed instead at rates that varied with the market. The county paid banks $120 million in fees -- six times the prevailing rate -- for $5.8 billion in interest-rate swaps. That was supposed to protect the county from rising rates for their bonds. Lending rates went the wrong way, putting the county $277 million deeper into debt.
May 22 (Bloomberg) -- As nighttime temperatures plunged in Birmingham, Alabama, last October, Dora Bonner had a choice: either pay the gas bill so she could heat the home she shares with four grandchildren, or send the Birmingham Water Works a $250 check for her water and sewer bill.
Bonner, who is 73 and lives on Social Security, decided to keep the house from freezing.
``I couldn't afford the water, so they shut it off,'' she says.
Bonner's sewer bills have risen more than fourfold in the past decade. So have those of others in Jefferson County, which has 659,000 residents and includes Birmingham, the state's largest city.
What's threatening to increase them even more isn't the high cost of treating waste; it's the way county officials chose to finance the $3.2 billion in debt they took on to build a new sewer system. The county relied on advice from a bank, JPMorgan Chase & Co., to arrange its funding, rather than use competitive bidding.
Like homeowners who took out mortgages they couldn't afford and didn't understand, Jefferson County officials rejected fixed- rate debt and borrowed instead at rates that varied with the market.
The county paid banks $120 million in fees -- six times the prevailing rate -- for $5.8 billion in interest-rate swaps. That was supposed to protect the county from rising rates for their bonds. Lending rates went the wrong way, putting the county $277 million deeper into debt.
Read the whole sorry tale. In the long run, we're all dead. John Maynard Keynes
It's more humane. But, such are the vagiaries of the market which we all agree cannot be bucked and is always efficient. keep to the Fen Causeway
Uh, how are you defining disaster?
But I s'pose if you want to look at it that way, then I guess you're right. WHEEEEEEEEEEEEEEEEEEEEE!
It would be interesting to compare domestic water rates around the world...
Water in Stevenson, WA (city system)is $.024 per cubic foot after the initial 400 cubic feet at $.04 per. Rate hasn't changed in a bunch of years. paul spencer
It was standard practice under Thatcher's privatisation program for the ministers responsible for pushing the legislation through would suddenly - and completely unexpectedly - be given jobs on the boards of the newly privatised corporations they'd created.
The economy is not run for the likes of you or me or people who can't pay their inflated bills after 'competition' has had its way with them.
The lesson in that is that you need someone extremely powerful to negotiate with such private groups (like the highly centralised French State, old style), or you get corruption and higher prices.
On the other hand, water distribution in third world countries is so hopelessly skewed towards the (small) middle class at the expense of the (much larger) poor that privatisation, well managed, could bring real progress for the poor that already pay horrendous prices for water. Of course, the "well managed bit" requires good governance, and competent governments, so, as in other sectors, it's not the best reform to improve services when government doesn't work already. In the long run, we're all dead. John Maynard Keynes
