Thursday, July 14, 2011

Charles Barbour voted for interest rate swaps. Porter made over half a million dollars.

-Charles Barbour served on the Hinds County BOS from 2000-2008
-BOS voted to use interest rates swaps for $57 million in bonds in 2005 & 2007
-Auditors repeatedly stated swaps were a liability of several million dollars
-BOS used financial adviser suspended by NASD in 2007
-"Adviser" received $586,848 in fees and is still receiving fees
-Mr. Barbour voted for these transactions & associated fees while in office.

Candidate for State Senate (#25) Charles Barbour proclaims he never voted to raise taxes while serving as Hinds County Supervisor from 2000 to 2008. That might be true however, there is a "rest" of the story. Instead of voting for tax increases, Mr. Barbour voted with his fellow supervisors to play Russian roulette with interest rate swaps, the weapons of financial destruction that have blown up Jefferson County and other local governments. The Hinds County Board of Supervisors voted in 2005 ($7.5 million) and 2007 ($49.5 million) to sell $57 million in bonds using interest rates swaps. See page 4.See pages 5-6.

Interest rate swaps are poison pills for municipal finance as Jefferson County, Houston, and other municipalities found out the hard way. In simplest terms, an interest rate swap allows a county to gamble with interest rates much in the same way a homeowner does with an adjustable rate mortgage. Thus the county can gain or lose money depending on which way interest rates swing (see note at bottom of post for a more in-depth explanation of interest rate swaps).

But wait Kingfish, maybe Mr. Barbour and his board knew what they were doing and these swaps have indeed paid off for the county. Fair question. Lets take a look at Hinds County audits and see exactly how they did:

2007 audit on page 34: Liability of $3.4 million for 2005 interest rate swap.
2008 audit on pages 33-34: Liability of $5 million for 2005 issue and $6.5 million for the 2007 issue. Notice this is before the crash of 2008. Total liability: $11.5 million.
2009 audit on pages 31-32: Liability of $2,646,377 for 2005 bonds and $3,574,826 for a total liability of $6,221,203.

The most recent audit showed a liability of $1.4 million for the 2005 bonds/swaps and $2.1 million. Total liability: $3.5 million. Keep in mind Hinds County has a deficit of $5 million it had to make good by borrowing $6 million against property taxes six months before they are due.

What is going on? Several investment professionals speculated to this correspondent (and it makes sense) what took place is Hinds caught a break when the Fed decided to keep interest rates near zero for several years. If such is the case, Hinds County will face a problem when interest rates start to rise (including LIBOR) as they inevitably will. The Hinds County Board of Supervisors recently voted to terminate the swaps. It remains to be seen how much money Hinds County will lose on this deal- if anyone can actually figure it out.

Ward Schaeffer wrote an excellent story on the fate of these swaps in the Jackson Free Press (yes, I know, don't say it):

"County officials could not explain how the swap was supposed to benefit the county; nor did management demonstrate an understanding of the extent, multitude and nature of the various risks inherent in a swap," Madison-based auditor Ruth Wylie wrote in her report, released in 2009..... "

County oversight of the swap was inadequate, though, in Wylie's opinion. "County officials could not explain how the semi-annual amounts paid by the counterparty of the swap agreement were determined," she wrote in her audit. "Accordingly, the county has not verified that the amounts were computed accurately and in accordance with the agreement."

Subsequent auditors agreed. "(T)he County has entered into ... interest-rate swap agreements which could subject the County to significant gains and losses due to factors outside the County's control," the accounting firm BKD LLP wrote in its 2009 audit. "(I)t does not appear that anyone in County management understands whether these agreements represent an effective internal rate hedge
." Article

Still think they knew what they were doing? Unfortunately, the interest rate swap roulette does not stop with the negative market value of these swaps. There are these little things called fees and Harvey Johnson's money man Porter Bingham racked up in this department. Yes, the same Porter Bingham who has Jackson use crazy bond refinance deals that will sink the city. (Earlier post about Porter's $27 million bond refinance for Jackson) Porter Bingham owns Malachi Financial Products (this is NOT Malachi of Ridgeland). Mr. Bingham was suspended by the National Association of Securities Dealers in 2007 for one year. Earlier post on Mr. Bingham's record. Regulatory agencies have disciplined Malachi seven times since 1997. The National Association of Securities Dealers expelled the firm for not paying fines in 2006. Malachi is not registered with the SEC nor FINRA.

However, these problems did not stop Malachi from living high on the Hinds County hog as it raked in $586,848 from Hinds County in fees relating to these two swaps (see spreadsheet posted below). Thus, instead of voting to raise taxes, Mr. Charles Barbour instead voted to run up the county bond credit card with crazy interest rate swaps using a shady adviser. Hinds County wound up with two bond issues having a negative net worth of several million dollars and have had such a negative net worth since their inception, while making payments of over half a million dollars to an "adviser" who can't even sell securities. Such actions sound more like Obamanomics than the conservative principles bragged about in campaign ads. A candidate saying he never voted for a tax increase does not mean voters will not get a bill as Hinds County residents are finding out this year.

Note: An interest rate swap gives a bond issuer (such as a city or county) the ability to take advantage of lower interest rates. While fixed-rate bonds are available to such entities, many choose to issue bonds whose rates (which are paid by the government to the bondholder) adjust on terms ranging from every 30 to 180 days. Issuing such bonds saves the issuer millions of dollars as they tend to have interest rates up to 100 basis points (a basis point is .01%) lower than more conservative fixed-rate bonds. However, the interest rate swap in theory gives the government entity issuing the bonds the security of a fixed-rate payment while allowing them to enjoy the benefits of a lower variable rate.

In an interest rate swap, the municipality enters into an agreement with a counterparty such as Citi or JP Morgan. The city will pay the counterparty an interest rate that is fixed (the length of which is defined in the contract) while the counterparty pays the city a separate payment based on a variable interest rate (this is a swap, which is a two-way cash flow). Remember how adjustable rate mortgages have wrecked the housing industry? Well, a little more complex wheeling and dealing based on adjustable interest rates have managed to blow up city budgets across the country as those variable interest rates devastated cities such as Birmingham when they adjusted in the wrong direction.


Anonymous said...

It cracks me up to hear these guys claim they will NEVER vote for a tax increase. Every time you re-issue a bond, or float a bond, it is a tax increase, because had the bond NOT been issued, the funds paying the bonds off (taxes) would have never been spent.

I like bonds. We need bonds. But don't tell me that is not a tax increase.

And KF you are right on regarding these refinance tools called rate swaps. It is like refinancing your home over and over and over again, with closing costs, and debt service incubating, to be paid in full at D day.

Kingfish said...

ah the bond cartel: Holley, Tim Ford, Government Consultants, Balch & Bingham, Butler Snow, Watkins Ludlam, Malachi, and Rice Financial.

Anonymous said...

Ruh Roh. Most Hinds County residents already know Charles isn't the sharpest knife in the drawer. One can only hope Madison Countians won't be fooled. My friends who live in Alabama can tell you how these schemes have doomed their police protection and other vital services.

Anonymous said...

Sheez. More? Is the FBI going to investigate Charles for this, too?

Frugal Gal said...

I actually won't vote for anyone who insists that they will NEVER raise taxes -- making a promise like that is an indication of a propensity to lie, or complete ignorance of government. The whole "I'll never raise taxes" thing has become so cliche that it ceases to have meaning.

I've gotten to where I feel that way about people claiming to be "pro-life." I am pro-life, absolutely. But why is that stance important in the race for treasurer (looking at you Lucien Smith). As best I can tell, the State Treasurer has little-to-no impact over abortion in Mississippi.

Even if a candidate claims a position I agree with, it doesn't mean that I can't recognize pandering when I see it.

Anonymous said...

I ain't voting for nobody unless they got at least one fellow cleaning a gun or reeling in a fish in their ads on the TV.

Anonymous said...

Frugal- I agree with you on Treasurer. The problem is this: Treasurers go on to be other things, like Lt Gov and Gov. Then how happy are people if they haven't ended up with with an actual conservative? Lucien needs to start shaving, Lynn is a RINO, and Lee probably doesn't know much about fund management. It's a tossup.

Frugal Gal said...

Anon 2:16 -- If/when said Treasurer runs for a position where he can influence abortion policy, THEN he can make his views on it part of the campaign. THAT'S the point that it matters to me. I'd rather hear what Smith, Fitch, Yancy, etc., think about issues like bonds, the college savings plan, the retirement fund, the benefits of moving to zero-based state budgeting, etc.

But their campaigns aren't designed for me.

Anonymous said...

Frugal- I agree that they are completely avoiding the issues in the Treasurer's race. I think their consultants are telling them to stay as bland as possible, because it's likely that the shit is going to hit the fan next year without the federal money flowing so freely as it has been. They can't say what they are going to do.
But my point is, you have to know the things about abortion, about 2nd Amendment rights, taxes, etc in a Treasurer NOW, before they get elected. Because if Tate Reeves gets elected this year as Lt Gov, it won't be because he is the most qualified conservative. It will be because of the massive name ID he has accumulated as State Treasurer. Times have changed. State Treasurers don't stay in that job forever. We need to know a lot more about all 3 candidates.

Anonymous said...

Frugal, it's YANCEY

Anonymous said...

Ode to Charles:

Anonymous said...

Is this site ever going to attack Will Longwitz?? I mean if you look at his website he is suppossed to be this big conservative republican but nowhere does it mention that he is a court appointed public defender in Hinds County defending rapists, murderers and theives.

I will take Barbour over that any day!

Anonymous said...

3:57- Please. Judge Yerger and Judge Weill have both appointed Longwitz to several cases. They were not cases involving murderers or rapists as you incorrectly assert. Methinks you are trying to avoid talking about your own candidate, who mysteriously has never really done anything but screw up.
- Hinds Co. BOS: Fail
- FBI Raid: Fail
I've been appointed to cases by Judge Yerger and Judge Weill, just like Will has, and I know for a fact that none of Will's cases have ever included any of the offenses you mention. I am a Republican too, as you claim to be, and I take the cases because the court asks me to. The Justice system would come to a screeching halt otherwise. You should at least know what you are talking about before you attack somebody on behalf of Charles.

Anonymous said...

What does Charles do? Work for his wife, in the "minority owned" business? As I recall, they were raided by the FBI? Whatever happened to that case?

Anonymous said...

Nine times out of ten this blog is a place where ass clowns go to fellate one another, but every now and then you post something useful. This is one of those times.

Kingfish said...

Tell you what: You stack up coverage on Hinds County, Jackson finances, local redistricting, Evans case-biggest real estate fraud ever in this state, Irby, Spencer, Frazier against any other media outlet in the state.

Anonymous said...

Frugal, I agree that the Treasurer in the position of Treasurer has nothing to do with abortion policy. Yet, the Right to Life groups still poll them on their positions and make endorsements in the race. Does it make sense - no. But if those people who "do care" about the issue want to know the candidate's stand, isn't it appropriate for the candidate to state it.

I believe Lucien Smith would agree with you that his pro-life stand doesn't have anything to do with being qualified for the office. Just as the fact that he is active and attends church regularly. But his church attendance does give you a view into his 'soul' (don't mean that as a literal statement, but couldn't come up with a better word.)

So be it with being pro-life. Frankly, I wouldn't vote for any of them on their 'pro-life' stance, nor for being a member of the NRA, or many other things. But it does tell me what kind of philosophy the candidate has. And I sure wouldn't vote against Smith, or anyone else, because they bothered to tell me that about themselves.

As to Fitch, the fact that she has gotten through all her professional career via Democrat connections tells me all I need to know about her. Her entry into politics via Ed Pittman and Mike Moore; her working for Democrat Chairman Charlie Williams at the House; and her working for the Democrat bond lawyers at McGlinchy-Stafford. Her trying to wrap Barbour around her is nothing but crap - she was appointed because Charlie Williams was trying to take care of one of his flames from his time in the House, not because she had any ties to Barbour. And on this fact - I absolutlely know what I am talking about!

Anonymous said...

Re: Tell you what: You stack up coverage on Hinds County, Jackson finances, local redistricting, Evans case-biggest real estate fraud ever in this state, Irby, Spencer, Frazier against any other media outlet in the state.

Congrats on being the tallest Ewok.

Anonymous said...

739. Now that response was funny in and of itself. Now, go f^*k yourself. Your 5 seconds of fame associated with that comment is over.

Anonymous said...

This blog has had plenty of negative things to say about Will Longwitz, and some of those comments were mine. And I still stand by those criticisms. But, I will be voting for the man in this election when the alternative is Charles Barbour. I have known Charles over 20 years, and he simply has no business serving in the Legislature or any other elective office for that matter. if you know Charles and are being honest with yourself, you know why I am saying this. Whatever Longwitz's faults may be, they pale in comparison to Charles Barbour.

Anonymous said...

7:39 Jon Stewart said it better (about Bill O'Reilly): "It's like saying he's the thinnest kid at fat camp."

Austin Barbour said...

What's great about America is that we have the right to free speech, even when it is tough to read.

I'd like to state that I'm darn proud of my brother's record. He spent 27 years in the military, recently retiring with the rank of Lt. Col. Charles is a fine family man, who along with his wife, has raised two fine children. He spent eight years on the Hinds County Board of Supervisors and unquestionably has a very conservative record. He's been a life long Republican, and has worked since his high school days to help other Republicans get elected to office.

In my opinion, we need strong willed conservatives in the Legislature and I firmly believe Charles fits that mold. If you live in senate district 25 and plan on voting in the GOP primary, I hope you will consider voting for him.

Austin Barbour

Kingfish said...

You have not refuted one single thing I wrote or addressed it. ;-)

Yup, its all about free speech. you have more free speech at this site than at any in town. Hell, Y'all doesn't even allow comments any more and Ladd, well, we all know that game, don't we?

Anonymous said...

I agree with Frugal gal and would like to point out to some of you that your insiders knowledge is lost on most voters.
And, frankly, I find most of what politicians say insulting as it is based on the assumption that the average voter is stupid. That assumption is probably right, but it's an insult nevertheless and in the end, colors the way politicians view the public.
There's *them* battling it out with one another for political oneupmanship and *us*, the saps who have to pay for their pissing contests.
The worst, the very worst win/lose game playing with the most serious consequences is happening on the debt ceiling. What an arrogant SOB Kantar is.This new kid thinks he knows it all including more than very fiscally conservative economists. He doesn't have a CLUE about consequences and HIS budget keeps in projects that are the worst of the old political spoils.

Anderson said...

I don't know what I hate worse, having Steve Simpson as the alternative to Jim Hood, or Charles Barbour as the alternative to Will Longwitz.

bill said...

Anonymous from 5:06 yesterday, if you're not willing to put your name on your accusations against Lynn Fitch then it's just high school talk. Enlighten us and stand behind your words if you know so much. It's easy for anonymous bloggers to make hurtful personal statements about a public figure - they can't sue for slander or libel, you know - but she is three nice kids' mother and a nice old man's daughter, and this is a public web site. She took a job working for Pittman because she needed a job, not because she embraced the ideals of the Democrat Party. She kept the job for awhile under Moore and then moved to a better job, just like the rest of us would. She worked for Democrats in the House because that's who ran the House committees. Still do for about five more months. I don't know what personal thing you have against Lynn, but it's obvious that your comments come from something deeper than you're willing to own up to. Lynn is the most qualified candidate for the job, and bemoaning the politics of the people she worked for before Lucien Smith ever got out of grade school has nothing to do with the job she'll be able to do. Bill Billingsley

bill said...

Anderson, what's your beef with Will Longwitz? As most who read this blog already know, he's a friend of mine and I'm actively working for his election to the Senate, so I'm very interested in why you phrased your statement as if Will is the bad guy and Charles is the alternative. Bill Billingsley

Anonymous said...

Why does Jim Hood continue to get elected? In a state where every other office will likely be held by Republicans, how would Jim Hood get elected if there were not some good Republicans out there voting for him? How can people not see that he takes money from trial lawyers, and then turns around and gives massive amounts of money back to trial lawyers?

Anonymous said...

Anyone but Charles Barbour! To know Barbour is to vote against him.

Anonymous said...

charles is a good man and will not support spending tax payer money unnecessarily.

Anonymous said...

FWIW I agree with Anderson re: Barbour vs Longwicz. All of these guys seem solely motivated by accruing power for themselves, and none of them make a convincing case that they just want to serve the public to improve society.

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