Confidence Game - Christine Richard [79]
The senator said he would have liked to see the unused top floor of the Grady County jail converted into a drug-treatment facility. The state could use fewer prisons and more treatment for drug addicts, he said. But rehabilitation didn’t pay as well as incarceration, and the Grady County jail needed the money.
When Jerry Massie from the department of corrections called me back, he had an explanation. The $645,183 wasn’t given to the jail to cover the bond payment per se. It was an advance payment for housing state prisoners. The Grady County Industrial Authority decided to use the extra cash to pay the bonds.
I might have accepted that answer had I not stumbled on the Central Purchasing Act. It prohibits state agencies from making advance payments for products or services. If the state prepaid to house prisoners at the Grady County jail, then it broke the law. So I called Massie again and asked him whether the department of corrections broke the law when it wrote that check.
A few days later, Massie called me back with an answer. It was true that the state couldn’t pay for services in advance. That’s why the department tapped into the Canteen Fund to cover the bond payment. The Canteen Fund sells products and services to prisoners. It’s not subject to the Central Purchasing Act because it’s not funded by taxpayers, Massie explained. Most of the money in the fund comes from a surcharge on incoming phone calls to prisoners.
I might have accepted Massie’s answer that there was no problem with using this extra phone money had I not spoken with Lynn Powell. Powell runs a support group for people with family members in Oklahoma prisons, and she knew all about the phone system. Powell sent out e-mail messages to families in her support group, asking them to contact me if they wanted to comment on the phone system. My e-mail inbox filled up with messages, mainly from women with husbands and sons in prison. “I have a son incarcerated in Oklahoma. My monthly phone bill averages a little over $100, but it’s been $200,” wrote one woman. “The first minute is the one that hurts . . . about $3.25,” explained another. “Even though I am retired, I now have a part-time job to be sure I am able to pay the phone bill.” That’s who made the $645,183 bond payment.
Why spend days in 100-degree heat chasing down the source of funds for a $645,183 check? The only way to understand how bond insurers avoided paying claims was to trace a payment on a troubled deal back to its source. By doing this in Grady County, I realized that the “no-loss illusion” encouraged, if not outright dishonesty, at the very least a lack of accountability in local government. “Zero-loss” underwriting required such extraordinary machinations to stay on the right side of the law that it was hard to believe the concept was not a fraud.
ON AUGUST 23, 2006, Ackman wrote to Pershing Square’s investors to deliver what had become a familiar message: “MBIA has proven to be a frustrating short-sale investment simply because no matter what the news or the poor operating performance on the company, the company’s stock price and credit spreads remain stubbornly out of line with our assessment of the company’s grim business prospects and flawed financial reports.”
As the end of summer rolled around, MBIA credit-default-swap spreads narrowed, indicating rising confidence in the company. “MBIA AA 5-year [credit-default swap] continues to march tighter on relatively active trading,” a Goldman Sachs broker said in an e-mail message to Erika Kreyssig