Largest U.S. Municipal Bankruptcy Looms in Alabama:

[Joanne98]

Commentary by Joe Mysak



April 11 (Bloomberg) -- They're talking more about Chapter 9 municipal bankruptcy in Jefferson County, Alabama, the home of the largest city in the state, Birmingham.

Who can blame them?

The county is now being whipsawed by an ill-thought-out debt policy and the collapse of the bond insurers. Credit-rating downgrades all around have triggered a series of events that are no longer in the county's control, leaving it at the mercy of securities firms that have little room for maneuver themselves.

This has produced a steady series of stories in my new favorite newspaper, the Birmingham News, all about how the county is preparing to declare bankruptcy any day.

Perhaps the best article ran on Sunday, April 6. It began: ``Jefferson County officials have laid the groundwork for the largest municipal bankruptcy in the nation's history while publicly saying they have no imminent plans for a filing.''

The one that ran on Wednesday, April 9, was no less compelling: ``Talks on the sewer system's debt crisis aren't making progress, increasing the odds that the county will file municipal bankruptcy, Jefferson County Commission President Bettye Fine Collins said Tuesday.''

This is how it ends for the little county that was going to teach America how to use interest-rate swaps.

Make no mistake. This is a story all about public finance and ``derivatives,'' whose use by states and localities exploded during the past decade.

http://www.bloomberg.com/apps/news?pid=20601039&sid=ahSJgzIBbboA&refer=home

[Selatius]

1. I believe up until now Cleveland was the largest municipality ever to go bankrupt...under Kucinich.

A group of prospective investors wanted the city to privatize its electric utility holdings so that they can take control and make it into a cash-cow, but Kucinich, then the mayor, said no because it would cost people more to keep the lights on. In retaliation, they called up their banker friends, who also happened to have given loans to Cleveland. Using that, the bankers forced the city into default as retaliation.

Kucinich lost the mayor's seat, and he was derided shortly afterwards as a failure. Years later though, people came to recognize he did save the city hundreds of millions, at the expense of his early political career.

[Joanne98]

2. I remember that. He was a hero during the California energy crisis.

They can make you feel the pain in the short run but in the long run it's worth it.

[deadmessengers]

3. It's a little more complicated than that

People who try to minimize Dennis Kucinich's role in the financial collapse of the City of Cleveland that occurred under his watch almost universally ignore the fact that he appointed a 24-year-old stockbroker (with a grand total of one year of experience in that position) to the position of the city's finance director.

[midnight]

4. This is tragic... First Alabama has a former Govenor

-derailed and his re-election stolen from him, and thrown into prison. And now this-bankruptcy.