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 5/10 Good --- www.reason.com http://www.reason.com/topics/topic/147.xml
Saturday, April 19, 2008 --- 97 days ago http://www.reason.com/news/show/126010.html
| The latest sign of trouble in America's stressed credit system can be found not in some arcane Wall Street hedge fund, but deep in Alabama. There the mundane civic chore of providing water and sewer service drove one county to the edge of bankruptcy and sent federal regulators into a tizzy. On Tuesday, creditors, led by JP Morgan and urged on by the feds, hammered out an agreement with Jefferson County, Alabama officials to avoid default on some $3.2 billion in public sewer bond obligations. For now, the county has another 30 days to come up with a $53 million payment. As financial mishaps go, it's perhaps not the sexiest storyline. But that is precisely what should scare anyone who has followed the way local governments have thrown debt around this decade. Much like home buyers seduced by the largest possible mortgage, local officials were wooed by bankers and bond underwriters to float the largest possible debt they could afford. Given historically low interest rates, on one level it was good advice. But it is also true that—exactly as in the mortgage making market—the bigger the debt, the bigger the commission for the banks and bond traders. However, unlike a home purchase with a borrower and lender, the ratepayers and taxpayers who ultimately have to stand behind and payoff any deals gone bad are left out of the loop. The finances are often complex and local media outlets seldom have reason to delve into the s ... |
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