Alabama county files biggest municipal bankruptcy | Reuters
Alabama's Jefferson County filed for bankruptcy court protection on Wednesday in the biggest municipal bankruptcy in U.S. history.
Commissioners for the county, which is home to Birmingham, the state's biggest city and economic powerhouse, voted 4-1 to declare bankruptcy after meeting behind closed doors for two days in a last ditch-attempt to restructure its debt out of court.
A tentative deal reached with creditors in September to settle $3.14 billion in red ink had been widely expected to avert bankruptcy. But the deal fell apart over what the commission described as creditors' refusal to meet the terms of previously agreed economic concessions.
The creditors, who are JP Morgan and other investors, want the county to sewer-charge the living daylights out of the citizens and that's the sticking point. What happened? JP Morgan Chase arranged some really neat financial deals for Jefferson County to finance their sewer system, including linking the county's floating rate securities to interest rate swaps. When the subprime meltdown happened, those clever investment ideas proved disastrous. The county's interest charges went way up and then investors started demanding to be paid off early. The county didn't have the money and defaulted. The cost of refinancing was enormous.
Oh...and two former JP Morgan bankers are facing court allegations over paying $8 million to "friends" of the commissioners in order to get the deal, in addition to JP Morgan itself settling with the SEC for $722 million, without admitting to bribery, you understand...JP Morgan even charged the $8 mill back to the county. Is that nerve, or what?