Bankruptcy in Jefferson County

In Jefferson County, Alabama’s most populous, which includes Birmingham, officials say they had to stop paying even their general obligations because they were draining the cash they needed for essential services.

“Jefferson County made a very different decision than Rhode Island did,” Mr. Klee said. “Rhode Island put bondholders ahead of its citizens, and Jefferson County is not going to do that.

He called the notion that a full faith and credit pledge was inviolate, and that a debtor must honor it even in bankruptcy, “a myth and a scare tactic.”

Via the NYT (here)

Good for them I say. Seems as if Jefferson County administrators/staff have their priorities weighted correctly. However, it does make one wonder what would happen if other municipalities or government bond issuers, took this approach? Might have some very serious long term consequences both in terms of restricting local government(s) in future efforts to raise money by issuing bonds and also in terms of bond markets and the stability of the larger financial system as a whole.

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