Bad news from (and for) Jefferson County, Alabama.
(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.
Matt Taibbi, writing in Rolling Stone last year, explained how Jefferson County got into this agonizing fix, part of a larger story how America’s biggest banks were ripping off American cities with predatory loans. Here’s how he summed up Jefferson’s predicament in a blog post a few months ago:
[T]he city was roped into a series of deadly swap deals by a number of banks, most notably JP Morgan Chase, that left the county billions of dollars in debt.
The genesis of the whole affair was a sewer project that crooked local pols turned into a $3 billion money pit; when they turned to Wall Street to help finance their way out of the cost overruns, the banks leaned on the County to take on a series of swap deals that essentially pushed the debt into the future, but at geometrically increasing cost. Among other things, the banks worked through middlemen who bribed the local commissioners into taking the toxic deals. As a result of all of this, Jefferson County not only ended up saddled with an astronomical debt service on its sewer project, it also saw a downgrade in its overall credit rating, which left it paralyzed in its attempts to borrow money to pay for general expenditures.
Believe it or not, it gets worse. Much worse. For the full picture, see below for Matt’s original story and follow-ups.
• Looting Main Street: How the Nation’s Biggest Banks Are Ripping Off American Cities
• Jefferson County, Alabama: Screwed by Wall Street, Still Paying
• The Continual Screwing of Jefferson County, Alabama