Jefferson County, AL has filed for bankruptcy after falling $4.15 billion in debt, exceeding the record of $1.7 billion set by Orange County, CA in 1994. Lenders in Alabama hope that the case will be dismissed, arguing that the law allows bankruptcy only for bond debt. What do you think of Alabama's current situation as its largest county, including its largest city, Birmingham, is filing for bankruptcy?
This is an interesting article. I think there is something to said about moral hazard as it pertains to this article. I was unaware that a county is able to file for bankruptcy. Due to the widespread effects of the economic recession, many counties are in debt. If other counties are able to file bankruptcy, there may be a new trend of increased county spending as they know that they can fall back on bankruptcy.
ReplyDeleteI agree with you. if this new trend come to pass, that would only make the recession last longer. I wonder if this plea would be official.
DeleteI agree with Ryan, I was unaware that counties were able to file for bankrupty. I think that this will create and interesting dilemma for the future. Borrowing for counties may increase because they will know they have an out if they can't pay it back. I think this will create many more economic problems in the future.
ReplyDeleteColleen and Ryan make good points. The economic crisis will have hurt many counties across the nation and if counties are able to file for bankruptcy many other struggling counties may start to do the same. We might see more counties borrowing ands spending more and using bankruptcy as a fall back. I didnt know that a county could do this but I think that this could become a trend in the future.
ReplyDeleteI think that the fact that such a large county is filing for bankruptcy really hurts the state of Alabama. I think that it will set a bad example for other counties in debt, like Ryan said. Hopefully this is not a trend that we see take off in 2012.
ReplyDeleteI think that there needs to be something in place so that counties cant just file bankruptcy. Like Mike said, this could be a huge problem in 2012 if more counties do the same thing.
ReplyDeleteI think that the concept of moral hazard is very relevant to this situation. If counties think that they are able to file for bankruptcy, it could lead to situations where they may be more risky in their budgets and future endeavors when they know they are able to find an out if they get in too much danger. I can see that sometimes it would be necessary to do these types of things, but it would become very troublesome for the states if this turns into a trend, and could be very detrimental to this country.
ReplyDeleteI agree with Grant. He brings up some very key points.
ReplyDeleteI agree, Grant. If counties are able to file for bankruptcy they will start to make riskier investments. I don't think it's a good idea.
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