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Monday, August 25, 2008 6:27 PM

Jefferson County Alabama Considering Bankruptcy

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I have talked about Jefferson County many times before. Details on the problems facing Jefferson County can be found in Jefferson County Death Spiral Swaps and Fraud, Antitrust Investigation Involving JPMorgan, Jefferson County.

A brief synopsis is that Jefferson County officials entered into an illadvised interest rate swap arrangement when they financed a $3.2 billion sewer cleanup. To say the arrangement blew up is a massive understatement.

Let's pickup the story now with Bankruptcy option for Jefferson County now considered, Collins says.

The president of the Jefferson County Commission has softened her opposition to bankruptcy and is instructing lawyers to begin research on the impact a bankruptcy filing would have on the county.

President Bettye Fine Collins' move could substantially alter the course of negotiations as advisers work with Wall Street creditors on how to handle Jefferson County's $3.2 billion sewer debt and soaring interest rates the county is unable to pay.

"A lot of it depends on Wall Street, as to whether we have to file bankruptcy or not," Collins said in an interview with The Birmingham News. "My sympathies are not with Wall Street. I think they realize now they are in a situation where the clock is ticking."

The idea of bankruptcy emerged as a viable option in July, when Alabama pension chief David Bronner said the Retirement Systems of Alabama would buy Jefferson County's sewer system for as much as $1.4 billion if commissioners agreed to file for court protection under Chapter 9 of the U.S. Bankruptcy Code.

Under Bronner's plan, that money then would go to creditors, who would be left to try to recover the rest from firms that insured the county's sewer bonds.

While Commissioners Jim Carns and Bobby Humphryes supported the Bronner plan, Collins, Smoot and Bowman rejected it. The issue has bitterly divided the five-member board that governs Alabama's most populous county.

Meantime, the Jefferson County Mayors Association last week unanimously approved a resolution urging the county to file bankruptcy if a deal with creditors cannot be worked out by Sept. 1.

Commissioner Humphryes, who already supports bankruptcy, said Friday he felt it was time to start initiating the process of filing under Chapter 9.

Commissioner Carns, who also supports bankruptcy, said he expects any plan the commission approves would require Wall Street to "take a hit" and not require additional taxes for residents.
If I could vote I would cast my vote for bankruptcy. Of course I never would have entered into that interest rate swap in the first place if I could have voted.

Mike "Mish" Shedlock
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