Mike Shedlock, who has been watching the Jefferson County, Alabama, municipal bond bankruptcy and default closely, has turned up some more fraud. It appears that the original bonds issued to pay for the county’s new sewage treatment plant weren’t bonds after all, but warrants. But they were sold as the same thing, backed by the “full faith and credit” of the county. In the event of bankruptcy investors holding the warrants were to be first in line to receive their interest payments, ahead of any other creditors. And if there isn’t enough money even for that, the investors were assured that the county would do whatever is necessary to redeem them, even if it meant raising taxes or fees on the citizens.
But a warrant isn’t a bond; instead, it is merely a right granted to its holder to purchase a bond in the future. The county board of commissioners decided against issuing bonds as that would have required a referendum by the taxpayers who, at the time, were already suffering from increased sewage rates—four increases over the past 10 years. The likelihood of approval was between slim and none.
The story of corruption, bad faith, and “paying to play” schemes involving major banks and brokers has been covered in detail here, here, and here, but the sordid story began when the Environmental Protection Agency forced the county to