The credit crunch has hit a sector that until now hasn’t really been out there in the media’s eye. Many Small Business folks and consumers have been crushed by the credit freeze. Larger companies struggle with investors in the short term commercial paper market too scared to invest in them.

Who else could be at risk?

Well it turns out; it’s someone very close to home. And folks should pay attention to it. It turns out to be Birmingham Alabama.

Many people remember when New York City almost went broke because of mismanagement. This one is different. Sure there were some decisions and a little corruption here and there that didn’t help much. Still, there are tons of folks willing to invest in when a major city or county issues bonds. Aren’t they?

Nope. Not in today’s world where investors fears carry more weight than profit.

More specifically, it’s Jefferson County, home to Birmingham who rolled the dice. Jefferson County took the modern financial option rather than take the traditional route of long term fixed rate bonds. The county borrowed $3.2B to fix some messy plumbing problems and now finds itself way behind in meeting its obligations. Generally, they would have some options but the municipal bond market has totally imploded.

The county will be in the center of the media’s attention very soon as it is almost certain they will file bankruptcy on the debt. A default will put a huge nail in that bond market where any investors would have legitimate second thoughts. And create more fear in the hearts of investors holding similiar investments.

The ramifications of a default are far bigger than AIG or Lehman Brothers. How could AIG be more important than Birmingham, power plants and all the huge projects that are financed? We haven't even mentioned the banks involved who have billions at stake. If your going to borrow make sure you can bring down the entire country with you.

Alabama wants a bailout too and who could blame them. Bailouts are so common, I thought I saw one on the dollar menu at McDonald's.

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