Want to know how we got into this mess we're in?  Consider this...

A state capital with 50,000 citizens that is $300,000,000 in debt!

Harrisburg, PA. has filed for Chapter 9 bankruptcy!

Although not all states allow local governments to file for bankruptcy, there have been 629 municipal bankruptcy filings since they began being allowed in 1937.

Of note, however, is the fact that Harrisburg is considering doing something that other municipal bankruptcies have not done--cutting the principal owed to bondholders!

THAT would be BIG (and scary) news!

And Harrisburg is not alone... 57% of American cities are now in worse financial shape than this time last year as towns and counties are burdened with increased demand for services with revenues declining in a failing economy.

Five other U.S. communities have filed for bankruptcy this year.

One of the questions currently being discussed is whether Washington should bail out cities/counties in trouble or let them declare bankruptcy.

In my opinion, bankruptcy for many cities is the way to go.  Just like with an individual, bankruptcy is an opportunity for these cities to re-organize their finances in an organized fashion.

But more importantly, we must STOP THE HANDOUTS!

How many cities can we afford to bail out with our Federal debt already so out of control?

DC has already contributed $302 billion dollars to towns/municipalities for expenses.

In my opinion, bailouts only prolong the problems, NOT solve them.

Could Harrisburg's bankruptcy roil the bond markets?

Possibly.  A state capitol like Harrisburg declaring bankruptcy could serve as a touchstone for other cities to follow Harrisburg's path to extract concessions from creditors and others to avoid bankruptcy.

It is not clear that concessions will avoid major continuing problems for a number of cities and counties.

Privatization of some community services could be part of the "survival" answer for some cities/communities.

BOTTOM LINE:

Whether you own municipal bonds or are considering buying some, do some homework to check our the current financial status of the munis' issuing authority of the bonds that you own or are thinking of buying.

And make sure you understand the basics about investing in tax-free municipal bonds.

 Don't be blind-sided by a bankruptcy filing!

There are MANY more to come!

BE PREPARED!