Economy, Bankrupt City | featured news

Jeffrey A. Michael, a finance professor in Stockton, Calif., took a hard look at his city’s bankruptcy this summer and thought he saw a smoking gun: a dubious bond deal that bankers had pushed on Stockton just as the local economy was starting to tank in the spring of 2007, he said.

The city of Central Falls, Rhode Island — one of a handful of U.S. cities and counties facing fiscal collapse in the wake of the economic recession — has filed for bankruptcy.

The economic slump is forcing debt-laden cities and towns to consider using Chapter 9. The bankruptcy option is causing experts to worry about the safety of municipal debt.