Another Factor Causing Municipal Bankruptcy

With confirmation of the plans of adjustment of the two largest cities to have filed Chapter 9 bankruptcy, Stockton and Detroit, municipal bankruptcy may be about to drop from the news. It's not too late, however, to consider the reasons why these cities resorted to bankruptcy relief and thus predict what cities may follow.

Go here to read Swimming Upstream: Struggle Firms in Corrupt Cities in which the authors demonstrate a correlation between municipal corruption and higher borrowing costs in the private sector. In other words,

A corrupt local environment amplifies the effects of financial distress. Following regional spikes in financial misconduct, credit becomes both more expensive and harder to obtain for nearby borrowers -- even those not implicated themselves. This is particularly harmful for cash-constrained firms, which cut investment more sharply and lay off more workers during industry downturns. Moreover, we find that local waves of financial misconduct are a risk factor for bankruptcy.

Ecclesiastes 5:8 comes to mind.