Chapter 5 Orange County

The Largest Municipal Failure in U.S. History

In December 1994, Orange County, California filed for bankruptcy. Reporting a $1.5 billion loss on a net investment portfolio of $7.6 billion, the county earned the ignominious distinction as the largest municipal bankruptcy in U.S. history. During the six weeks after bankruptcy was declared, administrators sold off Orange County’s portfolio of investments at fire-sale speed, turning its unrealized losses of $1.5 billion into realized losses of more than $1.6 billion.

News of the insolvency shocked national and international financial markets, which were already reeling from previous derivative-related failures, such as Metallgesellschaft111 and Procter and Gamble.112 Many ...

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