We hope the strain of months of watching Greece dance on the edge of a financial cliff hasn’t distracted observers from the portentous developments here in Blue-town, USA.As the NYT reports, Jefferson County, Alabama, has been on the rocks since last summer, when it declared bankruptcy rather than face the $4 billion tsunami of debt that has been building since the county embarked on an ill-fated sewer project in the mid-1990s. After the EPA accused the county of dumping raw sewage into a river, local leaders decided to embark on a huge public works project to put the county to work and revitalize Birmingham, a rusting city that had been on the decline since the eclipse of its glory days as a great American steel town. The sewer project turned out not only to be a misguided sinkhole that wasted public financing, but also a perfect context for graft and corruption. The new sewer system was never built, boring machines were entombed in half-completed tunnels beneath the river, sewage bills to consumers doubled, and contracts were peddled left and right, sending a dozen officials to jail—including a former mayor of Birmingham.During the financial crisis in 2008, the interest-rate swaps on Jefferson County’s bonds blew up, leaving the county with even more debt. Now, since the bankruptcy, road kill sits uncollected on the roads, and a newly renovated prison is unused while inmates double up in Jefferson County’s other jail, because the county can’t afford to pay enough prison guards to man both.Widespread municipal defaults haven’t yet blown up the country, as analyst Meredith Whitney predicted in 2010, but the bankruptcies of Jefferson County, Alabama, Central Falls, Rhode Island, and Harrisburg, Pennsylvania, appear to us here at Via Meadia as ominous examples of the fiscal fragility of many American municipalities, as well as tokens of the breakdown of American governments’ ability to finance and gauge the usefulness of public investments.Not only can American citizens no longer afford the levels of government services they desire without incurring mountains of debt; increasingly, governments themselves are no longer able to make supposedly useful investments without causing a breakdown of government finances and a rupture of government itself. “Smart” investments turn out to be hotbeds of graft and inefficiency, and beyond bringing to mind other misguided public projects (Solyndra, anyone?), the story of Jefferson County is another example of people and places stuck in an antiquated mindset, turning to old, ineffective solutions for problems of underemployment and slowing growth.Like the situation in Greece, the bankruptcy of Jefferson County is far from resolved and likely to involve much venomous back and forth between bondholders and pensioners (both of whom were told they would have to take cuts). Meanwhile the hapless citizens are trapped in the middle and likely won’t ever see the light of day on an enormous sewage system that should never have been built and still need services for which there is no money left at all.