Orange County, California Bankruptcy of the Mid-1990s

Orange County, California had a municipal investment pool which seemingly could pay high returns relative to other such pools. However, high yield is a sign of risk and the high yields in the O.C. case resulted from speculation, in part using derivatives. When county treasurer Bob Citron's bet on interest rate did not pay off, the County had to file for bankruptcy. County voters rejected a tax increase to pay off the debt. Ultimately, repayment was financed by recovery bonds and a settlement from Merrill Lynch. Citron used a mental incompetency defense and ultimately served no time.

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