How about 25 out of 152?

About a year ago, Guambat asked, How many exceptions break the rule? He was referring to the accepted rule of the day that America's subprime problem was contained to the US and the Lucky Country would well and truly be spared. The exceptions he pointed to were 2 local councils who were deeply in debt because of certain "investments" they made through Lehman Bros., those sterling characters who even the US Government refused to bail out.

Well, Guambat reckons the rule has well and truly been broken by the exceptions:

THE global economic crisis is financially hurting up to 25 local councils in New South Wales and some face possible bankruptcy, says the NSW Local Government Association (LGA).

LGA president Genia McCaffery says both metropolitan and rural councils are exposed to the collapse of US investment house Lehman Brothers. Many Australian councils had bought triple-A rated collateralised debt obligations (CDOs) backed by US subprime mortgages from Grange Securities, which was later bought by Lehman Brothers.

Ms McCaffery said up to 25 of the 152 local councils in NSW were exposed

"When you look at the raw figures there's quite a large exposure, but they've got a strong rate base and good capital reserves so they could probably weather the storm," Ms McCaffery told AAP

From dodging the bullet to weathering the storm in 11 short months.

See, also, FBI Probe of JPMorgan Fees Focuses on Swaps Roiling Muni Debt

a little-known part of the largest bank in the U.S. made a tidy profit peddling a different kind of corrosive debt to hundreds of counties and school districts earlier this decade.

As the credit crunch froze lending globally, causing stock markets to plunge, local officials who say they trusted JPMorgan faced a crisis of their own. Wall Street's drive for profits over the past decade has backfired on towns, cities and counties that borrow in the $2.7 trillion municipal bond market.

Financings arranged by JPMorgan and other banks are forcing hundreds of public agencies to spend billions of dollars they don't have to pay for increased interest payments and penalties.

These come in municipal bond and derivative deals that have turned poisonous. Unlike JPMorgan, which has benefited from federal bailouts, the towns and schools the bank has financed have received no help from Washington.

In the midst of the Wall Street collapse, JPMorgan and Jamie Dimon, its chief executive officer, have stood as pillars. The bank helped the Federal Reserve bail out a tumbling Bear Stearns in March, as the U.S. Treasury pledged $29 billion to Dimon's firm to cover losses.

Behind the glow of favorable publicity in which JPMorgan has basked, its municipal derivatives unit has operated in obscurity. The financings it arranged have sparked lawsuits from local governments alleging fraud. The muni derivatives unit has become snarled in the largest-ever criminal investigation of public finance by the Department of Justice.

On Sept. 3, JPMorgan shut down its unit selling debt derivatives to municipalities because the risks outweighed the profit.

In these deals, which were rarely put out for public competitive bidding, the bank said its clients would come out ahead if interest rates increased in the future.

JPMorgan and other banks have turned away from traditional, competitively bid, fixed-rate municipal bond sales in the past decade.

Fees banks collected for selling bonds that build roads, schools and hospitals dropped 25 percent to $5.27 for every $1,000 of debt in 2007 from 1998, as fixed-rate bonds became like commodities dropping in sales value. Banks found they could charge 10 times as much for selling municipal derivatives, public records show.

If local authorities had stayed with old-fashioned, fixed-rate municipal bonds for financing, they wouldn't be facing the rate blasts hitting them today. But banks realized that plain-vanilla municipal bond sales didn't make them enough money, says Steve Kohlhagen, former head of debt derivatives at Wachovia Corp.

"It just wasn't a very profitable business, but the derivatives part was," says Kohlhagen, who retired in 2002. "So we kept a minor presence in bonds. The reason was the derivatives."

Using derivatives, JPMorgan pitched a host of deals whose names alone are indecipherable. For Philadelphia International Airport, the bank sold something called a "path-dependent knock-out swaption."

The seeds of JPMorgan's municipal derivative deals were planted in the late 1980s. In 1987, the Fed relaxed provisions of the Glass-Steagall Act, the Depression-era legislation that prevented commercial banks from underwriting corporate securities and many types of local bonds.

The decision, which followed requests from Bankers Trust Corp., Citicorp and JPMorgan, allowed all banks -- not just securities firms -- to expand their sales of public debt.

That article is absolutely chock a block full of the details of what can only be described as scandalous. If you are a local rate-payer, municipal employee or anyone else concerned with the financial health of your local county, council or school district, you owe to yourself to read the article.