True, I don't look at it as an ethical failure either way. I am saying, however, that the public/federal government have an interest in maintaining the perception that that is a one-off and state/local governments are reliable borrowers. If a string of bankruptcies happen in a short time window, this could quickly erode the perception that state governments are reliable, and negatively impact many other states that are struggling and need low-interest financing just to pay the bills.

For anybody who has taken a look at the balance sheets of public entities, it is shocking how poorly capitalized many of these local governments actually are, and how aggressive some of their financial assumptions are (with low interest rates and 50% of their capital held in debt, a 8% assumed rate of return is extremely aggressive, and they would need financial rock-stars to achieve this at their scale). If investors are spooked, then interest rates could spike for many other government loans, and cause contagion among local government entities that would eventually require the federal government to intervene.