Finance: Less Cash for the Cities

Lacy Elementary School in Hondo, Texas, is so overcrowded that some classes meet in a makeshift room built into the balcony of the auditorium, and in two noisy rooms off the gym. The 500 pupils, mostly Mexican American, are packed so closely together that illnesses spread rapidly among them.

The Stambough General Hospital in Iron County, Mich., is so ancient and rickety that state authorities have ordered it closed by Nov. 26. The sick do not know where they will go after that.

These situations illustrate the social cost of a financial disaster: the near-collapse of the municipal bond market. Other...