2. Orange County, Calif.
Officials in Orange County, which is sandwiched between Los Angeles and San Diego, discovered in 1994 that ill-advised investments in complicated financial instruments by its treasurer had left the county $1.5 billion in the hole. The county declared Chapter 9 bankruptcy, sweeping budget cuts were enacted, and as many as 3,000 municipal employees were laid off. The treasurer, Robert Citron, was convicted of multiple felonies. The county emerged from bankruptcy in 1995.