[AndyJackson]

If JP goes out of business the only effect is to the stream of interest payments owed to NC on a billion dollars NOT the billion dollars itself.

And depending upon the swap let us say that the stream JPM owed to NC amounts to 20% of the interest that NC owes to the bondholders. Let us suppose further that based on that stream NC took out another bond issue. The taxpayers are now stuck with an extra 20% in interest payments above what the state had budget. Do this a few times and the state is going to have a hard time meeting the payroll for its schools.

[groanup]

When NC does the swap it doesn't magically get another stream of interest payments. It receives floating and pays fixed. They offset. So your implication that they could take the stream and borrow against it is preposterous.

Now if you think real hard you can probably come up with another idiotic scenario. How about NC takes the bond proceeds and uses it to margin a billion dollars worth of oil futures?