States are now asking the feds to bail THEM out of the muni bond mess.  

U.S. governors including New Jersey's Jon Corzine and New York's Eliot Spitzer may ask Congress to help reverse rising municipal debt costs stemming from the subprime mortgage market's collapse, Washington Governor Christine Gregoire said.

Gregoire, Corzine and Spitzer joined other governors Feb. 24 in forming a group that will ``produce something that gets us out of the problem, but most importantly produce something for Congress'' to deter a future borrowing squeeze, Gregoire, a Democrat, said during a National Governors Association meeting in Washington yesterday.

Interest on insured bonds, including debt with rates set at periodic auctions, rose to as high as 20 percent because investors shunned the securities or demanded higher yields on waning confidence in the companies guaranteeing repayment...

Seattle, Washington's biggest city, faces $80 million in additional costs on existing debt due to the recent turmoil in the credit markets, Gregoire said.