While financial institutions drastically reduce lending again to private lenders and businesses, they’re also tightening the vice on cash-strapped public agencies from California to New Jersey.

This aspect of the financial meltdown has gotten less attention than the bonuses and the bailouts: how AIG and other Wall Street giants sold cities, towns, school boards and other public agencies high-risk investments and complex financing schemes during the boom. Now that the economy, the government agencies’ credit ratings and all those risky investments have gone bust, Wall Street is hounding cash-strapped governments from California to New Jersey for its money.