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Wall Street gears up to trade California IOUs
Financial Times ^ | July 5 2009 | Nicole Bullock

Posted on 07/06/2009 6:32:02 AM PDT by raybbr

Amid the vacation rentals and used cars for sale, browsers of the website Craigslist will now find a unique offer: for California IOUs.

“If you are receiving a Cali­fornia IOU and you need cash immediately, please contact me. I may be of assistance,” reads one posting.

Wall Street, quick to spot an opportunity, is also gearing up to trade the payment promises.

“We have a whole team working on it,” said Barry Silbert, chief executive of Second­Market, a company that trades illiquid assets such as bankruptcy claims, private company stock and toxic assets.

Mr Silbert said hedge funds, municipal bond investors and other institutions were interested. Trading volume will depend on how many IOUs the state issues and how long banks accept IOUs for deposit at face value.

A stalemate over how to close a $24bn (£14.7 bn) budget gap has left California short of cash. The state last week issued $53m of registered warrants, or old-fashioned IOUs. If the budget impasse persists, it could issue more than $3bn IOUs by the end of July for payments such as tax refunds, welfare and vendor bills.

(Excerpt) Read more at ft.com ...


TOPICS: Business/Economy; Culture/Society; Government; US: California
KEYWORDS: california; iou; wallstreet
As long as govt. gets a cut will they do anything about this?
1 posted on 07/06/2009 6:32:02 AM PDT by raybbr
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To: raybbr

“As long as govt. gets a cut will they do anything about this? “

No. Obama is in bed with Goldman Sachs.


2 posted on 07/06/2009 6:34:36 AM PDT by stephenjohnbanker (Pray for, and support our troops(heroes) !! And vote out the RINO's!!)
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To: raybbr

What a great racket. The state steps in and issues IOU’s for services rendered to entities with no say in the matter other than to cut off future services. Then the speculators swoop in and will offer these entities pennies on the dollar for the IOU’s which cash strapped entities will be forced to consider. It would behove all California business entities to CUT OFF California from any and all services for the time being.


3 posted on 07/06/2009 6:37:20 AM PDT by HD1200
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To: raybbr

But no IOU’s to pay state legislators and other government employees, of course. That’s for tax refunds and stuff.


4 posted on 07/06/2009 6:38:13 AM PDT by ecomcon
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To: stephenjohnbanker

They will be trading them and they will still have a “full faith and credit” unspoken guarantee from TRAPland on the Potomac.


5 posted on 07/06/2009 6:38:18 AM PDT by Oldexpat
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To: stephenjohnbanker
Interesting observation, as today's slashdot.org reports that the secret source code for Goldman Sachs' operations has been stolen.
6 posted on 07/06/2009 6:38:27 AM PDT by ctdonath2 (John Galt was exiled.)
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To: raybbr

Are the banks that are accepting these also taking TARP money? If they are, then Pelosi and company have just stuck their hands in all of our pockets to bankroll Sacremento’ malfeasance.


7 posted on 07/06/2009 6:45:56 AM PDT by tacticalogic ("Oh bother!" said Pooh, as he chambered his last round.)
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To: raybbr

Sounds like one of theose Payday Loan scams. They’ll probably give desparate IOU holders 50-70% on their dollar.


8 posted on 07/06/2009 6:47:56 AM PDT by umgud (Look to gov't to solve your everday problems and they'll control your everday life.)
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To: umgud
They’ll probably give desparate IOU holders 50-70% on their dollar.

And if Goldman Sachs or some other "connected" entity is the buyer, then those IOUs will be CERTAIN to be redeemed for 100%. Federal aid will be made conditional upon that (officially or discretely)

9 posted on 07/06/2009 6:53:46 AM PDT by PapaBear3625 (The problem with socialism is that you eventually run out of other people's money -- Thatcher)
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To: HD1200

Then, California taxes the sale of the IOU


10 posted on 07/06/2009 6:57:59 AM PDT by bert (K.E. N.P. +12 . The boy's war in Detriot has already cost more then the war in Iraq.)
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To: HD1200; BOBTHENAILER

“It would behove all California business entities to CUT OFF California from any and all services for the time being.”

A decade ago one of our younger relatives in Californicator land was stolen by a competitor to the firm he worked with.

One of his requirements besides pay and certain personal benefits was to not to bid on any State or county deals.

He was promoted to VP last year for that decision and a few other reasons.


11 posted on 07/06/2009 7:13:39 AM PDT by Grampa Dave (Does Zer0 have any friends, who are not criminals, foreign/domestic terrorists, or tax cheats?)
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To: raybbr
I think I would rather invest in highly leveraged Confederate dollar futures contracts.
12 posted on 07/06/2009 7:14:28 AM PDT by KarlInOhio (Fannie Mae, Freddie Mac, AIG, Chrysler and GM are what Marx meant by the means of production.)
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To: HD1200

So, technically California can also offer to buy back IOUs for pennies on the dollar...either through third parties or proxies. They are thus relieved of their debt at a huge discount...at the expense of those expecting a state tax refund.

Other states will catch on to this scam quick...New York is next.

Folks...make sure you underwithhold your state taxes.


13 posted on 07/06/2009 7:20:38 AM PDT by kidd (Obama: The triumph of hope over evidence)
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To: raybbr
I hope every rich American buys California, makes it a capitaslistic enterprise and kicks every illegal out of the state.,

Let the free market work.

14 posted on 07/06/2009 7:21:04 AM PDT by knarf (I say things that are true ... I have no proof ... but they're true)
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To: HD1200
Gah, this all reminds me of Dumb and Dumber.

Couldn't those who are receiving the IOUs refuse them? They're not legal tender, right? But I imagine once you accept them, you are opening yourself to the claim by the state that they satisfied their debt, whether you get full face value or get $0.10 on the dollar.

15 posted on 07/06/2009 7:23:36 AM PDT by thecabal (Hey Obama, when you gonna start sharin' the sacrifice?)
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To: raybbr
I'll trade the Governator a B&O Railroad and Baltic Ave. for his IOU.
16 posted on 07/06/2009 7:29:13 AM PDT by shove_it (and have a nice day)
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To: raybbr

Ah, Kalifornia. The United States WITHOUT a printing press.


17 posted on 07/06/2009 7:38:55 AM PDT by Oldpuppymax (AGENDA OF THE LEFT EXPOSED)
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To: raybbr

This is a good thing. They are creating liquidity and allowing people to trade those IOUs freely.

You cannot get more anti-government than that.


18 posted on 07/06/2009 7:39:10 AM PDT by 1010RD (First Do No Harm)
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To: Oldexpat

LOL!


19 posted on 07/06/2009 7:39:53 AM PDT by stephenjohnbanker (Pray for, and support our troops(heroes) !! And vote out the RINO's!!)
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To: KarlInOhio

“I think I would rather invest in highly leveraged Confederate dollar futures contracts”

ROTFLMAO!


20 posted on 07/06/2009 7:41:19 AM PDT by stephenjohnbanker (Pray for, and support our troops(heroes) !! And vote out the RINO's!!)
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To: raybbr

This is dumb, dumb, dumb...

Let’s say you buy a whole bunch of these IOUs for half the face value. You think you’ve made a great deal, but you’re just stuck with a promise.

What, exactly, will prevent California from passing a law stating that IOUs will only be honored for the original owners of the notes? That IOUs sold or traded are invalid?

After what Obama has taught us — that inconvenient contracts can be swept aside3 — why shouldn’t California also abrogate it’s promise to pay these IOUs?


21 posted on 07/06/2009 7:56:55 AM PDT by ForeignDude
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To: HD1200
Frankly I wouldn't be too hard on the speculators. They're providing a valuable service, turning paper in to cash and help to determine to at least some extend what the IOUs are worth. The real culprits are politicians and the common man that buys their BS (It's well past time to call a spade a spade).

BTW, Does anyone else kind of feel like Grey Davis was victimized? LOL

22 posted on 07/06/2009 7:57:53 AM PDT by Red Dog #1
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To: ForeignDude
Let’s say you buy a whole bunch of these IOUs for half the face value. You think you’ve made a great deal, but you’re just stuck with a promise. What, exactly, will prevent California from passing a law stating that IOUs will only be honored for the original owners of the notes? That IOUs sold or traded are invalid? After what Obama has taught us — that inconvenient contracts can be swept aside3 — why shouldn’t California also abrogate it’s promise to pay these IOUs?

..

BUY THE PUTS !!!!

23 posted on 07/06/2009 8:00:51 AM PDT by litehaus (A memory tooooo long)
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To: ctdonath2

www.zerohedge.com broke that story over the weekend.


24 posted on 07/06/2009 8:41:18 AM PDT by cowtowney
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There won’t be any buying for “pennies on the dollar”...lots of banks/credit unions are accepting them at face value. California “Registered Warrants” (as opposed to the regular payment “Warrants”) are IOU’s/bonds and pay 3.75% APR. This batch is scheduled to be paid on Oct. 2nd, providing the budget mess is fixed by then.

http://www.sco.ca.gov/5935.html
http://centralvalleybusinesstimes.com/stories/001/?ID=12421


25 posted on 07/06/2009 2:37:16 PM PDT by Drago
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