Skip to comments.Big banks saying no to California IOUs (Creditors Want Cash, Not Promises)
Posted on 07/07/2009 11:15:08 AM PDT by GOPGuide
The financial sector has just delivered a message to California, roughly translated as, Quit working on cow tails and apologies to long-dead people. A group of the largest banks in the US has announced that it will stop accepting California IOUs by Friday. The state will run out of cash by the end of the month if it cannot issue IOUs, as long as its $24 billion budget gap remains unresolved:
A group of the biggest U.S. banks said they would stop accepting Californias IOUs on Friday, adding pressure on the state to close its $26.3 billion annual budget gap.
The group of banks included Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and J.P. Morgan Chase & Co., among others. The banks had previously committed to accepting state IOUs as payment. California plans to issue more than $3 billion of IOUs in July.
Ms. Mills of the CBA said some banks were concerned that there arent processes in place to accept IOUs, and also worried about fraud issues.
One of the reasons we use a common currency, provided by the federal government, is to avoid fraud issues. Several people have wondered at the legality of issuing IOUs as cash devices. They accuse California of creating currency, which is unconstitutional, although the state has done it on previous occasions.
Also, Californians may not understand this, but these IOUs are essentially state bonds. The people who buy them are demanding 3.75% interest APR on the devices, which means that the state is actually spending more money than they normally would now. The longer they use IOUs instead of cash, the more expensive it gets for Californians later when the IOUs get cashed.
Interestingly, all of the above banks have accepted TARP funding, or perhaps more accurately, had TARP funding thrust on them. Would the Treasury have to have approved this decision? Did the Treasury insist on this decision? If so, it could either signal a hardline approach from the White House on Californias budget crisis, or give them an excuse to intervene.
A bailout would only delay the day of reckoning. Californias budget woes are entirely of their own making, and a bailout would not solve the underlying political problems in California. They tax too much and they spend too much, and their political class hasnt got the guts to actually solve either of those problems, let alone both. A bailout would put California right back in the same place next year, and the year after that. If ever there was a moment for tough love from Uncle Sam, this is it.
The funny thing is that with the size of the Kalif economy they could balance the budget with a few percent across the board cut to every department. They act like they’re having their fingernails pulled out. Most of us have already had to economize more than the Kalif govt would have to face
Obama may force the TARPed banks to accept them.
Here comes the Federal bailout.
I think that California COULD handle this problem, but I think that California WON’T handle this problem. And this may be how the SHTF. And if Obama steps in and tries to force banks to accept financial instruments that they do not want, then it will only make things worse.
He made me do it Mom.....Obamageddon...is beginning...
Actually if we just followed our own laws and denied state services to illegal aliens, the deficit would shrink significantly on that savings alone.
Combine that with lifting the ban on oil drilling in the state and collect fees and taxes from the producers, and we’d be in surplus.
But I’m afraid all of that makes too much sense. Better to just go bankrupt, screw the taxpayers some more, or beg Uncle Sam for a bailout.
The Democrats in the legislature are hell-bent on raising taxes even more. The Assembly Speaker, Karen Bass, boycotted yesterday’s budget meeting, so the message to those who really want to balance the budget is, “Drop dead!”
Bump that, guy.
“Pass the popcorn, this is gonna git good.”
The stupidness of Kalifornia wouldn’t even keep the cost of today’s LA Circus down. They are now asking for donations to pay for the huge ADDED debt of the massive one-day STAR-STUDDED Jacksonfest.
California, Michigan, how’s that “Voting in your own economic interest” working out?
And sad for them, since Calif delivered the big votes for Obama, now what...
It bothers me that they absolutely will not contemplate a simple four-percent cut to everyone’s salary in the state. It buys them a few months, and it may yet require another four-percent cut by November. But to admit defeat and then ask the fed’s for the money....then what? How can the administration agree to any deal without getting them to cut salaries across the board.
I think not.
The banks are going to stop accepting them? Why would they have accepted them to begin with?
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