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?
“Here comes the Federal bailout.”
No way should the .gov bail out Kalifornia and its electorate.
This should be an absolute line in the sand.
Wasn’t Arnold supposed to fix the credit crisis?
The total budget is $134 billion and they need to cut $24 billion or about 18%.
Now Californians, being the wonderful folk they are will try to get the citizens of the other 49 states to pay for their extravagance
Yea BS BS and more BS. They try that crap I swear I will stop paying any taxes. Let them come and get me.
They want the rest of the country to pay for their insolvency. Will people FINALLY stand up when it comes to bailing out other states? You know it's going to come to this! So not only will we be on the hook for the US national debt, we'll also start getting stuck for various states who can't balance their budget.
Most of the big banks still standing in California do so only because of massive taxpayer bailouts. Maybe they should stop trying to speculate on oil futures and buy smaller solvent banks for a couple of days use some of that money to do actual banking for a change.
Schwarzenegger for Vice President!
Who’s getting these IOU’s instead of cash? If thousands of state workers start getting IOU’s in lieu of a paycheck and they cannot redeem for cash, things are going to get mighty ugly fast.
Any vendors, in state or out of state, who are getting IOU’s and continue to do business with CA are abject fools.
Let the creditors take the hit. Buyer beware - don’t do business with people who can’t pay you.
California is too big to fail. Obama will save us. Hurrah!!
The problem with the creditors taking the hit, is that it affects many people. I don’t want my state affecting people outside the state. That isn’t right.
We got ourselves into this mess and we should get our selves out of it. We’re not a poor state. We’ve mismanaged ourselves into this mess. We need to buck up and fix it.
Both the Governator and the Dimwits in charge are basically sleezy idiots. The state is BROKE. There is no responsible adult in charge of the institution.
I'm inclined to doubt it, for two reasons. 1) The fedgov is broke already, and things are not getting better. 2) If they try to bail out Colleyforrnya, congresscritters from about forty other states will be digging in and saying "If you want my vote you can sign my state up too." "
Excuse me, sir. But, I'd like to introduce you to a friend of mine. Mr. Gault. Mr. John Gault...
Why can’t they just cut everything by 18% then? All spending for everything. Why should people in the private sector pay higher taxes when it is people who are on the government payroll that benefit the most from government spending? They need to aggressively stop illegals too from getting free services. What is wrong with those people? The federal Government shouldn’t do a thing to help. If they help, then they are just encouraging the government to continue to take advantage of the taxpayer.
I think you’re on to something. This Cali thing could be the tipping point for many people. Wonder what will happen then??
Right, because the second Goldman Sachs accepted these IOU’s, is the second that the Federal Government implicitly backed them, because, after all, Goldman Sachs is “too big to fail.”
Curses on the thieves (and their ilk) that run Goldman Sachs (and you know exactly who I’m talking about).
**will try to get the citizens of the other 49 states to pay for their extravagance.**
Actually, they want to get the Chinese to pay for it, while making your children and future grandchildren pay them back for it.
Indeed. There seems to be an attitude that "times are tough", and that productive people who pay taxes need to suck it up, do a little suffering, and pay whatever amount is demanded of them.
Why can't that be turned around? Times are tough, non-productive people need to suck it up, do a little suffering, and get by with 18% less.
Did GS take TARP money, and are there now federal regulators who take their marching orders from Obama and a Democrat controlled Congress involved in their decision making process as a result? I think the Rats found a way to put us all on the hook for their failed socialist experiments in Sacremento.
I notice that labor unions are going to be exempt from having thier health care benefits taxed. Apparently some of us are being expected to "suck it up" more than others.
6th (or so) largest economy in the world.
Their own mint.
Major international sea & air ports.
Border is is mostly secluded & buffered (ocean, desert, few roads).
Significant fraction of population wants soveriegnty.
I expect independence & regime change declared in CA soon.