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Big banks saying no to California IOUs (Creditors Want Cash, Not Promises)
HotAir ^
| July 7, 2009
| Ed Morrissey
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.
TOPICS: Front Page News; News/Current Events; Politics/Elections
KEYWORDS: arnold; california; credit; debt; iou; nothanks; rino
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1
posted on
07/07/2009 11:15:08 AM PDT
by
GOPGuide
To: GOPGuide
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
2
posted on
07/07/2009 11:20:47 AM PDT
by
Seruzawa
(Obamalama lied, the republic died.)
To: GOPGuide
Obama may force the TARPed banks to accept them.
To: GOPGuide
Here comes the Federal bailout.
4
posted on
07/07/2009 11:25:13 AM PDT
by
Wolfie
To: Seruzawa
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.
5
posted on
07/07/2009 11:25:37 AM PDT
by
ClearCase_guy
(I don't believe anything anyone says about anything anymore.)
To: GOPGuide
6
posted on
07/07/2009 11:25:48 AM PDT
by
cranked
To: St. Louis Conservative
Obama may force the TARPed banks to accept them.He made me do it Mom.....Obamageddon...is beginning...
7
posted on
07/07/2009 11:26:55 AM PDT
by
cbkaty
(I may not always post...but I am always here......)
To: Seruzawa
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.
8
posted on
07/07/2009 11:28:42 AM PDT
by
Argus
(We've gone downtown to Clown Town, and that's where we'll be living from now on..)
To: GOPGuide
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!”
To: GOPGuide
10
posted on
07/07/2009 11:33:14 AM PDT
by
razorback-bert
(We used to call them astronomical numbers. Now we should call them economical numbers.)
To: GOPGuide
This is probably good news. This is what 40 years or more of electing Democratic Legislatures will do for you. They will put you into the poor house.
This is what will happen to the US if Obama and the Democratic Congress are not stopped.
The California Con Job is over. Free this, free that. Let in half the third world and their kids. Although immigration IS a Federal Responsibility. The Democratic Representatives and Senators from California have been fully in support of illegal immigration so part of it is California's fault. Well it's come to an end.
Now Californians, being the wonderful folk they are will try to get the citizens of the other 49 states to pay for their extravagance. This is what New York City tried back in the 1970's. It won't work this time. People are struggling everywhere and they don't have any patience for California's irresponsibility.
One thing is for sure. Schwarzenegger has been exposed as a dismal failure. Yes it's not all his fault but he didn't do the things he should have in 2004 that would have averted this disaster.
11
posted on
07/07/2009 11:36:52 AM PDT
by
truthguy
(Good intentions are not enough!)
To: ClearCase_guy
12
posted on
07/07/2009 11:41:17 AM PDT
by
Miss Behave
(OMG, my tagline is stalking me.)
To: GOPGuide
“Pass the popcorn, this is gonna git good.”
To: truthguy
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.
14
posted on
07/07/2009 11:46:36 AM PDT
by
Miss Behave
(OMG, my tagline is stalking me.)
To: truthguy
California, Michigan, how’s that “Voting in your own economic interest” working out?
15
posted on
07/07/2009 11:46:44 AM PDT
by
Lonesome in Massachussets
(AGWT is very robust with respect to data. All observations confirm it at the 100% confidence level.)
To: GOPGuide
Creditors want cash, not IOU's? Say it ain't so. Gee, they're not buying Hope and Change?... Shocking. /sarc
And sad for them, since Calif delivered the big votes for Obama, now what...
16
posted on
07/07/2009 11:47:00 AM PDT
by
fortunecookie
(Please pray for Anna, age 7, who waits for a new kidney.)
To: Seruzawa
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.
To: GOPGuide
What California deserves is to go belly up. The only problem with that is that it's creditors would take the hit. That wouldn't be right.
I am so angry at our state officials. Everyone is treating this as if it was a turf war, when it's the fiscal survival of the state and it's creditors we're talking about.
These people are acting like out budget didn't grow by 100% over the last ten years. They are acting like they can't cut back some of the bloat.
It's just an infuriating time to be a reasoned California citizen, having to watch the consummate buffoonery in Excramento.
The following is directed to Freepers who haven't signed up for monthlies...
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18
posted on
07/07/2009 11:50:03 AM PDT
by
DoughtyOne
(_Resident of the United States and Kenya's favorite son, Baraaaack Hussein Obamaaaa...)
To: Miss Behave
And will ANY of those MEGA-millionaire STARS step up and chip in to pay for today's Jacksonfest DEBT?
I think not.
19
posted on
07/07/2009 11:50:18 AM PDT
by
Miss Behave
(OMG, my tagline is stalking me.)
To: GOPGuide
The banks are going to stop accepting them? Why would they have accepted them to begin with?
20
posted on
07/07/2009 12:03:04 PM PDT
by
henkster
(Bumper Sticker: Please don't tell 0bama what comes after a Trillion!)
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