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 California’s 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 aren’t 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 California’s budget crisis, or give them an excuse to intervene.
A bailout would only delay the day of reckoning. California’s 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 hasn’t 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.
“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?
http://www.ebudget.ca.gov/agencies.html
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
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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." "
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