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California IOUs can be considered securities, SEC says
Market Watch ^ | 07/09/09 | Ronald D. Orol

Posted on 07/12/2009 3:26:38 AM PDT by TigerLikesRooster

California IOUs can be considered securities, SEC says

Agency guidance helps create a secondary market for IOUs, helping with prices

By Ronald D. Orol, MarketWatch

WASHINGTON (MarketWatch) -- The Securities and Exchange Commission late Thursday issued guidance identifying the IOUs being issued by California as "securities," rather than just obligations of the economically troubled state.

The Golden State issued the IOUs last week to conserve cash and pay off bondholders.

"The staff of the SEC has expressed its belief that California's recently issued IOUs are 'securities' under federal securities law. As such, holders of these IOUs and those who may purchase them are protected by the provisions of the federal securities laws that prohibit fraud in the purchase or sale of securities," the agency said.

The regulator is recommending that the IOUs, which carry an annual interest rate of 3.75%, be regulated as municipal debt, a form of security, by the Municipal Securities Rulemaking Board.

Identifying the IOUs as securities creates a regulated secondary market for them, which make it easier for their holders to sell them at a fair price.

Tom Dresslar, a spokesman for California State Treasurer Bill Lockyer, lauded the SEC's announcement, saying in a statement: "The SEC has sent a pretty clear warning to folks who plan to profit by buying and reselling IOUs: If you're not registered as a municipal securities broker-dealer, you run the risk of violating federal law."

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


TOPICS: Business/Economy; Extended News; News/Current Events; US: California
KEYWORDS: budgetcrisis; california; iou; sec
Some securities are honored by nobody, I guess.
1 posted on 07/12/2009 3:26:38 AM PDT by TigerLikesRooster
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To: TigerLikesRooster; PAR35; AndyJackson; Thane_Banquo; nicksaunt; MadLibDisease; happygrl; ...

Ping!


2 posted on 07/12/2009 3:27:17 AM PDT by TigerLikesRooster (LUV DIC -- L,U,V-shaped recession, Depression, Inflation, Collapse)
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To: TigerLikesRooster

This makes it harder for a person with a $1 million IOU to sell it to you or me for $900,000. Illegal actgually.

This makes the situation worse.


3 posted on 07/12/2009 3:28:59 AM PDT by GeronL ( Patriotic Insurrectionist at http://tyrannysentinel.blogspot.com)
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To: TigerLikesRooster

Hmmm....

So no California can print “securities” to pay its bills...

In the old days that was called defaulting on your debts...

But the Federal government doesn’t want anyone to notice that California has defaulted on its debt so they put up smoke and mirrors and try to continue the illusion that California is a-okay...


4 posted on 07/12/2009 3:32:02 AM PDT by DB
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To: TigerLikesRooster

But Mr. Obama can screw millions of General Motors and Chrysler shareholders and bondholders out of billions of dollars? Which way to the looking glass?


5 posted on 07/12/2009 3:32:38 AM PDT by 2ndDivisionVet (Democracy is the art and science of running the circus from the monkey cage. ~H.L. Mencken)
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To: DB
Well, California IOU is probably a test run for what Fed could do next year: to Chinese. :-) So they let this ‘experiment’ proceed and see how it fares. Won't fare well, IHMO, but they will try anyway.
6 posted on 07/12/2009 3:33:57 AM PDT by TigerLikesRooster (LUV DIC -- L,U,V-shaped recession, Depression, Inflation, Collapse)
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To: TigerLikesRooster

Maybe I could just print up some nifty IOU’s and go on a shopping spree. Or maybe.... I know, hire a new employee for my design company and pay him with IOU’s.

When money becomes worthless, then what are we going to use?


7 posted on 07/12/2009 3:36:14 AM PDT by Apple Pan Dowdy (... as American as Apple Pie)
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To: TigerLikesRooster
Calling garbage gold (even by the SEC) does not make it gold. But anything seems preferable to seeing and acting on the truth. CA must cut spending!
8 posted on 07/12/2009 3:41:42 AM PDT by Ironsman
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To: Apple Pan Dowdy
"When money becomes worthless, then what are we going to use?"

"Gold! Just tell them that Gordon Liddy sent you!"

9 posted on 07/12/2009 3:42:47 AM PDT by 2ndDivisionVet (Democracy is the art and science of running the circus from the monkey cage. ~H.L. Mencken)
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To: TigerLikesRooster

“California IOU’s can be considered securities?”

Bananas, bananas, 39 cents a pound!

IMHO


10 posted on 07/12/2009 3:45:23 AM PDT by ripley
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To: DB

Or some insider will offer to purchase them for pennies on the dollar knowing the “next” CA gov will more then likely be able to raise taxes to pay them off.

Same ol’ Story in CA, two wolves and lamb looking at a menu..


11 posted on 07/12/2009 3:45:32 AM PDT by padre35 (You shall not ignore the laws of God, the Market, the Jungle, and Reciprocity Rm10.10)
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To: TigerLikesRooster

“So no” was supposed to be “So now”... Sorry...


12 posted on 07/12/2009 3:45:35 AM PDT by DB
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To: 2ndDivisionVet

Thats the thing I was seeing: if these ARE securities, CA could declare bankruptcy and make them go away like GM and Chrysler did to even their secured debt holders.

[Where are the lawsuits about that, btw???]


13 posted on 07/12/2009 3:45:47 AM PDT by Adder (Proudly ignoring Zero since 1-20-09!)
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To: Apple Pan Dowdy

Next time you go to the bathroom STOP AND THINK! Do you really want to waste thousands of dollars in securities just to have a clean butt? :-)


14 posted on 07/12/2009 3:48:02 AM PDT by Kartographer (".. we mutually pledge to each other our lives, our fortunes, and our sacred honor.")
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To: TigerLikesRooster
The supremacy of finance capital over all other forms of capital means the predominance of the rentier and of the financial oligarchy; it means that a small number of financially “powerful” states stand out among all the rest. The extent to which this process is going on may be judged from the statistics on emissions, i.e., the issue of all kinds of securities. - Vladimir Ilyich Lenin
15 posted on 07/12/2009 3:56:52 AM PDT by PGalt
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To: TigerLikesRooster

Thanks for posting TLR. Disgusting.

These con-men are putting us in dire straits. We need to bang the drumsticks/clubs on their collectivist heads...(music to read this thread by)...

http://www.youtube.com/watch?v=hDpMqKSrr7Y


16 posted on 07/12/2009 4:04:49 AM PDT by PGalt
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To: TigerLikesRooster

I guess the next step wtill be Obama mandating that the banks accept the IOUs.


17 posted on 07/12/2009 4:06:26 AM PDT by AdaGray (uw)
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To: AdaGray
Not just banks, but everybody.
18 posted on 07/12/2009 4:07:57 AM PDT by TigerLikesRooster (LUV DIC -- L,U,V-shaped recession, Depression, Inflation, Collapse)
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To: TigerLikesRooster

There's a difference?

19 posted on 07/12/2009 4:16:52 AM PDT by knarf (I say things that are true ... I have no proof ... but they're true)
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To: TigerLikesRooster

some might find this interesting:

http://market-ticker.denninger.net/archives/1201-SEC-Destroys-California.html

Now pay attention to this. The big banks are INSOLVENT.

http://market-ticker.denninger.net/archives/1203-Stupidity-Bites-HARD-Dodd-and-Frank.html

Then there’s this:

http://zerohedge.blogspot.com/2009/07/cit-prepares-to-file-bankruptcy.html

CIT as in Citibank.

Is it going to happen? Who knows. But the notion that is might be out there is plenty scary, don’t you think?

Nothing like having an economic nitwit, who is “set for life” in charge of the situation, gang.

He gets to play with the “house money.”


20 posted on 07/12/2009 4:21:54 AM PDT by Daisyjane69 (Michael Reagan: "Welcome back, Dad, even if you're wearing a dress and bearing children this time)
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To: knarf

Madoff must be thinking and they put me in jail?.


21 posted on 07/12/2009 4:46:00 AM PDT by Vaduz
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To: TigerLikesRooster

Maybe they can get Citigroup to buy these “valuable” securities. If not, then Buffett and Soros will have to pick up the slack.


22 posted on 07/12/2009 5:17:58 AM PDT by Brilliant
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To: TigerLikesRooster

United States Constitution Article 1 Section 10: Limits on the States.

The final section of Article One outlines the limits on the powers of the States:

Section 10, Clause 1 (Contracts Clause): No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.


23 posted on 07/12/2009 5:33:25 AM PDT by broken_arrow1 (I regret that I have but one life to give for my country - Nathan Hale "Patriot")
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To: TigerLikesRooster

WOW ! Fantastic ! Where can I buy some of these “securities” ?


24 posted on 07/12/2009 5:34:41 AM PDT by layman (Card Carrying Infidel)
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To: TigerLikesRooster

So the IOUs are really 0% bonds? Interesting. I wonder if they’ve figured out how that is going to effect their already crappy bond rating.


25 posted on 07/12/2009 5:42:00 AM PDT by SampleMan (Socialism enslaves you & kills your soul.)
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To: TigerLikesRooster
I'll wager these I.O.U. WON'T be treated as municipal bonds. How do I know this? Interest on most munies are tax free. Wait till you fill out your form 1040 sec B, and then get back to me.

5.56mm

26 posted on 07/12/2009 5:49:04 AM PDT by M Kehoe
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To: TigerLikesRooster

I wonder how long it will take the SEC to give them a triple AAA rating?


27 posted on 07/12/2009 5:58:06 AM PDT by DHC-2 (my flags: http://www.jdlinn.com/liberty.html)
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To: TigerLikesRooster

California IOUs can be considered worthless securities


28 posted on 07/12/2009 6:17:42 AM PDT by chainsaw (If you think health care is expensive now, wait until you see what it costs when it's free! -- P.J..)
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To: Daisyjane69
CIT as in Citibank.

Citibank is part of Citigroup, ticker symbol C. It's not part of CIT.
29 posted on 07/12/2009 6:30:49 AM PDT by javachip (TARP - proof there is no situation so bad that government can't make it worse.)
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To: AdmSmith; Berosus; bigheadfred; Convert from ECUSA; dervish; Ernest_at_the_Beach; Fred Nerks; ...
The regulator is recommending that the IOUs, which carry an annual interest rate of 3.75%, be regulated as municipal debt, a form of security, by the Municipal Securities Rulemaking Board. Identifying the IOUs as securities creates a regulated secondary market for them, which make it easier for their holders to sell them at a fair price. Tom Dresslar, a spokesman for California State Treasurer Bill Lockyer, lauded the SEC's announcement, saying in a statement: "The SEC has sent a pretty clear warning to folks who plan to profit by buying and reselling IOUs: If you're not registered as a municipal securities broker-dealer, you run the risk of violating federal law."
Wow, it's almost as if the SEC is helping out some jokers who made campaign contributions to Obama. But what are the odds of that?
30 posted on 07/12/2009 6:41:55 AM PDT by SunkenCiv (https://secure.freerepublic.com/donate/__Since Jan 3, 2004__Profile updated Monday, January 12, 2009)
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To: TigerLikesRooster

California IOUs are about as worthless as Zimbawe’s bank notes..they might make nice wallpaper, but California environmental restrictions probably preclude burning them for heat.


31 posted on 07/12/2009 7:06:53 AM PDT by The Great RJ ("The problem with socialism is that you eventually run out of other people's money." M. Thatcher)
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To: The Great RJ
Well, we have to gather them and burn them in Nevada.:-)
32 posted on 07/12/2009 7:12:29 AM PDT by TigerLikesRooster (LUV DIC -- L,U,V-shaped recession, Depression, Inflation, Collapse)
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To: TigerLikesRooster
Cue Chinese laughter, please...
33 posted on 07/12/2009 7:24:40 AM PDT by Caipirabob (Communists... Socialists... Democrats...Traitors... Who can tell the difference?)
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To: TigerLikesRooster

Pay your CA and fed taxes with the IOUs and see what happens.


34 posted on 07/12/2009 7:57:10 AM PDT by CPOSharky (Too many zeros in the budget. And the White House.)
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To: TigerLikesRooster

So, is the SEC sanctioning another derivatives market? It’s done some well overseeing the others; then again, California does remind me of AIG.


35 posted on 07/12/2009 7:58:52 AM PDT by ReleaseTheHounds ("The demagogue is one who preaches doctrines he knows to be untrue to men he knows to be idiots.")
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To: AdaGray

I won’t take them. I’d go to jail first, and do not plan to go willingly, if at all.

I’m thinking of opting out of US paper currency as well, joining the “white market” that accepts nothing other than gold or silver for all transactions.

Too much room with fiat currency for predators and parasites to play games, and predators and parasites are all that’s left in Washington.


36 posted on 07/12/2009 8:56:18 AM PDT by jeffers
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To: Apple Pan Dowdy

Barter


37 posted on 07/12/2009 3:10:22 PM PDT by combat_boots (The Lion of Judah cometh. Hallelujah. Gloria Patri, Fili et Spiritus Sancti.)
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To: DB
In the old days that was called defaulting on your debts...

Exactly.....

.....What is a person or company to do knowing they must contractually perform for the state only to be paid in IOU's that will most likely not pay anytime soon?

Kalifornia needs to get it's head out of it's rear end, cut programs, and resume paying it's debts. I CAN be done.....

38 posted on 07/12/2009 4:16:40 PM PDT by SteamShovel (When hope trumps reality, there is no hope at all.)
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To: TigerLikesRooster

Wimpy to Popeye, I will gladly pay you Tuesday for a hamburger today.


39 posted on 07/12/2009 4:28:22 PM PDT by Kickass Conservative (If Hitler used a TelePrompter, we would all be speaking German...)
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To: SampleMan
So the IOUs are really 0% bonds?

The IOU's pay 3.75% (annual rate), supposedly tax-exempt. Perhaps that is why some banks are honoring deposits of IOU's -- for in addition to retaining customers, matching the other banks' policies, and not raising the ire of the state government, maybe the banks hope to collect the higher interest rate? If eventually the IOU's bounce, the banks can always take the money back from the customers and possibly charge them NSF/bounced-check fees.

But, unless you're a bank, bonds are better investments, unless one can get a good discount off the face value of the IOU's. Bonds are paid before these IOU's, and given CA's declining credit rating, the bond yields may even be higher.

40 posted on 07/12/2009 6:36:09 PM PDT by heleny
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To: TigerLikesRooster
"The staff of the SEC has expressed its belief that California's recently issued IOUs are 'securities' under federal securities law. As such, holders of these IOUs and those who may purchase them are protected by the provisions of the federal securities laws that prohibit fraud in the purchase or sale of securities," the agency said.

Doesn't a securities issuer need to file some SEC paperwork or comply with some rules before issuing the securities? These IOU's became "securities" after they were issued, and the recipients had no choice whether they wanted to "invest" in these "securities."

41 posted on 07/12/2009 6:48:04 PM PDT by heleny
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To: javachip

thanks for that correction. I should have performed some due diligence before posting something from an email without independently confirming it.

We sure as heck have enough bad news (for real!) around here without me “winging it.”

*sheesh*


42 posted on 07/12/2009 10:34:39 PM PDT by Daisyjane69 (Michael Reagan: "Welcome back, Dad, even if you're wearing a dress and bearing children this time)
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To: heleny
Bonds are paid before these IOU's, and given CA's declining credit rating, the bond yields may even be higher.

Hold on there. The new rules of bankruptcy under Obama now place bond holders at the back of the line behind unions, newly force-issued government owned stocks, and ACORN.

I don't put it past the state or federal government to arbitrarily decide that those honoring the new socialist IOUs deserve more than the old capitalist bond holders.

But thanks for the info on the IOU's interest status.

43 posted on 07/13/2009 3:37:18 AM PDT by SampleMan (Socialism enslaves you & kills your soul.)
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