The Peoples Republic of California Chronicles Episode 2: Big Banking Tells California to Drop Dead with their Worthless IOU’s

 

 

 

 

The Peoples Republic of California has long since spent itself into receivership.  Its latest scam to camouflage its bankrupt, corrupt and hideously bloated condition, has been to issue IOU’s in lieu of paying their bills. Heaven forbid that they should take an ax to spending and simply cut all the liberal social spending that destroyed this once prosperous state.  The money is gone and the goofy “warrants” they want to issue, mature, (Become due for payment in real money) in October.  Well the big mainline banks are looking at this plan, and the unilateral actions of the state to put off all payments until October, and are saying, in unison: We don’t think so California!  There are still small banks and credit unions that plan to continue enabling the spending addicts of Sacramento but with the big boys getting out this Friday one wonders if the small banks will continue to fork over a “fix”. The banks are letting it be known that they want their money and if California doesn’t pay up the banks won’t play ball!  The big spending liberals of California have finally run out of other people’s money (OPM) and the banks are cutting them off!

It’s about time!

California government has clearly failed.  They’ve had ample time to solve this budget disaster and the Legislature and Executive Branch has clearly failed to do their jobs and avoid a condition of massive default.  One can hope that this means the tacit control of the state budget would fall to a bankruptcy judge who will make the necessary cuts, since the banks are cutting them off from mainlining more “credit”, as cutting the budget becomes the last option open to the incompetent liberals. What should have been the first option, cutting spending, became the only option the California government would never, seriously, consider!  If the executive and legislative arms become unable to cut the budget: the courts must step in and make the cuts necessary to survive once the state is in true default.  Once again: the banks are saying no to “warrants” in lieu of cash and without the banks the state will shut down!

Consider this article from the Wall Street Journal now because as off Friday the Big Banks are cutting off the spending addicts of the Golden State:

 

JULY 7, 2009

Big Banks Don’t Want California’s IOUs

 

By RYAN KNUTSON

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.

Associated Press

Dorothy Cottrill of the state controller’s office inspects IOUs last week.

The development is the latest twist in California’s struggle to deal with the effects of the recession. After state leaders failed to agree on budget solutions last week, California began issuing IOUs — or “individual registered warrants” — to hundreds of thousands of creditors. State Controller John Chiang said that without IOUs, California would run out of cash by July’s end.

But now, if California continues to issue the IOUs, creditors will be forced to hold on to them until they mature on Oct. 2, or find other banks to honor them. When the IOUs mature, holders will be paid back directly by the state at an annual 3.75% interest rate. Some banks might also work with creditors to come up with an interim solution, such as extending them a line of credit, said Beth Mills, a California Bankers Association spokeswoman.

Meanwhile, on Monday morning, a budget meeting between Gov. Arnold Schwarzenegger and legislative leaders failed to produce a result. Amid the budget deadlock, Fitch Ratings on Monday dropped California’s bond rating to BBB, down from A minus, the latest in a series of ratings downgrades for the state.

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. She noted that not all banks have set a July 10 deadline, and that dozens of credit unions in the state will keep accepting IOUs.

Wells Fargo’s head of community banking, Lisa Stevens, said: “We’re very disappointed, as are many Californians, that California has taken the unfortunate step of issuing IOUs in lieu of payments to some businesses and individuals.”

State officials said they were disappointed by the banks’ decision. Garin Casaleggio, a spokesman for Mr. Chiang, said: “We don’t want anybody to suffer who can’t redeem them when they need cash.”

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