85 Cents On The Dollar. California Gives Out IOUs & Banks Refuse To Cash Them >>>

[KittyWampus]

Even check cashing places in poor neighborhoods won't cash these CA state IOUs.

So employees who get them are selling them to speculators for 85 cents on the dollar.

No link, heard on Lehrer Report last night.

I'd never heard of a state giving out IOUs. It sounds like CA is headed for catastrophe.

edit- report noted that some local CA credit unions were cashing them but you have to be a member.

[aquart]

1. Sounds like California is THERE.

[alice silas]

2. What is the old saying "as california goes, so goes the nation"? Food for thought. NT

[Skink]

3. the IOU as derivative investment. Arnold is pretty sly.

[anigbrowl]

10. Not his invention actually

see my other message below. This has been done before, and in any case it's the state controller who issues the IOUs, not the governor's office. As far as I know, the governor doesn't have any direct control over the terms of issue.

[anigbrowl]

4. "I'd never heard of a state giving out IOUs." Well, CA also did that in 1992...

http://www.nytimes.com/1992/07/02/us/california-forced-to-turn-to-iou-s.html

While obviously highly undesirable, we'll probably get through it this time too.

[KittyWampus]

6. just to edify my OP, that was mentioned on the news report.

[lindisfarne]

5. These IOUs have SEC protection. Banks said they wouldn't cash after July 10. I'm not sure what SEC

protection means for being sold to speculators. Do they need to have some kind of license to be buying?

[anigbrowl]

8. You need a broker dealer license to trade them

so if I buy an IOU from you at 90c on the $ and sit on it as an investment, no problem. But if I turn around and sell it to someone else at 95c then I'd need to be licensed, and notify you up fron that I was a dealer (and by implication, in it for the quick buck rather than the long haul).

[dixiegrrrrl]

7. A native Cal. person says IOUs happened before, were accepted, then finally paid off.

But...that was when there were jobs to be had during the recovery.

A dollar bill is really an IOU. Look at one.
Actually, they used to be called Silver Certificates..yes, in my lifetime, and theoretically redeemable for silver.

[KittyWampus]

9. True, but banks and stores accept dollars. They won't take IOUs for services.

[Cronus Protagonist]

12. Citibank is acceptning the IOUs

Although they charge interest on them until the debt is paid.

[lindisfarne]

15. That's worse than 85 cents on the dollar then.n/t

[Lucky Luciano]

20. no way - Citi is offering a better deal...I doubt their interest rate

would make their deal equivalent to or less than 85c.

[lindisfarne]

22. Why do you think that, given what they charge when someone carries a balance on their credit cards?

[Lucky Luciano]

25. Using continuously compounded interest rates of about 32%

would be roughly equivalent to paying 85c on the dollar if it takes six months for CA to pay their IOUs. It is not clear to me from what is posted above what would happen if CA files for bankruptcy.

Also unlike the credit card loan, this loan is backed by an asset.

[lindisfarne]

27. Well, it could be close, if they charge credit card interest rates! But I see your point.n/t

[Laelth]

19. Very true. Basically, California is printing its own money. n/t

:dem:

-Laelth

[ColbertWatcher]

11. All thanks to electing an incompetent to run the state. n/t

[Lucky Luciano]

21. I really don't think that is fair. You do not need to lovae Arnold, but

anyone who happened to be governor during this crisis would have this problem. The housing bubble has killed California and there was little Arnold could do about it.

[ColbertWatcher]

24. It would not have been as bad. The man the GOP recalled had offered solutions and ...

... warned it would happen.

Also, The GOP's Great Aryan Hope didn't do a damn thing to get money back from the Enron scam, in fact, he had a meeting with them the year before.

[Lucky Luciano]

26. There is nothing Grey Davis could do - if people's property

values skyrocket and the governor wants to slow that down, then that will incur the wrath of the voters - even if he is right!

[ColbertWatcher]

28. He had a solution for CA annual budget crisis. n/t

[Lucky Luciano]

29. This year's budget crisis is different than the others in a big way,

but you are probably correct about the solution he would have had during normal economic times.

[ColbertWatcher]

31. Davis' solutions would have helped alleviate some of the problems. n/t

[natrat]

30. arnold let big oil off the hook after it raped Ca for billions, he's a scumba

[Freddie Stubbs]

13. Unlike the Federal Government, states can't just print money

[Lucky Luciano]

14. I would probably bid 85c for the IOUs too

I wonder where California's muni CDS trades? Probably a great hedge if you can buy the IOUs in size with lowball bids.

[noamnety]

16. The breakdown of who gets real money is interesting

Apologies if it's been posted before but I see legislators get cash, while blind people or people needing temporary assistance for basic family needs get IOUs:

http://blogs.reuters.com/felix-salmon/2009/07/01/california-the-haves-and-have-nots/

[anigbrowl]

17. Good catch.

[dixiegrrrrl]

23. Squeaky wheels get cash, too.

In '92, Mr. D. had a business providing necessary service to state government, and he drew the line at
IOUs, demanded COD, and got it.

[blue_onyx]

18. Until California's current budget problems

I didn't even know a state could give IOUs. When Michigan had an unbalanced budget in 2007, our government had to balance it or go into shutdown...we went into shut down for a few hours.