It was bound to happen, sooner or later. State governments are stressed to the maximum in the current Bush economy. So it should come as no surprise that Governor Schwarzenegger of California, our most populous state, is claiming California may need to seek $7 Billion Dollars in loans from the US Treasury if the economic climate doesn’t improve ASAP:
(Reuters) – California may need an emergency loan of up to $7 billion from the federal government within weeks, the Los Angeles Times on Friday quoted Gov. Arnold Schwarzenegger as saying in a letter to U.S. Treasury Secretary Henry Paulson.
In the letter dated October 2, Schwarzenegger called for the passage of the $700 billion financial industry bailout plan which the U.S. House of Representatives is expected to vote on Friday, the Times said.
“Absent a clear resolution to this financial crisis, California and other states may be unable to obtain the necessary level of financing to maintain government operations and may be forced to turn to the federal treasury for short-term financing,” Schwarzenegger wrote in the letter, according to the paper. […]
In the letter, Schwarzenegger noted California’s plans to issue $7 billion in revenue anticipation notes in the coming days to fund short-tern cash needs — now put in doubt by the crisis in the credit markets.
On Wednesday, California Treasurer Bill Lockyer said the most populous U.S. state’s cash reserves may be exhausted near the end of October, and various state-funded services are at risk of grinding to a halt.
He said the planned notes sale was at risk from the uncertainty gripping financial markets and the U.S. government’s lack of response to it.
Gosh, who could have foreseen that a credit crunch would mean no one would want to buy bonds issued by individual states? If this is happening to California, rest assured it soon will be a problem for your state, also. California has always been a leading indicator in cultural trends for America, and now it looks to be a leading indicator for financial and economic trends, too.
Why? Well California has the largest economy of any state in the country. As our state economies weaken, the tax revenues upon which our state and local governments rely, such as sales taxes and local property taxes, have declined precipitously. And when the credit markets are frozen, as they are now, no one wants to take the risk of an American state pulling an Epic Fail and refusing to pay off on its debts.
So Schwarzenneger is announcing his own version of “too big to fail” in his letter to Paulson. “Fix the financial markets” he’s telling Washington, “or the next bailout you will be faced with is states like California that can’t refinance their debt.” California may be the first state to face this stark reality, but rest assured, it won’t be the last.
As more and more businesses are forced to close their doors, or lay off employees, because they no longer have access to the credit necessary to run their operations, tax revenues will continue to plunge, and more and more state and local governments will be faced with some very unsavory options. They may have to cut essential services (think fewer police and fire fighters), close schools and libraries, abandon needed repairs to crumbling infrastructure such as roads and bridges, cut outlays for Medicaid and social services, lay off government employees, and so forth, in order to cut expenses. Because at a time when their tax revenues are declining, if they can’t obtain money from the bond markets, they won’t be able to pay off their current debts, much less the expenses necessary to provide those services that you and I have come to rely upon. And that, my friends, is not a happy future to contemplate.
Cali’s fiscal problems were also screwed up by a three-month delay in coming to a budget agreement. The State constitution requires a two-thirds majority to pass, which means that each year the more and more partisan bickering drags the process longer and longer past the deadline. So the bonds that the state would have bought in June or July need to be bought now, at a time when borrowing for a used car seems to be hard.
I expect that in the next couple of years there’ll be a constitutional amendment here to reduce it to a majority. And there will probably be a much bigger Dem majority in Sacramento. And Arnold will be gone.
California has more people in jail than the population of Costa Rica or something like that. They have a HUGE jail population. Instead of using sensible ideas, they have 3-strikes, surely the most idiotic, right-wing, nazi idea of prison for everybody that anyone has come up with.
Plus, there’s Prop 13. Prop 13 means that property taxes get smaller and smaller over time, and it also means that new homeowners are CLOBBERED by HUGE taxes, while older homeowners pay very little. Very unfair. Why would anyone move there?
I have no sympathy for these idiots. They have voted themselves into a poverty situation.
As I’ve said, local and state governments are in dire straits. California’s situation is unique in a sense, but I hardly think it’ll be the only state facing bankruptcy in the next fiscal year or two.
Remember, a lot of states played fast and free with the markets as far as pensions, bonds, and investments.
Who’s going to bail us out while we’re bailing out cities, counties, and even entire states?
California has something like the 6th or 7th largest economy in the WORLD? This is like France asking the World Bank for a loan to shore up payroll.
But Bob in Pacifica puts this in perspective. It’s easy to create false drama. California is not going under, it’s just mismanaged.
Schwarzenegger, like Bloomberg in New York City, is a new breed of Republican, a breed much more sensible than the brood bred by Reagan and his backers. Term limits have screwed up the Senate and Assembly in CA, so let them screw Schwarzenegger and Bloomberg too.
Let the Power Fall
People in CA are no longer saying I am crazy for moving to NJ a few years back – between their budgetary doom, empty suit governor, failed school system, enslavement of African Americans via the prison system and spineless neo-liberal elitism.. I just couldn’t stay despite all the wonderful things about the state. I have a family to build, and that’s no place to do it. I’ve been getting calls from folks looking for help moving back here as well…
Won’t the states (and then the municipalities) be able to use bankruptcy proceedings to void all of those sweet retirement packages that have been negotiated with the unions which provide services to the state? Most of the pensions are pretty shoddy, but those given to the police, fire departments and similar unions are usually awfully gold-plated. The authoritarian personalities who tend to gravitate to those types of jobs and vote conservative are going to find that their own personal gravy train is being terminated courtesy of their conservative philosophy. Payback’s a bitch.
California has been in dire need, $20 billion at last count, for at least three years.
But California’s imploding troubles are a sideline issue.
The credit markets are frozen.
Keep both eyes on LIBOR (London-Inter-Bank Overnight Rate – the interest rate banks charge when they lend to each other, overnight)
and
Over the next 48 hours, LIBOR needs to drop, dramatically,
Or else we’ll be on a different financial planet next week. If reports are correct, we may get a most unwelcomed two weeks holiday. They have prepared.
How prepared are you and your family?
FWIW, Here’s my Alert
Banks need cash
Let the Shenanigan Games Continue..Shareholder fights are on and lawyers will make off like bandits.
Imho, CITIGROUP will now have to match the Wells deal. because Wachovia shareholders were already fuming over this FDIC give-away.
LIBOR overnight is at 1.99%, which is MUCH better than the 6.84% it was at on Monday. That’s a very good sign. But that’s not the real problem.
The problem is the much more widely used LIBOR 1-month and 3-month numbers are well above 4% and are continuing to rise along with the TED spread, now at an all-time high of 3.84%.
As idredit says, the credit market is dying slowly, being strangled to death.
If the bailout passage doesn’t reverse this trend by Monday or Tuesday, we’re in dire trouble.
Things are going to get bad. Real bad.
worth of t-bills?
Where is the money coming from?
Now that’s the trillion dollar question. The answer? We’re borrowing most of it and magically making up the rest.
although the latest npr newsbreak indicated that the FDIC was willing to look at all offers, and will support the one that best serves the taxpayer[s].
unless the FDIC just can’t wait to throw some of those $700bn to chimpy&co’s crony’s…it looks like paulson’s pals at citi are gonna get the pointy end of the stick for a change.
what fun!
Have to point out that as 10% of the nation’s population, Californians pay 10% of the nation’s bills. The $700 billion bail out will cost us $70 billion or so, at least, a lot of which, as far as I can tell, will go to folks in New York. And we’re asking for only $7 billion of that back. Even before the bailout bill we’ve been sending well over $100 billion a year back east more than we get back in goods and services. I’m the first to admit that the state government is badly mismanaged and wastes a lot(they pay some prison guards without college degrees six figure salaries). To put it mildly. But we also produce an enormous amount of income and economic activity, from Silicon Valley to the movie industry, and are just about the only state still producing things that the rest of the world wants to buy (ipods, tv, movies, Intel chips, Google services, etc, etc.). (Although Washington state, with Microsoft, Boeing, et al. is also contributing. But it’s clearly only the west coast that’s keeping the national economy going.) Basically the real problem is that the rest of the country isn’t able to pay its goddamned bills because they don’t produce anything of value and keep needing us to bail them out. With all due respect.