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90 Comments
- SirBruce, on 07/09/2009, -0/+351. Those of you blaming the banks are way off base. The state doesn't have the money! They're paying people with "bonds" rather than cash. There's no guarantee those bonds will be paid in full in October, and people need cash now. Requiring the banks to accept them basically means forcing the banks to LEND MONEY to the state. The state already sells traditional bonds to raise money and it's not enough because their credit rating is so low not enough people are willing to buy them. Requiring people to accept IOUs, even with interest, is basically forcing people to loan them money.
2. The way California got into this crisis is very simple... when revenues were high during the dot.com boom, the state ramped up spending in social programs. Revenues matched spending until the 2000 bust, and the state has been struggling ever since. They've kicked the problem down the road year after year, so now the deficit is too huge to deal with. The Democrats don't want to cut spending and the Republicans don't want to raise taxes, and it requires a 2/3 majority to pass a budget, so no one can reach an agreement. The politicians almost all come safe gerrymandered districts, so no Democrat fears losing their seat if there's no budget because the Democrat voters in their districts blame the Republicans, and no Republican fears losing their seat if there's no budget for the same reason.
3. The situation is exacerbated by certain ballot propositions, passed by simple majorities of the public, which severly limit what programs can be cut and what taxes can be raised. Understandably the lawmakers who would like to compromise balk at having their hands tied by the voters, but this is what the voters wanted. - Richandler, on 07/09/2009, -1/+33Are you guys kidding? This is the best move banks can do. If someone has the power to stand up and say enough is enough from the California legislature, it's the banks. No one should except the IOUs and extreme pressure needs to be placed on the legislature to make cuts to the damn budget. Either way it's going to hurt people, there is no bypassing that, but it's better to correct the problem with cuts than to prolong the problem with IOUs of fiat money. And I'm sorry but raising taxes will not work. I do not want to see people pay their taxes with IOUs.
It can't be just me that thinks it's absurd that people would get mad at the banks but not mad at the people who issued the IOUs. - egocogito, on 07/09/2009, -3/+34So? I would think twice about taking an IOU from California.
- ddensity, on 07/09/2009, -2/+32Hey how about this novel concept for California: STOP SPENDING MONEY.
We already have some of the highest tax rates in the nation and still cannot keep up with the spending. I can't believe there's even a debate about this anymore. The spending needs to stop NOW. - piratearggghhh, on 07/09/2009, -1/+22The jig is up on California's ponzi scheme
- SoulGrub, on 07/09/2009, -0/+19Is there any good reason why California is so deep in debt in the first place?
Edit: If it's their own financial irresponsibility that caused this why should anyone be forced to risk their money to bail them out? - abduln, on 07/09/2009, -0/+17This is brilliant, let's blame the banks for California's inability to a) manage their budget, and b) to not be able to decide on the current budget.
You know, in the old days we used to blame the person who was actually at fault for the problem, not just blame the group that poses the most convenient solution.
If California wanted to hand you IOU's instead of money, would you take that? Would you take the blame for not taking it? - PunkRockGeoff, on 07/09/2009, -0/+14So basically, the banks are saying they don't think California can pay back the IOU's, therefore the interest on the IOU's is not good risk to take, despite the likely customer backlash. Then again, seeing as how all 3 banks mentioned got federal funds, maybe they don't feel healthy enough financially to take the short term loss on the sheer amount of money that is being given out on IOU's. Remember though they'll get the interest, maybe they're too short on capital to hold the IOU's until October. Think about it, 3/4's of the value of IOU's(at least) whether to citizens or contractors is probably going right back out out of the bank over the next couple weeks to cover bills and whatever. This is one thing that the major banks have done lately that I don't blame them for one bit.
They really need to man up and make some serious budget cuts in Sacramento. - ninjaturtles1, on 07/09/2009, -0/+13Unfortunately the Feds IOUs are US dollars!
- Elranzer, on 07/09/2009, -2/+13But those street trolley cleaners in San Francisco NEED their six-figure salaries...
- ninjaturtles1, on 07/09/2009, -2/+12Wait.... So some people actually accepted them? I might have to try paying for stuff in "IOUs"!
- SirBruce, on 07/09/2009, -1/+10I agree. From 2001 - 2004, California's budget was ~$75B. Revenues were below that due to the dot.com burst but eventually caught up. But once revenues continued to grow after 2004, they kept increasing budget. Now revenues are down again, and we have a huge shortfall.
By what logic does the state need $100B this year when $75B was fine 5 years ago? And by what logic does cutting that spending to a mere $90B -- still a huge increase in only 5 years -- constitute some sort of disaster for the people of California?
It's like if you got multiple raises over 5 years from $75K a year to $100K a year, and then you lose your job and the best one you can get now "only" pays $90K a year. I think you could tighten your belt and deal with it. - Loki101, on 07/09/2009, -0/+9Crunch time Cali
- inactive, on 07/09/2009, -1/+10Couldn't agree more with the people blaming the banks. These are undoubtedly the same people who chastised the banks for making risky investments, yet they have no problem forcing them to accept California's IOUs when California has the lowest credit rating of any state.
Is it just a knee-jerk reaction for you guys? Banks = greedy, cops = pigs, etc.?
With some of the highest taxes in the country, low taxes are not California's problem. They need to CUT SPENDING. What are Democrats so scared of? Like the leisure- and working-class will ever vote for any other party. - shig, on 07/09/2009, -1/+9An IOU isn't legal tender therefore banks are not legally required to accept it for debt payments, and neither are the people who receive IOUs. If California owes you a wage debt then you should demand legal tender. I fear that if you do not then there might be no legal recourse if they eventually stiff you.
I would rather we abolish legal tender laws (coercion) altogether than than have special treatment under the law for a tiny minority of people who were too foolish or trustworthy to accept IOUs in lieu of a proper payment. *****, do those people think a court is there for other people besides them or what? I don't understand it. - chieffan, on 07/09/2009, -2/+10And the State of California would take an IOU from residences for such things as back taxes? I don't think so.
Solve the budget = remove the illegals. - sanibelsnook, on 07/09/2009, -1/+8who, in their right mind, would take an IOU from CA?
crappy loans are what sunk the banks, now the media is trying to make them out as bad guys for not continuing that practice? wtf? - jsuther, on 07/09/2009, -4/+11Completely bias article, MSNBC is the new state media. I sure a hell wouldn't extend any credit to the deadbeat state government of California.
- inactive, on 07/09/2009, -2/+8Wish we could say the same thing for the fed.
- dknybbrz, on 07/09/2009, -2/+8It's time for Sacramento to make some serious cuts, there is too much fat in this state and too many people who are afraid of making anyone support themselves.
- Mavital, on 07/09/2009, -1/+6@SirBruce: That is the problem with social programs. You can't just cut the programs once you start them up and they typically cost much more than budgeted.
- inactive, on 07/09/2009, -1/+6Stop the welfare line and legalize medicinal flowers.
- jbmcb, on 07/09/2009, -0/+5Would YOU loan California money? I'm pretty sure governments can declare bankruptcy as well.
- SirCharge, on 07/09/2009, -0/+5I wouldn't trust an IOU from California either.
The legislature has no clue how to handle money. - Mavital, on 07/09/2009, -0/+5So what? They are using taxpayer money, we get it. Do you want them throwing that taxpayer money at a deficit state that cannot control its spending? No thanks. I'd rather them make profitable loans which enable them to pay back the money.
- insanebrain, on 07/09/2009, -0/+5IOU'z are legal.
- curtisag, on 07/09/2009, -0/+5If the banks thought California was a good investment, they would have loaned money to the Government directly. There wouldn't be any need for IOUs. The IOUs are an underhanded way of forcing the banks to loan them the money. Well the banks called their bluff, check mate California. CUT THE BUDGET!
- ninjaturtles1, on 07/09/2009, -1/+5Hang on, I thought they couldn't get any credit and are now forcing people to take the IOUs?
- billalbertson, on 07/09/2009, -5/+9I would too, and I live here.
What happened this time is that the Legislature did its job and passed a budget on time, and then the Governator decided to veto it and say "I vant my budget instead." You know, the budget he never mentioned to the Legislature for an entire year. The one he pulled out of his butt. And he wants them to pass it, without any significant debate. His Republican cronies (of which are only JUST enough to prevent a veto override) will sit on their hands until the state comes crashing down yet another year in a row. And this budget, it had a 2/3 majority in the first place.
No wonder the banks are just plain fed up. I would tell the Governor where to stick his IOUs as well. - tsotha, on 07/09/2009, -2/+6The banks won't take California script? Well, it's not like they're stupid or anything. Jeez.
- Leviathan433, on 07/09/2009, -0/+4Yeah - this is just sound business practice.
- cvlad, on 07/09/2009, -0/+4@billalbertson:
First off, CA's debt rating is already junk and has been for some time; it's inaccurate to characterize the governor as the cause.
You (purposely?) neglected to mention the reason the governor vetoed the budget: because it had EVEN MORE TAX INCREASES. CA is the most taxed state in the nation already, and where does that money go? Into one of the worst eduction systems in the nation, a vast array of social welfare programs, and multiple union coffers. Driving up taxes will cripple an already ill economy and lead to even less total revenue. If the legislature is unwilling or unable to make the necessary cuts, the state should enter bankruptcy protection and have the labor contracts nullified. The government needs to spend significantly less, cut taxes to help the economy grow, and proceed on a path of rational growth, where spending doesn't exceed the growth in inflation % + population %.
In other words: STOP SPENDING MY MONEY AND QUIT ASKING FOR MORE. - trunks13, on 07/09/2009, -0/+4This may be a foreshadowing of things to come at the federal level. In fact, if The Fed couldn't print money, this is the type of thing that would be happening everywhere in this country.
- jjpk01, on 07/09/2009, -1/+5Did you take free money from the government? They did.
- randumbusername, on 07/09/2009, -0/+3are you being sarcastic?
- Leviathan433, on 07/09/2009, -0/+3IOUs are promissory notes that typically include the principal amount, the interest rate, and a maturity date. Semantics aside - it is a form of credit.
- Elranzer, on 07/09/2009, -1/+4It's all due to California's ***** up system where mob rule can vote on propositions. It's the same way the Prop 8 disaster happened. California is a good example as to why mob rule is less effective than a representative democracy.
- laminac, on 07/09/2009, -0/+3too bad it is unconstitutional for California to print money out of thin air. This should be unconstitutional. (Article I section 10)
- ninjaturtles1, on 07/09/2009, -0/+3"That's as good as money sir. Those are I.O.U.s. Go ahead and add it up. Every cents accounted for...."
- rayen99, on 07/09/2009, -1/+4They did raise taxes. They raise taxes on us year after year....
- SirCharge, on 07/09/2009, -0/+3Banks allow you to give them your money and are willing to share theirs. Its a completely volunteer based relationship.
The California government steals my money from me and then waste it completely on huge government salaries, bureacracies, and other wasteful largesse.
The banks aren't the villain here. - rayen99, on 07/09/2009, -0/+3Correction:
California government's greed and swindling comes full circle... - septicmadman, on 07/09/2009, -1/+4I agree with you on those grounds. Although I think it is worth considering the success of the banks is based on the productivity of the economy. Considering California is 13% of the GDP of the US and roughly 13% of the population the banks should lend accordingly. That being said the state failing would result in corrective actions eventually would it outweigh the interim suffering that occurs instead of the banks lending and praying.
TL;DR
*Their* money is our money. Viva la socialism!
It doesn't matter if they have a reason as long as they take corrective actions. Which they aren't
That was rambling... - MrColdheart, on 07/09/2009, -7/+10They better hope we never figure out how to develop a society without money.
- PROGLVR, on 07/09/2009, -0/+2Democracy is mob rule. We are a Republic. We have representatives. Sometimes the mob does make bad decisions as we have seen in our recent and past history. Our Republic also protects the minority a Democracy does not.
http://www.lexrex.com/enlightened/AmericanIdeal/as ... - ladyattis, on 07/09/2009, -0/+2Money is the reason why we even have a society. The fact we're not tied to primitive barter allows for capital and personal economic mobility.
- Justin676, on 07/09/2009, -1/+3Good for them. The people in charge of California's budget are morons and have run the state into the ground. It's just sound business practice to not take IOU's from something or someone who will never pay it back.
- swamp916, on 07/10/2009, -0/+2Banks are not average people with rent to pay and groceries to buy for their children. If everything the banks were doing that lead to this melt down was risky why can't they take a risk on California? If the US government is willing to bail out the financial institutions shouldn't they bail out one of the largest and most economically important states in the union??
- mnocket, on 07/09/2009, -1/+3Unfortunately, despite repeated claims that they don't want to run the banks, the Obama administration's actions tell a very different story. In this case I fully expect that the administration will force the banks to accept California's IOUs even though the banks feel they are too risky. With government ownership of industries (finance, auto-making, health care) decisions are based on political considerations not business considerations. So California will continue their irresponsible fiscal policies because the Obama administration will bail them out. After all, with all those voters it's the politically smart thing to do.
- oldgal, on 07/09/2009, -0/+2The IOUs (aka warrants) pay 3.75% interest. They are currently selling on the market for 80 cents on the dollar. It will be interesting to see if the banks start picking them up for this discounted rate or whether they realize the backlash might be worse than the profit. The people getting screwed here are the folks who are not getting paid by the state for services rendered, while the fat cats will pull in 20% at their expense. There is something fundamentally wrong here...besides just the legislature (who is still getting paid by check) and the governor (who accepts no pay).
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