because the state already said they will NOT take them...
Posted on 07/07/2009 2:26:27 PM PDT by Lorianne
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.
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.
(Excerpt) Read more at online.wsj.com ...
Well, if ‘scripts’ don’t work, maybe they can barter.
Everything old is new again!!
Happy days are here again.
The sky above is clear again....
California is printing negotiable instruments, a violation of the US Constitution. This truly is a federal question, and I don’t understand why Obama, Mr. Constitutional lawyer, doesn’t see it.
I’ll take your IOU slip and give you cash.
Terms of the agreement, 100% interest, added daily, with your house and car as collateral. Payment in full due within 30 days.
They are allowed to print negotiable instruments. States have always issued bonds for example. What they may not do is coin money or "emit bills of credit" which is paper intended to circulate as money.
exactly, I think these banks are starting to catch on.
Wow look Martha, the sea has gone out look at all the fish flopping around, let’s go get some!! Just the beginning!!!!!!!
Thanks for that.
What is the difference between an IOU and a “biil of credit”?
Well a single penny borrowed under those terms would grow to $10,737,418.24 in 30 days so you'd better ask for more than a house and car as collateral.
A bill of credit is intended to circulate as money. An IOU is merely a note redeemable for money at some point in the future. It is of course possible for IOU's to be circulated as money even though that wasn't the original intent. But that isn't very likely without the support of the legal tender laws.
The next inevitable step will be for CA to pass a law that banks doing biz in CA must accept those IOUs (”good for all debts public and private”). Then, when CA inevitably defaults on Oct. 2, either CA will zero out the IOUs causing an economic collapse or turn them into fiat money by law (which they really already are). They really can’t do the first, so again this step is inevitable.
At that point, California will have an economy increasingly based on their own currency in blatant violation of the Constitution. In other words, they will be their own nation, atleast economically. A huge Constitutional crisis will occur at some point in this process.
The irony: for all the talk from Texas and Vermont about secession, California’s actions here lead inevitably to secession. In fact, it already is an economic secession. And it is already too late to stop the coming train wreck.
I can’t imagine what possessed any bank to accept them in the first place. It would seem that the leadership that got us into this mess is the same that leads us now. What are the chances that our economy will recover with that sort of leadership?
Apparently Article I, Section 10, of the Constitution has been repealed as regards California.
If I were a retailer, I would use them to pay state sales taxes.
And why not? What's sauce for the goose is sauce for the gander, right?
Why doesn’t California just form their own California State Banks like North Dakota has which would enable them to at least borrow money.
because the state already said they will NOT take them...
Any chance the Dems will finally give in and make cuts to the budget to close the gap?
Its either that or a federal bail-out.
My money is heavily on the latter.
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