Thursday, April 16, 2009

California asks feds to back its IOUs

Last November, in "San Jose to Ask for $14 Billion of Bailout Funds", we said:
I've seen estimates that a minimum 50% of the growth in California gross domestic product over the last seven years was fantasy based on the real estate market. Personally, I think the percentage was higher. California is screwed and it's 53 strong House of Representatives delegation aims to make the rest of the country pay for their detour from reality....
Here we go. From the Sacramento Bee:

Facing what could be the largest cash flow problem in state history, California officials are asking the federal government to back billions of dollars in short-term loans the state must seek in July.

"We're going to need cash-flow borrowing the likes of which California has never seen, at a time when market and economic forces are stacked against us," said Tom Dresslar, spokesman for state Treasurer Bill Lockyer. "That's a recipe for calamity."

While the state routinely borrows money at the start of fiscal years on July 1 by issuing interest-bearing Revenue Anticipation Notes, or RANs, a combination of factors have conspired to form a mountainous hurdle this time around.

Those factors include the sheer size of the amount needed – at least $13 billion – the state's woeful credit rating and the generally sorry state of the nation's financial markets.

Lockyer and other state and local officials have been quietly exploring the idea of doing what hordes of private financial and insurance enterprises have done in the past year: Ask Uncle Sam for help....MORE

If you recall "Laughingstock: Fitch to California-"F2" and S&P Downgrades to "Lower than Louisiana"', California now has the lowest credit rating in the country:

...This is creepy paper:

...In addition, the notes carry a back-up pledge to issue revenue anticipation warrants (RAWs) if necessary. The notes do not carry a GO pledge...
Hmmm. "If we can't pay you in money, we'll give you warrants on anticipated revenue."
There is a very real possibility that this move by Cali. will be followed by New York, Massachusetts and a half-dozen other states. At that point the credit rating of the United States will go on Credit Watch-negative.

The ranch family in Montana didn't cause California's problems but they'll be paying for them.