OT: “Bank of America sets cutoff for redeeming California IOUs”

[partypup]

Anyone care to guess what will happen on July 11? What will suppliers do? How will they operate? How will they pay their employees? These seem like obvious questions to me that aren’t being addressed much in the media right now, which is odd considering the fact that we are now officially out of money.

I’d appreciate any other thoughts on this, because the way I am reading the situation it sounds like the state will only be able to borrow again once it “balances” its budget, but that will require cutting $24 billion, which will pretty much leave hundreds of thousands of people flirting with poverty. On the other hand, if we don’t “balance” our budget, we will no longer be able to borrow, and therefore won’t be able to provide entitlements and services. So either way it sounds like a lot of pain coming.

It’s going to be very interesting, as I’m sure none of us knows quite what to expect – we’ve never lived through anything like this. My heart goes out to the millions (and their families) who receive government entitlements or work for the state. Fortunately, I don’t receive any state entitlements, and I don’t work for the state. I just renewed by drivers license last year, so no need to make another trip to the DMV for a while, which is convenient since the DMV near my house has pretty much been reduced to services 2 days a week already. I imagine roads and highways will continue to deteriorate, and kids will only get stupider when they are sandwiched into classes with several different grades (think “Little House on the Prairie”). I’m sure there are a plethora of services that will be affected. What else do we think will be affected and how soon?

“Bank of America Corp. set the tone for the banking industry’s response to California’s decision to issue IOUs.

That message, essentially, is this: “We’ll help you for a week. If you can’t get your act together and nail down a budget by then, you’re on your own.”

On Thursday, other big banks including Chase, Wells Fargo & Co. and Union Bank followed BofA’s lead, saying they’ll cash the IOUs from customers only through July 10.

Some banks, including City National, didn’t set a cutoff date, but they didn’t preclude doing so at some point. Many credit unions also have agreed to accept the IOUs from customers without setting a time limit, the California Credit Union League said.

The big banks’ hardball strategy will create hardships for their customers if no budget deal is struck soon and the state continues to issue IOUs instead of checks. The state set a redemption date of Oct. 2 for the IOUs, although it said it might redeem them before then if it has the cash. Other lenders may step up to buy the IOUs in the interim, but probably at a discount to face value, unlike the big banks’ redemption programs.

When asked why it set such a narrow window for customers to cash IOUs, BofA cited the “operational and financial” challenge of accepting them.

In an e-mailed statement, the bank referred to “the last time the state issued registered warrants in 1992, where the longer the registered warrants were accepted, the longer it took the Legislature to resolve the matter. So, we don’t want our acceptance of registered warrants to deter the state from reaching a budget agreement as soon as possible.”

Asked whether it might extend the July 10 deadline, the bank all but ruled out doing so, saying, “This is a firm date for us.”

Note that banks will earn something for their troubles: The state will pay an annualized 3.75% tax-free rate of interest on the IOUs until it redeems them.

If recipients of the IOUs don’t need the cash right away — which might be hard to imagine in this economy — they can hold on to them until the state finally pays up. They’d collect whatever interest has accrued to that point.

At 3.75% — and tax-free — the interest is far better than what you’d earn on short-term savings in a money market mutual fund . . . or at a bank.”

http://www.latimes.com/business/la-fi-iou-banks3-2009jul03,0,1131334.story

[bsrsharma]

The important lesson here is : California Problem + a few years = US problem. We are seeing US budget problem being played out for 2019.

[bsrsharma]

The important lesson here is : California Problem + a few years = US problem. We are seeing US budget problem being played out for 2019.

[bsrsharma]

The important lesson here is : California Problem + a few years = US problem. We are seeing US budget problem being played out for 2019.

[bsrsharma]

The important lesson here is : California Problem + a few years = US problem. We are seeing US budget problem being played out for 2019.

[bsrsharma]

The important lesson here is : California Problem + a few years = US problem. We are seeing US budget problem being played out for 2019.

[Coronita]

I smell a business opportunity here….For folks that give a cash advance at a steep discount of the face value of the IOU….The longer CA drags this out, the more cash strapped folks with those IOU’s will be.

I wouldn’t be surprised if folks/company with cash start offering cash to holders of those IOUs in exchange for those IOUs being purchased at a significant discount.

For instance, suppose J6p has an IOU for $2000. Assuming it would be transferrable, why not offer cash-strapped J6P $1300 cash in exchange for the IOU? While it’s seems like a shitty thing to do, it’s really a win-win proposition for j6p….J6p gets to continue to live paycheck to paycheck, and the person offering the cash gets a premium for taking on the risk in case CA defaults and those IOUs aren’t redeemable

Hell, folks can even advertise this on craigslist and or on those websites that attempts to raise money for 3rd world countries (appropriate, since we’re definitely heading that direction !)

You can extrapolate this to businesses that have a nice big IOU too who need to meet payroll and bills.

I don’t see this doom and gloom…In fact, as shitty as it sounds, I think it creates opportunity.

[Coronita]

I smell a business opportunity here….For folks that give a cash advance at a steep discount of the face value of the IOU….The longer CA drags this out, the more cash strapped folks with those IOU’s will be.

I wouldn’t be surprised if folks/company with cash start offering cash to holders of those IOUs in exchange for those IOUs being purchased at a significant discount.

For instance, suppose J6p has an IOU for $2000. Assuming it would be transferrable, why not offer cash-strapped J6P $1300 cash in exchange for the IOU? While it’s seems like a shitty thing to do, it’s really a win-win proposition for j6p….J6p gets to continue to live paycheck to paycheck, and the person offering the cash gets a premium for taking on the risk in case CA defaults and those IOUs aren’t redeemable

Hell, folks can even advertise this on craigslist and or on those websites that attempts to raise money for 3rd world countries (appropriate, since we’re definitely heading that direction !)

You can extrapolate this to businesses that have a nice big IOU too who need to meet payroll and bills.

I don’t see this doom and gloom…In fact, as shitty as it sounds, I think it creates opportunity.

[Coronita]

I smell a business opportunity here….For folks that give a cash advance at a steep discount of the face value of the IOU….The longer CA drags this out, the more cash strapped folks with those IOU’s will be.

I wouldn’t be surprised if folks/company with cash start offering cash to holders of those IOUs in exchange for those IOUs being purchased at a significant discount.

For instance, suppose J6p has an IOU for $2000. Assuming it would be transferrable, why not offer cash-strapped J6P $1300 cash in exchange for the IOU? While it’s seems like a shitty thing to do, it’s really a win-win proposition for j6p….J6p gets to continue to live paycheck to paycheck, and the person offering the cash gets a premium for taking on the risk in case CA defaults and those IOUs aren’t redeemable

Hell, folks can even advertise this on craigslist and or on those websites that attempts to raise money for 3rd world countries (appropriate, since we’re definitely heading that direction !)

You can extrapolate this to businesses that have a nice big IOU too who need to meet payroll and bills.

I don’t see this doom and gloom…In fact, as shitty as it sounds, I think it creates opportunity.

[Coronita]

I smell a business opportunity here….For folks that give a cash advance at a steep discount of the face value of the IOU….The longer CA drags this out, the more cash strapped folks with those IOU’s will be.

I wouldn’t be surprised if folks/company with cash start offering cash to holders of those IOUs in exchange for those IOUs being purchased at a significant discount.

For instance, suppose J6p has an IOU for $2000. Assuming it would be transferrable, why not offer cash-strapped J6P $1300 cash in exchange for the IOU? While it’s seems like a shitty thing to do, it’s really a win-win proposition for j6p….J6p gets to continue to live paycheck to paycheck, and the person offering the cash gets a premium for taking on the risk in case CA defaults and those IOUs aren’t redeemable

Hell, folks can even advertise this on craigslist and or on those websites that attempts to raise money for 3rd world countries (appropriate, since we’re definitely heading that direction !)

You can extrapolate this to businesses that have a nice big IOU too who need to meet payroll and bills.

I don’t see this doom and gloom…In fact, as shitty as it sounds, I think it creates opportunity.

[Coronita]

I smell a business opportunity here….For folks that give a cash advance at a steep discount of the face value of the IOU….The longer CA drags this out, the more cash strapped folks with those IOU’s will be.

I wouldn’t be surprised if folks/company with cash start offering cash to holders of those IOUs in exchange for those IOUs being purchased at a significant discount.

For instance, suppose J6p has an IOU for $2000. Assuming it would be transferrable, why not offer cash-strapped J6P $1300 cash in exchange for the IOU? While it’s seems like a shitty thing to do, it’s really a win-win proposition for j6p….J6p gets to continue to live paycheck to paycheck, and the person offering the cash gets a premium for taking on the risk in case CA defaults and those IOUs aren’t redeemable

Hell, folks can even advertise this on craigslist and or on those websites that attempts to raise money for 3rd world countries (appropriate, since we’re definitely heading that direction !)

You can extrapolate this to businesses that have a nice big IOU too who need to meet payroll and bills.

I don’t see this doom and gloom…In fact, as shitty as it sounds, I think it creates opportunity.

[Nancy_s soothsayer]

The apathy of the masses seems to bolster the hubris of the government “servants for the public good”. For as long as the salaries and pensions are being doled out to highly paid “public servants”, they don’t care if the next guy is experiencing depression times. There should be a mass-initiated proposition that until a balanced budget is passed, your legislature and state servants should not get their salary. That would make them pass a budget in a New York minute.

[Nancy_s soothsayer]

The apathy of the masses seems to bolster the hubris of the government “servants for the public good”. For as long as the salaries and pensions are being doled out to highly paid “public servants”, they don’t care if the next guy is experiencing depression times. There should be a mass-initiated proposition that until a balanced budget is passed, your legislature and state servants should not get their salary. That would make them pass a budget in a New York minute.

[Nancy_s soothsayer]

The apathy of the masses seems to bolster the hubris of the government “servants for the public good”. For as long as the salaries and pensions are being doled out to highly paid “public servants”, they don’t care if the next guy is experiencing depression times. There should be a mass-initiated proposition that until a balanced budget is passed, your legislature and state servants should not get their salary. That would make them pass a budget in a New York minute.

[Nancy_s soothsayer]

The apathy of the masses seems to bolster the hubris of the government “servants for the public good”. For as long as the salaries and pensions are being doled out to highly paid “public servants”, they don’t care if the next guy is experiencing depression times. There should be a mass-initiated proposition that until a balanced budget is passed, your legislature and state servants should not get their salary. That would make them pass a budget in a New York minute.

[Author]

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