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

[Coronita]

[quote=partypup]Maybe I’m missing something, but this whole making-money-on-IOUs scheme would seem to depend on CA’s continued solvency.The state’s debt rating was just downgraded this week to a couple of notches above junk. Doesn’t this concern investors? I wouldn’t touch any IOUs issued by a subprime borrower, which is what CA has now become.

What happens if, on Oct 2, Arnie announces that CA has exhausted its ability to borrow and roll over existing debt. If you were “entrepreneurial” enough to lay out 5K of your hard-earned cash for 7K in IOUs, you’d find yourself holding an empty back.

Coincidentally, the U.S. fiscal year begins Oct 1. If the U.S. has trouble raising $1 trillion for its gaping deficit (and all signs are now pointing to a failed auction in the coming months), how do you think that will bode for CA’s ability to borrow?

Oh, and if the printing presses are going 24/7, I very much doubt a measly 3.75% return will be worth the energy and effort involved in this operation.

Bottom line: we won’t really know which way the wind is blowing for the feds or the states until this Fall. If one domino starts falling, they all will.[/quote]

Actually, the funny thing is as follows. IF people feel CA IOUs is “stable”, there really isn’t an opportunity to make money off of this…Because holders of IOU will just either hold on or sell it to someone that would buy at a slight discount (folks currently offering par value or slightly below par)…However, IF CA does end up in junk status, then you would probably have a lot more holders of these IOUs all the sudden freaking out… Sell sell sell..That’s where you end up getting your deeper discounts. In that situation though, the question one needs to ask is as a buyer of these IOUs, how much are you willing to risk the money you put into these IOUs when CA is rated at junk status. If you have say speculative money, just figure you risk not getting it back. As such, I wouldn’t recommend putting your entire life savings in this one basket.

In any investment, if there is no risk, there is no reward. Therefore, if you take on risk, the reward (or potential reward) must adequately compensate folks for taking that risk… Hence why I said folks asking just par value of these things is not properly considering the inherent risk if CA does default.

It’s a moot point though IF they decide to classify these IOUs as a security

[carlsbadworker]

IOU should be valid to pay my state income tax (or cancel each other out), right?

[carlsbadworker]

IOU should be valid to pay my state income tax (or cancel each other out), right?

[carlsbadworker]

IOU should be valid to pay my state income tax (or cancel each other out), right?

[carlsbadworker]

IOU should be valid to pay my state income tax (or cancel each other out), right?

[carlsbadworker]

IOU should be valid to pay my state income tax (or cancel each other out), right?

[Coronita]

[quote=carlsbadworker]IOU should be valid to pay my state income tax (or cancel each other out), right?[/quote]

I think yes…Funny, since to some extent this is like CA printing it’s own money….lol

[Coronita]

[quote=carlsbadworker]IOU should be valid to pay my state income tax (or cancel each other out), right?[/quote]

I think yes…Funny, since to some extent this is like CA printing it’s own money….lol

[Coronita]

[quote=carlsbadworker]IOU should be valid to pay my state income tax (or cancel each other out), right?[/quote]

I think yes…Funny, since to some extent this is like CA printing it’s own money….lol

[Coronita]

[quote=carlsbadworker]IOU should be valid to pay my state income tax (or cancel each other out), right?[/quote]

I think yes…Funny, since to some extent this is like CA printing it’s own money….lol

[Coronita]

[quote=carlsbadworker]IOU should be valid to pay my state income tax (or cancel each other out), right?[/quote]

I think yes…Funny, since to some extent this is like CA printing it’s own money….lol

[enron_by_the_sea]

Be careful with those dreams of buying the IOUs at discount. SEC decided today that those are securities.
As a result you might need a license and/or maybe exposed to lawsuits from the seller claiming misrepresentation…

http://latimesblogs.latimes.com/money_co/2009/07/as-predicted-the-securities-and-exchange-commission-late-today-decided-that-californias-ious-are-securities-under-the-a.html

I think it is ultimately bad for the holders of the IOUs. They will find few people willing to buy them except Goldman/Morgan……

“As securities, the IOUs are subject to the antifraud provisions of the securities laws,” the SEC said in a statement. “As a result, buyers and sellers will have certain rights and remedies for fraud, and the Commission will be able to take action against any person committing fraud in connection with the purchase or sale of an IOU.”

IOU What would constitute fraud? Say an individual decides to act as a dealer, buying IOUs from people who are stuck with them. This individual tells a potential seller, “I have it on good authority that the state won’t repay these IOUs as promised on Oct. 2. You’d be smart to take 85 cents on the dollar right now.”

Assuming the state has said nothing about delaying repayment, the would-be dealer could be charged with misrepresentation under federal securities laws.

[enron_by_the_sea]

Be careful with those dreams of buying the IOUs at discount. SEC decided today that those are securities.
As a result you might need a license and/or maybe exposed to lawsuits from the seller claiming misrepresentation…

http://latimesblogs.latimes.com/money_co/2009/07/as-predicted-the-securities-and-exchange-commission-late-today-decided-that-californias-ious-are-securities-under-the-a.html

I think it is ultimately bad for the holders of the IOUs. They will find few people willing to buy them except Goldman/Morgan……

“As securities, the IOUs are subject to the antifraud provisions of the securities laws,” the SEC said in a statement. “As a result, buyers and sellers will have certain rights and remedies for fraud, and the Commission will be able to take action against any person committing fraud in connection with the purchase or sale of an IOU.”

IOU What would constitute fraud? Say an individual decides to act as a dealer, buying IOUs from people who are stuck with them. This individual tells a potential seller, “I have it on good authority that the state won’t repay these IOUs as promised on Oct. 2. You’d be smart to take 85 cents on the dollar right now.”

Assuming the state has said nothing about delaying repayment, the would-be dealer could be charged with misrepresentation under federal securities laws.

[enron_by_the_sea]

Be careful with those dreams of buying the IOUs at discount. SEC decided today that those are securities.
As a result you might need a license and/or maybe exposed to lawsuits from the seller claiming misrepresentation…

http://latimesblogs.latimes.com/money_co/2009/07/as-predicted-the-securities-and-exchange-commission-late-today-decided-that-californias-ious-are-securities-under-the-a.html

I think it is ultimately bad for the holders of the IOUs. They will find few people willing to buy them except Goldman/Morgan……

“As securities, the IOUs are subject to the antifraud provisions of the securities laws,” the SEC said in a statement. “As a result, buyers and sellers will have certain rights and remedies for fraud, and the Commission will be able to take action against any person committing fraud in connection with the purchase or sale of an IOU.”

IOU What would constitute fraud? Say an individual decides to act as a dealer, buying IOUs from people who are stuck with them. This individual tells a potential seller, “I have it on good authority that the state won’t repay these IOUs as promised on Oct. 2. You’d be smart to take 85 cents on the dollar right now.”

Assuming the state has said nothing about delaying repayment, the would-be dealer could be charged with misrepresentation under federal securities laws.

[enron_by_the_sea]

Be careful with those dreams of buying the IOUs at discount. SEC decided today that those are securities.
As a result you might need a license and/or maybe exposed to lawsuits from the seller claiming misrepresentation…

http://latimesblogs.latimes.com/money_co/2009/07/as-predicted-the-securities-and-exchange-commission-late-today-decided-that-californias-ious-are-securities-under-the-a.html

I think it is ultimately bad for the holders of the IOUs. They will find few people willing to buy them except Goldman/Morgan……

“As securities, the IOUs are subject to the antifraud provisions of the securities laws,” the SEC said in a statement. “As a result, buyers and sellers will have certain rights and remedies for fraud, and the Commission will be able to take action against any person committing fraud in connection with the purchase or sale of an IOU.”

IOU What would constitute fraud? Say an individual decides to act as a dealer, buying IOUs from people who are stuck with them. This individual tells a potential seller, “I have it on good authority that the state won’t repay these IOUs as promised on Oct. 2. You’d be smart to take 85 cents on the dollar right now.”

Assuming the state has said nothing about delaying repayment, the would-be dealer could be charged with misrepresentation under federal securities laws.

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