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Calling all banks honoring California IOUs


So far, I have Bank of America, Wells Fargo and Chase saying they will honor the California IOUs until Friday.

WSJ also puts Citi in the mix.

Here press releases from some others:

The conditions of acceptance also vary:

Heritage Oaks Bank will only accept warrants from customers that have been with the bank for one year.

Tri Counties gives a July 10 cutoff, and says it will only accept warrants made payable directly to customers.

Fitch comes out swinging on California


Fitch Ratings is at it again. The credit rating firm cut California’s general obligation bonds by two notches to BBB, leaving the rating just two notches above junk. Fitch had already cut the state’s full faith and credit bonds one notch on June 25.

The junk threshold is an important one to keep in mind. If it’s breached, fund managers who can only invest in investment-grade credits would be forced to sell, causing valuations to tumble further. It would also turn up the pressure on legislators to sort out their differences and close the $26.3 billion budget gap.

Bank of America to accept California IOUs


At least one bank has said it will honor California’s IOUs, which the state’s controller will start sending out today. Bank of America said it will accept the warrants from its customers, at least through July 10.

The press release though doesn’t say whether the bank will charge customers an additional fee for the favor.

California’s IOUs may be difficult to cash in


With the California controller getting ready to send out the first batch of IOUs on Thursday, banks in the state are still trying to figure out if they want to buy the warrants from depositors. If they decide not to, get ready for crunch time and most likely the emergence of some kind of distressed debt market that will scoop up the IOUs – at a price – from those desperate for cash.

Just because the IOUs are sent to a specific person, business or local government doesn’t mean that they can’t be traded in or simply just traded. Whoever ends up holding them by their maturity date can redeem them with the state. And there’s certainly enough IOUs coming down the pipeline to make for a nice liquid market.

What’s the California exchange rate?


The prospect of California issuing IOUs raises the intriguing prospect of a new, freely tradeable currency in the middle of the world’s principal single currency block. Clearly, the Cali will trade at a discount to the greenback, but how big should it be? Should there be a new Californian Monetary Authority to control the paper the state issues? And will the IOUs carry redemption dates where they can be converted into the real thing? This could be the start of something big…

California dreams shouldn’t include the federal government


Don’t underestimate the power of California, and its ability to suck in a reluctant federal government to bail it out of a fiscal mess of its own making.

But the Obama administration and Congress should resist.

Not only is the federal government shouldering the already heavy burden of sorting out the auto and banking industries, the housing giants Fannie Mae and Freddie Mac and the
hard-to-get-rid-of American International Group, but such action would undermine the state’s need to revamp what has become an ungovernable system built on gerrymandering, ill-conceived tax schemes like Proposition 13 and unrealistic restraints like needing a two-thirds majority to pass a budget.

It’s not over till it’s over


Over at The Big Picture, Jack McHugh makes some interesting comparisons between the calm seen in the markets now as banks and investors wrap and the quarter and a year ago. His takeaway though is don’t expect a repeat of last year’s second half meltdown.

…A venerable investment bank had disappeared, stocks had set a major low in March before rallying smartly, the VIX had fallen by more than 50% off its March peak, and both Wall Street executives and Washington policy makers were claiming, “the worst is now behind us” Though it seems like a lifetime ago, the moment in time to which I refer is the end of 2Q 2008, but it could just as easily be Q2 2009. During May and June of last year, I wrote ceaselessly that the financial crisis was not “contained” and that the worst was still ahead of us….

California faces its moment of truth


agnes1The California budget impasse comes to a head one way or the other this week, with state lawmakers needing to make nice by June 30 to close a $24 billion budget gap. If they don’t, rating agencies have threatened to downgrade the state’s credit ratings.

California’s Comptroller said he would begin handing out IOUs on July 2 and the Treasurer said the state will draw on reserves to service the debt of all economic recovery bonds on July 1. (These bonds were created in 2004, when voters gave the state government the authority to raise $15 billion through bond issuance to plug another budget deficit.)

California stares at possible ratings downgrade


It was only a matter of time before another ratings agency weighed in to warn that California could see its rating slashed if it doesn’t get its fiscal house in order soon. Moody’s Investors Service said that the state’s rating could be put on the chopping block for multiple downgrades.

It’s unlikely that California, among the biggest issuers of municipal debt, would be shut out of credit markets should its ratings slide further, but it would face steeper financing costs at a time when it’s running out of precious cash.