Who gets cash and who gets IOUs in California. I’m shocked, shocked. I’m glad the state doesn’t owe me any money. I wonder how much the IOUs will be discounted for people who need the liquidity now?
[Update a few minutes later]
If they’re going to do this, instead of making some people more equal than others, wouldn’t the fair thing be to issue everyone a mix of cash and IOU in proportion to the amount that they’re short?
[Late morning update]
B of A says that it will accept the IOUs as warrants:
“To support our customers, while giving the state legislature additional time to pass a budget, we will accept California state-registered warrants — or IOUs — from existing customers and clients,” Charlotte-based BofA (NYSE:BAC) says in a written statement.
OK, so what are these things? What happens if the legislature doesn’t get its act together (and based on history, that’s the way to bet). Do they have an associated interest rate, or maturity date? What would a secondary market in them look like, and how would they be discounted? Suppose California just reneges on redeeming them? Does B of A (and Wells Fargo, and whoever else follows suit) then get made whole by TARP, thus bailing out the state of California via the US taxpayer through the back door (in more ways than one)?
What a mess.
what has happened to “equal protection under the law?”
“From each according to their abilities, to each according to their ability fabricate votes.”
This seems like an interesting concept, a state issuing IOU’s in place of money. That seems almost like a state issuing its own currency, which would be against the US Constitution.
Mark, they’re already allowed to issue bonds. And in the past, various US banks have been allowed to issue their own currencies. That more or less stopped with the end of the Civil War.
It’s really a big competition between CA and NY to see who has the most immature, obnoxious legislature.
Is this the first time CA has issued IOUs? I seem to remember they’ve done it on a smaller scale in the past.
Anybody can issue money, it’s just not going to be accepted as general tender. Anything that can be traded for value in place of barter is money. This would include discount coupons and air miles.
Even virtual gold in online games is money.
Article 1, Section 8 prohibits states from issuing bills of credit.
http://www.usconstitution.net/glossary.html#CREDIT
In my mind that’s what these IOU’s are. I hope one of the recipients sues the state of California and demands cash.
If I received one of those IOUs from California, I wouldn’t hold my breath waiting for the cash: http://www.newsy.com/videos/california_s_new_currency
Apparently, the fine print for BoA is that it will sit on the IOU for a week. Still not bad for funny money.