In the latest twist to the California budget saga, Citigroup, Wells Fargo, and JPMorgan Chase and B. O. A have refused California's request for
bad credit loans to tide it over till October. Till the State can get things sorted out, it has started paying its creditors in markers ('I Owe You's' or guarantees to pay bearing interest, technically called registered warrants ).
California is expecting to need to give out only about $13 billion in markers through Sep, and all its Governor has asked for in the way of a loan from the federal government is a guarantee for $6 billion. But California hasn't been invited to the banquet. The total sum California needs to balance its budget is $26.3 billion.
That is about the same sum given to Citigroup, Wells Fargo and JPMorgan in bailout money ; and it is just about one-tenth the sum given to AIG, an insignificant insurance corporation.
D. P of $1.7 trillion yearly and has been rated the planet's eighth largest economy. When the California client base falters, companies are shaken across the nation.
Fitch Rating Agency has revised down California's municipal bonds to junk bond standing B triple B. Why? AIG and Lehman had A ratings right up until they declared bankruptcy. California hasn't defaulted on its bonds, and it cannot randomly decide to default ; the State Constitution mandates that debt principal and interest must be paid as guaranteed. California bonds lost their triple A rating only when the borough bond insurers ( Ambac and MBIA ) lost theirs. It was these insurers, not the State of California, that got into hot water betting in derivatives.
There might be deeper motives than that. Considering the enormous significance of the California economy to the country, and the comparatively small sum it desires in loans, the refusal to support the State financially seems highly suspicious, especially when much more has been given to less creditworthy non-public institutions. The banks say they want to keep the force on California legislators to work it out among themselves, but what does that mean?
The options are even higher taxes, even more cuts in services, or even more fire sales of public assets ; in short , the kind of austerity measures expected of supplicants reduced to third World debtor status. Governor Schwarzenegger has refused to approve higher taxes, while Democratic leaders say further cuts in services could leave some Californians starving in the streets.
There is an alternative to that dark future, and perhaps it is to keep the general public from waking up to it that arms are being twisted to accept the new burdens quickly .
Many authorities have attested that banks simply create the money they lend on their books.
'[F]or every $1 or $1.50 which people B or the governing body B deposit in a bank, the bank system can create out of thin air and by the stroke of a pen some $10 of checkbook money or demand deposits. It can lend all that $10 into circulation at interest just as long as it has the $1 or a bit more in reserve to back it up.'
By law, the State must deposit all its funds in the bank, and the State guarantees its deposits. The bank's surplus profits are returned to the State's coffers. The bank operates as a bankers' bank, partnering with non-public banks to loan cash to farmers, property developers, faculties and home businesses. It makes 1%
debt solutions to startup farms, has a thriving student loan business, and purchases community bonds from public institutions.
