California IOUs Traded on Craigslist and NY Illiquid Assets Firm

July 15, 2009

(ChattahBox)—The bankrupt State of California run by Governor Arnold Schwarzenegger can’t pay its bills and is issuing IOUs that many large banks last week, such as Wells Fargo and Bank of America refused to accept.

But now, some creative entrepreneurs are seeking a market for the instruments on Craigslist and other online sites (illegally), with SecondMarket, a New York firm specializing in illiquid assets, stepping up to offer a market for the disparaged IOUs.

California has so far, issued $450 million in IOUs to taxpayers awaiting rebates, government run health agencies, court-appointed attorneys and others owed money by the beleaguered state. And unless, the hopelessly deadlocked state legislature and the Governor can agree on how to deal with a $26 billion deficit, the state will continue to issue IOUs in lieu of cash payments.

The state is promising to pay the emergency paper instruments by October 2, 2009, but many holders of the IOUs are starting to doubt their worth. However, with a 3.75 percent annual rate, some traders may invest in the instruments as an attractive a short-term obligation.

SecondMarket plans to start trading in the IOUs next week and expects high-risk hedge funds and municipal bond investors to purchase the instruments.

Regarding the enterprising Craigslist traders, the Securities and Exchange Commission ruled that the IOUs were tradable securities under U.S. Federal Law, but only tradable by banks or broker-dealers.

The SEC warned that Individuals advertising on Craigslist seeking to trade more than single, one-off private transactions may run the risk of violating securities law.

Meanwhile, Moody’s Investors Service just lowered California’s rating to Baa1, which is just three steps away from a junk rating.



One Response to “California IOUs Traded on Craigslist and NY Illiquid Assets Firm”

  1. KingofthePaupers on July 17th, 2009 5:22 am

    Jct: There will only be a market while the IOUs are too big to spend. There’s nothing wrong with small denomination California State IOUs if anyone can pay their taxes with them. When Argentina’s government workers were faced with cuts, their unions talked 6 state governments into paying them with small-denomination state bonds which could be used to pay for state services and taxes by everyone.
    When the local currency is pegged to the Time Standard of Money (how many dollars per unskilled hour child labor) Hours earned locally can be intertraded with other timebanks globally! In 1999, I paid for 39/40 nights in Europe with an IOU for a night back in Canada worth 5 Hours. U.N. Millennium Declaration UNILETS Resolution C6 to governments is for a time-based currency to restructure the global financial architecture.
    Too bad California IOUs won’t be accepted in payment for state taxes and services like state bonds were in Argentina. Too bad California IOUs will be denominated too big to use as local currency. Too bad Argentina people were smart enough to avoid the tent-cities catastrophe and California people are too stupid to follow their example.
    If they make IOUs legal tender, I’ll take back every joke I ever made about Girlieman Governor Musclehead if he engineers the California state currency lifeboat. .

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