California's IOUs

California is issuing IOUs instead of paying cash for its bills. The idea is that you can take this instrument (technically, an "individual registered warrant") to a bank and exchange it for cash and the bank will be able to redeem it for fact value plus 3.75% interest. Turns out that the banks have other plans -- from the Wall Street Journal:

Big Banks Don't Want California's IOUs
A group of the biggest U.S. banks said they would stop accepting California's IOUs on Friday, adding pressure on the state to close its $26.3 billion annual budget gap.

The development is the latest twist in California's struggle to deal with the effects of the recession. After state leaders failed to agree on budget solutions last week, California began issuing IOUs -- or "individual registered warrants" -- to hundreds of thousands of creditors. State Controller John Chiang said that without IOUs, California would run out of cash by July's end.

But now, if California continues to issue the IOUs, creditors will be forced to hold on to them until they mature on Oct. 2, or find other banks to honor them. When the IOUs mature, holders will be paid back directly by the state at an annual 3.75% interest rate.

But...

The group of banks included Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and J.P. Morgan Chase & Co., among others. The banks had previously committed to accepting state IOUs as payment. California plans to issue more than $3 billion of IOUs in July.

Hell -- If I maxed out my credit card and tried to pay them with an IOU, I would be laughed into collection proceedings by the card company. What makes a state any different. The idiots in Sacramento have spent the state into the poorhouse and now, they are trying any way they can to keep spending spending and spending some more. 2010 is going to be very interesting -- San Francisco has a lot of people and a lot of the liberal votes but there is a whole other state out there that is sick and tired of being sent to the poorhouse for head-in-the-clouds social programs...