Calif. IOUs May Be Traded On Open Market

SEC Calls for IOUs to Be Regulated And Traded Like Securities

(AP)  The recipients of billions of dollars in IOUs being issued by California soon may have a regulated market where they could sell them.

Some of the nation's largest banks say that, starting Friday, they will no longer accept the IOUs. The banks want to pressure the state to end its budget impasse, but their action could leave many businesses and families with fewer options for getting their money.

The Securities and Exchange Commission is going to recommend that the IOUs, which carry an annual interest rate of 3.75 percent, be regulated by the Municipal Securities Rulemaking Board as a form of municipal debt. The guidance could come as soon as Thursday, according to two people familiar with the matter who spoke on condition of anonymity because the SEC hasn't yet acted.

A regulated market for the IOUs would make it easier for individuals holding them to sell them at a fair price, analysts said.

The SEC oversees rules set by the nongovernment MSRB. SEC spokesman John Nester declined to comment Thursday.

With JPMorgan Chase & Co., Bank of America Corp., Wells Fargo and Citigroup Inc. and some regional banks in the state saying they won't accept the IOUs for payment after Friday, attention has turned to the possibility of a secondary market to buy up the notes.

"A safe conclusion would be to consider them securities," said Paul Maco, an attorney at Vinson & Elkins in Washington who was a director of the SEC's Office of Municipal Securities.

A regulated market for the IOUs "makes it even more advantageous" for individuals holding them, who could sell them at a fair price, Maco said. The price they receive may be discounted in accordance with the market's perception of the risk of the state repaying the notes, but it would be an orderly market price, he said.

SecondMarket, which creates marketplaces for the trading of illiquid assets, has received "decent interest" from hedge funds, municipal bond and distressed asset investors as potential buyers of the IOUs, Jeremy Smith, the New York-based company's chief strategy officer, said this week.

As California legislators haggle over how to close a $26.3 billion budget deficit, the state is expected to send out $3.3 billion in IOUs this month to an array of individuals, small businesses and local governments.

It marks the first time since 1992, and only the second time since the Great Depression, that California has sent out notes promising repayment at a later date instead of paying its bills on time.

The IOUs are referred to as registered warrants.

"The California registered warrants have the hallmarks of securities, and if they are securities, they are pretty clearly municipal securities," MSRB General Counsel Ernesto Lanza said. "To the extent that municipal securities dealers are involved in the sale and trading of the warrants, our rules would apply. We would be especially concerned about dealers' obligations to customers with respect to fair pricing."

[mjvwsr]

will the last american to leave california please bring the flag

[whitemale08]

California will be Obama's Katrina.

Mark my words.

[HGOODGUY]

TRADING IOU'S

ANOTHER WAY TO MAKE MONEY OVER SOMEONES' ELSE'S HARD TIMES.

DONT'T KID YOURSELF!! MONEY HAS NO MEMORY--MORALITY--TRUTH OR CONSCIOUSNESS.

"GREED IS GOOD"."GREED WORKS" IT GETS PROVEN EVERY DAY

[stn_sage]

The IOUs are referred to as registered warrants. (from article)

-----------------------------------------------

C*r*a*p by any other name, is STILL c*r*a*p!

[ubrew12]

Hey guys: we turned 'investing' on dotcoms into a betting game, and it tanked. Then we turned 'investing' in mortgage securities into a betting game, and it tanked. Why don't we turn 'investing' in the solvency of America into a game, and when America tanks we can cut outta here with our various profits?!

[pw08-2009]

My point is that our Californian government has failed so completely, they've become the equivalent of the untrustworthy friend who borrows your money to buy a drug, then doesn't pay it back...It would be nice if the California government used some of the borrowed money to buy some stinking self-respect.

[pw08-2009]

How much do you want to bet that the California State government is trying to position themselves (with hands out) for a major government bailout, eventhough they have temporarily been rejected. The California state government does not have the itelligence, in my opinion, to figure out any real solutions or to streamline..so, naturally, they will beg.

On a separate subject, we have an LA mayor who likes to see his own face on television and travel much more than do anything of real value for the city and he's just one example of the type of individuals that we currently have as leaders.

Hopefully other states will see this and go a different direction because now taxpaying citizens of California are leaving in greater numbers than people coming in. California wants illegal aliens as it's citizens and California wants to give them your money (hence, it serves up 30% of ALL US welfare, yet California makes up only 17% of the US population...and just how many of those receipients do you think are illegal?...)

[frankinaz]

California's elected and appointed leaders just don't understand what illegal immigration is costing this state, and many other states as well. Illegal immigration is an expense that can be controlled. However, the Federal Government, and the State of California, will not control this problem-California and other areas of the U. S. want to be "Illegal immigrant" sanctuaries in many areas, which is not only expensive, but is wrong.
Federal funds need to be cut to states and municipalities that consider themselves "illegal immigrant" sanctuaries, period.
Although illegal immigration may, or may not be the major source of California's budget woes, that is an expense and a cost that can be controlled to it's taxpayers.

[incog-nito]

Wonderful. More opportunity for people to use the economic crisis to gamble with their money. The same situation that led to the economic crisis in the first place.

[pw08-2009]

Our leaders in California seem to live on another planet and need to go now! There is absolutely no excuse for what THEY have caused and their determination to make the population of California pay for it. Arnold has apparently come back down to reality somewhat, but you have to question his motivation, which for me, is the fact that the general population has had enough of the leadership and the taxes and he is trying to lo0ok like he's aligned with that opinion.

[anti-global2]

well considering the risk involved to the investor what rate are you going to sell them at, five cents on a dollar? If it is any more they aren't worth anything. Califirnia was broke before the economic colapse, thanks to gov. schwartzeneger (or however the hell you spell his name), ken lay and goerge bush. They vilianized Gov. Davis becaise he wanted to go after enron, and he was right. The state is a$$ backward and deserves to go under.

[Scooter2009]

This is insane....

[John_Merritt]

Absolutely. Have we learned nothing from CDS' and toxic assets. This is a long term problem for California and for them to trade these 'issuances' like a tradeable security is insanity. For every short, there has to be a long (FOOL).

[Joe_NY_15]

This is absolutely insane.....who ever heard of one of our largest state giving IOU's like some kid would.

This is what happens when you have out of control liberalism, spending, socialism and out of control illegal immigration......bankruptcy of our most populated state !!!!

Expect the same for the entire United States, when Democrats are in control.

[fedupredneck]

Wait a minute-this is good for the economy! It'll create JOBS. LOL