California Wants TARP Money; When Did It Become A Bank?

Somehow I missed the news about California being granted bank holding company status.

California Treasurer, Bill Lockyer, is petitioning the Treasury for a bailout.

From MarketWatch:

California Treasurer Bill Lockyer asked U.S. Treasury Secretary Timothy Geithner on Wednesday to authorize assistance for his state from the federal Troubled Asset Relief Program, warning that depressed tax revenues may cut into basic services and halt the building of infrastructure.

In a letter, Lockyer asked Geithner for TARP assistance for California and “other financially strapped states and local governments which face a severe cash flow crunch.”

“If we cannot obtain our usual short-term cash-flow borrowings, there could be devastating impacts on the ability of the State or other governments to provide essential services to their citizens,” Lockyer wrote.

In particular, Lockyer cited fire and police protection, education and social services.

Lockyer’s logic is that California may not be able to access the bond market and that weakness in the credit markets necessitates federal assistance. Note, he does not reference the fact that California is functionally bankrupt and unable to take any meaningful measures to cure the problem.

Now, there is probably no connection between this turn of events and Barney Frank’s proposal to have the government backstop municipal bond insurance (link here), is there. I know that those of you who read this blog won’t buy into that. Expect a full court press on the insurance issue. After all, bailing out California right now would be a political mine field but it’s easy to hide if you wrap it in the bond camouflage.

California will get its bailout, count on it. I don’t know if it will come from TARP funds but that’s beside the point. The point is that we haven’t even begun to cope with the hand that we’ve all been dealt. The Californians just happen to be the most spendthrift and the chickens are coming home to roost there sooner than they will elsewhere.

Don’t gloat, all of this will catch up with you as well.

About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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