Somehow I missed the news about California being granted bank holding company status.
California Treasurer, Bill Lockyer, is petitioning the Treasury for a bailout.
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.