California’s state tax revenues continue to sink with rising unemployment and falling retail sales. Meanwhile, credit unions have stopped accepting the state’s IOUs, but a market for the registered warrants with a 3.75% annualized interest rate the state is paying on them until October 2, has sprung up on Web marketplaces including Craigslist and EBay.
As California continues to issue “IOUs”, more controversy is brewing over their use.
On one side, IOU recipients are beginning to trade them like currency, forcing the California state treasurer’s office to issue guidelines if they are sold through eBay (EBAY), Craigslist or other means.
California’s treasurer is telling recipients of the IOUs that if they sell them to third parties, they will be redeemed by the state treasurer’s office only if accompanied by a notarized bill of sale signed by their listed payee.
“We are in the process of contacting officials of eBay and Craigslist to post a notice of the policy on their sites,” the statement said.
Speculation is rising over whether California’s tax-exempt IOUs… can be bought, sold and traded.
The [SEC] must first determine if the IOUs are securities to regulate them, said Ernesto Lanza, general counsel to the Municipal Securities Rulemaking Board, adding that the board was not working directly with the commission on that decision.
“It looks like it has all the hallmarks of a security,” Lanza told Reuters. “If they are securities, I think they’re pretty clearly municipal securities.”
At least one website aims to offer a platform for selling the registered warrants. Obed Dorceus, owner of ioumarket.com, said he sees a potential secondary market for the IOUs — and potentially other government promises to pay.
Since when IOUs are condisered securities? California has to put its act together. State bonds moved a step closer to junk status yesterday because of the budget mess, and a group of the biggest U.S. banks ; BofA (BAC), Citigroup Inc. (C), Wells Fargo & Co. (WFC) and J.P. Morgan (JPM), said they would stop accepting states”s IOUs on Friday. What next.