Thursday, Aug 27, 2009
Hilarious!
CNBC: California Turns to JPMorgan for $1.5 Billion Loan
JP Morgan Chase is lending a hand to the nation's worst credit risk.
California State Treasurer Bill Lockyer announced that the banking giant is lending the state $1.5 billion to help it pay off IOUs.
Posted by devo @ 10:33 PM (392 views) Add Comment
4 Comments
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1. little professor said...
Not so hilarious. The US government turned to JP Morgan (the man himself) after the 1929 Wall Street Crash. These oligarchs wield so much more power than our elected representatives.
2. little professor said...
California had been covering its budget shortfalls by issuing IOUs to pay for services, making it the first state to issue its own fiat currency since the Civil War. The program ran into trouble when banks announced they wouldn't keep cashing the IOUs.
Eventually California reached a budget deal and kicked the can down the road, but there's still the issue of the outstanding IOUs.
Yesterday JP Morgan agreed to lend California $1.5 billion to fund the program to redeem the IOUs. State controller John Chiang has announced the redemptions will begin on September 4th.
A plausible case can be made that this is an indirect bailout by the US government of California. JP Morgan is deemed to big to fail, and can borrow from both the Fed and at reduced costs in the market because of its status. This makes it far easier for the bank to lend confidently to California. What's more, JP Morgan can assume that if California were to come close to defaulting on the loan, the US government would bail out California.
3. devo said...
"JP Morgan can assume that if California were to come close to defaulting on the loan, the US government would bail out California."
That's what I said: hilarious.
4. dgj said...
Crazy perhaps they shouldn't overspend next time round!