Major Banks to Reject California IOU's
The State of California, virtually out of cash, started issuing IOUs, formally known as registered warrants, last Thursday after lawmakers failed to agree on a package of spending cuts to close a budget deficit that has now grown to $26.3 billion.
Since last Thursday, the state has issued nearly $230 million worth of these IOUs and there is still no budget agreement in sight.
Note: California plans to pay an interest rate of 3.75 percent on these IOUs when they mature in October.
On Monday morning (this week), a budget meeting between Gov. Arnold Schwarzenegger and legislative leaders failed to produce results - thus leading Fitch Ratings to drop California's bond rating to BBB, down from A minus the same day.
Now the problem is: Major banks (including Bank of America, Citigroup, Wells Fargo, J.P. Morgan Chase, and others) are becoming scared and plan to no longer accept these IOUs after Thursday this week (window of acceptance to close on Friday).
Bloomberg report on Bank refusal of California IOUs
Fox Business report on the same
If you want to become more informed on this IOU issue, Martin Weiss has a recent article warning of a looming, major California Bond default (Link)
This may get ugly folks