California Is Bankrupt!!! But The Greedy Banks Are Being Blamed For Not Accepting Its IOUs?

It was less than a year ago that our leaders blamed the banks for our current depression. Congress said it was the greed of Wall Street bankers that lead us to where we are today and made a big show of it before the television cameras showing how they were going to punish those greedy bankers. While its certainly true that banks played it fast and loose with lending standards and allowed many unqualified people to buy homes that they couldn't afford, they weren't solely to blame. As Fred Lucas of CNSNews.com reported yesterday Congress was equally to blame:

"Fannie Mae and Freddie Mac were the chief culprits in the housing crisis because they encouraged people who could not afford payments to borrow money, according to a congressional report released Tuesday." http://www.cnsnews.com/public/content/article.aspx?RsrcID=50680

Now I wouldn't hold by breath if you expect Congress to hold hearings on its own culpability anytime in the near future.

So lets fast forward to today and we see that California, that utopia of liberal thinking and policies, is as broke as some third world nations. California needs to close a $26 Billion budget gap and there seems to be no resolution in sight. But in the mean time it has to pay its bills so it began issuing IOUs to state contractors to keep them working. These IOUs are redeemable for the face value plus 3.75% annual interest but not until October. Banks in California have decided that they will redeem these IOUs only until Friday, July 10th. After Friday they are only going to offer loans to the holders of the IOUs.

Now if you look at it from the banks' perspective there is a good chance that California may not be able to resolve its fiscal crisis by October and therefore the IOUs may not be worth the paper they are printed on. Also banks, after being burned by the housing crisis, are extremely risk adverse at this time and frankly do not have the cash reserves to float the state's obligations. But rather than seeing the logic of the banks' positions and commending them for being fiscally responsible they are being made out to be Ebenezer Scrooge. http://online.wsj.com/article/SB124692354575702881.html

I hope the Banks stand fast, as they should, because ultimately they are responsible to their shareholders not the politicians in Sacramento.

PS- California, if it was its own nation, ranks as sixth in the world based on GDP. The fact that it is bankrupt shows what is going to happen to the rest of the country if we keep pumping money into entitlement programs.