JPMorgan Helps California IOUs

California State Treasurer, Bill Lockyer, said on Thursday that JPMorgan Chase & Co. (JPM) purchased $1.5 billion of California’s short-term, “interim” revenue anticipation notes according to a lending agreement with the state. The amount will provide the state with money to pay for some of its recently issued IOUs.

To conserve declining cash during its recent budget crisis, the state had issued the IOUs at an interest rate of 3.75%. Per the contract, California will pay 3% interest to JPMorgan on those notes.

The loan is expected to help bolster the California government’s financial position as it prepares for a multi-billion dollar sale of short-term debt next month to raise money for its cash-flow needs.

Through Aug 25, California has issued 414,000 of the IOUs with a total value of $2.3 billion. The state is scheduled to redeem the IOUs beginning Sept 4, 2009.

In another piece of good news for the state, Fitch Ratings on Wednesday removed California’s General Obligation (GO) debt from alert for a possible downgrade. The rating agency has taken such action as a result of the recent actions of the state government to tackle its cash crisis. The agency affirmed California’s GO rating of BBB, or two notches above “junk” status, and said the ratings outlook is stable.

However, according to the agency, the government of California still faces serious challenges as recession mauls the state’s economy and hacks revenues.

Last month, some of the largest U.S. banks, including Bank of America (BAC), Citigroup (C), Wells Fargo (WFC) and JPMorgan were unwilling to cash the state’s IOUs despite request from the State Treasurer. However, $2 billion in outstanding IOUs are earning a tax-free annualized yield of 3.75%, which would have accumulated to the banks if they had continued to cash them for customers and then held them to maturity.

JPMorgan was one of the first banks to exit the federal government’s Troubled Asset Relief Program (TARP), and has been restructuring its balance sheet to capitalize on its strength of capital. The loan to California comes from a different pool of funds that the company has used to buy notes worth billions issued by states facing cash crunch, including Illinois and New Jersey.

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Comment by KingofthePaupers

2009-08-29 08:05:20

Jct: By accepting a $1.5 billion chip, it makes sure they don’t issue chips in small enough denominations to be used as community currency.
There’s nothing wrong with small denomination municipal or California State IOUs if anyone can pay their taxes with them. When Argentina’s government workers were faced with cuts, their unions talked 6 state governments into paying them with small-denomination state bonds which could be used to pay for state services and taxes by everyone.
When the local currency is pegged to the Time Standard of Money (how many dollars per unskilled hour child labor) Hours earned locally can be intertraded with other timebanks globally! In 1999, I paid for 39/40 nights in Europe with an IOU for a night back in Canada worth 5 Hours.
U.N. Millennium Declaration UNILETS Resolution C6 to governments is for a time-based currency to restructure the global financial architecture.
See http://youtube.com/kingofthepaupers on growth of the international time-trading network.
Too bad California IOUs won’t be accepted in payment for state taxes and services like state bonds were in Argentina. Too bad California IOUs will be denominated too big to use as local currency. Too bad Argentina people were smart enough to avoid the tent-cities catastrophe and California people are too stupid to follow their example.
If they make IOUs legal tender, I’ll take back every joke I ever made about Girlieman Governor Musclehead if he engineers the California state currency lifeboat.

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