Who Will Accept California IOUs? Not Big Banks.
In my blog last week on "The Rise and Fall of California", I posed the question, 'who would be willing to accept California IOUs' and at what price? According to the Wall Street Journal, the answer is not the big banks. Bank of America, Citigroup, Wells Fargo, and JP Morgan Chase do not appear to be willing to accept the IOUs.
What's almost laughable about this is that the state of California is paying a 3.75% interest rate on the IOUs!!! Gee, does anyone think that interest rate is anywhere near the market interest rate given the level of risk and uncertainty surrounding California's public debt? I have no clue what the market believes to be an appropriate interest rate, but I'd personally consider CA public debt to be in junk bond territory and don't believe it should carry an interest rate lower than 10%.