Cash-strapped California contractors who have received state IOU’s have the option of holding onto the notes and redeeming them this October (face value + 3.75% annual interest rate) or they can pawn them off at sites like Craigslist or Ebay. After a huge number of large banks (B of A, Wells Fargo, Citibank, etc..) stopped accepting the state’s promissory notes on July 10 a secondary shadow market was born for the estimated $3.4 billion of IOU’s that are yet to come. As of July 15, the state controller’s office had issued 137,000 IOUs worth $640 million. There are eager buyers offering anywhere from 60 to 95 cents on the dollar in hopes of scoring quick profits come October, when the state says it will pay the IOUs’ face value plus interest.
“Don’t wait until fall to get your money!” says one Craigslist ad. “We offer immediate payment for your California IOUs instead of playing the waiting game with the state government,” says another.
Contractors and residents owed tax refunds are getting IOUs instead of checks from the state because lawmakers have not been able to close a $26.3 billion deficit. Of course, fraudsters hoping to game the current system can be anticipated!
More at this LINK
~~~Snip~~~~
Many small businesses are facing a cash flow crunch as they struggle to honor their state contracts without getting paid.
“We’re going to try to ship what we can, but it places a real burden on small businesses,” said Gerry Ross, vice president of Newport Beach-based Pueblo Trading Co., which supplies turkey, chicken and deli meat to state prisons and hospitals.
Ross said if his banks do not take his California IOUs, he may have to sell them to keep cash flowing and food moving.
“I have to do what I have to do,” he said. “We’ve been in this business for 25 years, and I’m not about to sacrifice the relationships with the people we do business with.”
At the same time, he said, the low margins in the food business mean his company probably can’t afford to offer the IOUs at a discount. He said he would wait for buyers who will pay face value in exchange for the state’s guaranteed 3.75 percent return.
Last week, the Securities and Exchange Commission determined the IOUs are securities under federal law. That means anyone acting as a middleman between buyers and sellers must be a registered broker-dealer, and brokers cannot exploit desperate sellers by offering cut-rate prices below fair market value.
But that value has yet to be determined, as IOU holders and investors alike struggle to find their way through the state’s financial wreckage.
SecondMarket, a registered online brokerage in New York, launched a service Wednesday to bring together California IOU buyers and sellers. Hedge funds, municipal bond buyers and wealthy individuals have all shown an interest in investing, said Jeremy Smith, the company’s chief strategy officer.
But potential sellers may be spooked by the positive momentum of the state’s budget negotiations and the possibility that a treasury suddenly flush with cash will begin paying off the IOUs sooner than October.
“You might imagine a seller thinking, `I’ll wait a day or two to see how this plays out,'” Smith said.
Meanwhile, former BOS President (San Francisco) Aaron Peskin, has become the city’s “Arnoldbuck’s Sugar Daddy”, by printing up and then distributing Arnoldbucks freely around the city. These special bills are NOT legal tender, but Peskin has once gotten a round of drinks on the house when he tipped a bartender with the faux dinero. According to Peskin, a local coffee house hung the gift bux over their counter. He solicits your success stories using Arnoldbucks on a special website devoted to the California financial fiasco that has been promised by Arnold Schwarzenegger as nothing short of fiscal “Armageddon”. You can download your own Arnoldbucks HERE
Here is how one guy has been able to spend his Arnoldbucks around town in the Above video!
Leave a Reply