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How the Big Banks and the Credit Unions Are Handling California's IOUs

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Customers of the big banks in California may have problems after July 10th. That's the cutoff date in which many major banks plan to stop accepting California's IOUs (registered warrants). As described by the California State Controller's Office, the registered warrants are being issued due to the California government being unable to enact budgetary solutions to provide enough cash for the State to pay all of its bills. Assuming there is adequate cash in the Treasury, those warrants may be redeemed on October 2, 2009.

As reported by the LA Times, many big banks including Bank of America, Chase, Wells Fargo and Union Bank have said they'll only cash the state IOUs from customers through July 10. On the other hand, many credit unions plan to continue accepting them as described in this Union-Tribune article.

Mish at Global Economic Trend Analysis has this say about the banks:
Every one of those blood sucking banks was bailed out by taxpayers (California taxpayers too) and now will not take an IOU from the State of California for the citizens of California. This is disgusting.

He's careful to make the distinction that the issue of accepting these IOUs is different than supporting California's issurance of these IOUs.

Here's a short list of California credit unions that have stated they'll continue to accept the registered warrants. If you know of others, please leave a comment:
Not all credit unions will be accepting them after July 10th. Also, many credit unions are only accepting them from members who joined before July. So keep that in mind if you're looking for an institution to accept these warrants.

Thanks to the reader who emailed me info on this issue.


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Comments
22 Comments.
Comment #1 by Matthew (anonymous) posted on
Matthew
SchoolsFirst FCU will also accept IOUs

1
Comment #3 by Anonymous posted on
Anonymous
I don't blame the big banks, it is a good possibility that California may have to file for bankruptcy soon.
IOU can not be issued without new source of income for the state.
California is BBB- and close to total junk rating from S&P.

1
Comment #4 by Anonymous posted on
Anonymous
Recently I read a column in San Francisco that the illegal aliens drain California on a yearly bases of at least $20 Billions by using the Madi-cal, education, hospitals, welfare and a number of other free services without contributing a cent to the tax system and constantly using the free services.
That is the difference that Arnold has to fill year after year with innovative money shuffling to budget the state.

1
Comment #5 by Anonymous posted on
Anonymous
I did read similar study about the illegal aliens in LA times few month ago, of how much they cost the state.
Since, most of the illegals work for cash or under the table, most of the money earned are sent back to their home countries and they plead poverty and qualify for all state handouts. The $20B is a conservative estimate by many experts familiar with the issue.

1
Comment #6 by Anonymous posted on
Anonymous
Provident Credit Union is accepting the IOUs. The info page does not mention any end date. (http://providentcu.org/ See the link in about the middle of the page.)

1
Comment #7 by Anonymous posted on
Anonymous
"The reader" doesn't sufficiently credit someone who takes the time to help you. It's more appropriate to credit them by name and link to them, if they have a blog.

1
Comment #8 by Anonymous posted on
Anonymous
The banks and credit unions are financing the state, by accepting the IOU, how convenient.
How the state is going to buy back the already issued IOU, with new issues of IOU? Pathetic financial responsibility, at least to say.

On the issue of illegals draining the state, it is true and ominous.
Until the state come to some senses of fiscal responsibility, this will repeat over and over until the state deal with its handouts once for all.
Wasted billions and billions on illegals year after year is coming back to haunt the state of its ignorance.
Bob

1
Comment #9 by Anonymous posted on
Anonymous
California's IOU reminds me of a ponzi scheme. You buy my IOU and I will issue a new IOU with the purchased IOU. You cash my IOU and I will pay you with new IOU.
IOU is nothing but a piece of paper that unofficially says:" I'm broke, trust me and I might be able to pay you back or I might give you a new IOU for your old IOU."
Irresponsible state, wasteful budget, no oversight and nobody likes to admit wrong. Shame on all who brought the state to this stage of collapse.

1
Comment #10 by Anonymous posted on
Anonymous
California has and is called: IOU

Please read this:
"SACRAMENTO, Calif. -- State vendors and contractors could use their government-issued IOUs to pay state taxes, fees and liens under a bill approved by an Assembly committee.

The Business and Professions Committee unanimously passed the bill by Assemblyman Joel Anderson during its first legislative hearing Tuesday. The bill requires the state to accept its own IOUs as payment for money owed to the government.

Anderson, a Republican from La Mesa, says the measure would help businesses and others being paid with IOUs. The state began issuing the warrants last week as lawmakers struggle to close a $26.3 billion deficit.

The Assembly speakers' office has not decided if the bill needs a second committee hearing before it can be considered by the full Assembly."
Aman

1
Comment #11 by Anonymous posted on
Anonymous
Wow, if the state declares bankruptcy the IOU's are worthless. For those that think this would never happen, please watch the news on daily basis.

1
Comment #12 by Anonymous posted on
Anonymous
First the states, one by one.
Eventually the Federal Government.
BANKRUPT!

1
Comment #13 by Anonymous posted on
Anonymous
The new currency in California is called:

I O U

You can buy stuff or pay with it, just like a real money.
I would like to know what the official exchange rate is.

1
Comment #14 by Anonymous posted on
Anonymous
NuVision FCU will accept CA state IOUs.

https://www.nuvisionfederal.org/site/Important_Information.html

1
Comment #15 by Anonymous posted on
Anonymous
Orange County's CU will also accept the California registered warrants until 7/10/09.

http://www.orangecountyscu.org/index.php?/aboutus/news_events/

1
Comment #16 by Anonymous posted on
Anonymous
Nikkei Credit Union in Gardena, CA will accept the IOUs.

1
Comment #17 by Anonymous posted on
Anonymous
The California Credit Union League has published a listing of credit unions that will accept the California IOUs.

http://www.ccul.org/general/070809CUsAcceptingCAIOUs.pdf

1
Comment #18 by Anonymous posted on
Anonymous
Do you know how California intends to pay for the issued IOU?
The legislature is being urged to consider taxing marijuana to help raise revenues.
"One option open to the government of the most populous U.S. state for raising revenue is to tax marijuana"
California Assembly Speaker Karen Bass said Wednesday.
Run for the exits, that is my opinion.

1
Comment #19 by Anonymous posted on
Anonymous
States cannot declare bankruptcy. They simply default on their obligations.

1
Comment #20 by Anonymous posted on
Anonymous
To Anonymous, at 9:17 AM, July 09, 2009,

So, what is the difference if they don't pay their obligations or renegotiate the contract or interest rates and or terms and bankruptcy.

1
Comment #21 by Anonymous posted on
Anonymous
As per English common law for contracts:

If one party can not fulfill the obligation of the contract, is in default. If one party tries to reinsert or modify the contract on the expense of the other is officially insolvent or bankrupt.

Therefore, there is no difference between stop paying obligations, insolvency and bankruptcy. Just a different terminology at different steps of defaults in a signed contracts or obligations.

1
Comment #22 by Anonymous posted on
Anonymous
I agree with the poster at:
10:06 AM, July 09, 2009

You don't have to file court papers to be insolvent or bankrupt. Just an announcement from an official or Governor is sufficient to declare such state bankrupt and nullify many obligations and contracts or intentionally defaulting on a obligations for not having means to repay the contracts.
IOU is the last desperate step, not to be declared bankrupt.

1