California May Need an Emergency Federal Loan

[statsman]

You may have noticed how tax exempt mutual funds are paying really, really, high yields? (I know there was a thread here on the topic). Do you think they are just being generous? Sorry, but no. They are struggling to raise short-term liquidity like everyone else. If the states can't refinance their short-term maturities they will default . . . welcome to the credit crisis.

But don't worry, the market will sort it all out.
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Okay, now you have me worried. We moved our CA muni bond funds into CA tax-exempt MM a couple of weeks ago right as the muni NAV prices started to fall off the table. Are you saying if CA defaults, goodbye CA tax-exempt MM fund?

 

[Gone4Good]

On this 18% and 9% vs. 2% point, you are assuming that all taxpayers are net debtors. That's not true. Plenty of people have more money invested than borrowed.

So is your expected return from your invested portfolio more or less than 2%?

If it is more than 2%, then you are destroying value by taking money out of higher returning assets and letting the government sit on it to avoid paying 2% finance charges.

Listen, I'm not saying any of this is right or wrong. All I'm saying is that this is happening.

 

[cute fuzzy bunny]

I would go one step further. Even in those large cities, the red neck shines brightly.

Yeah, I know. Thing is most people from outside of California visit one of the major cities and think everyone here lives in a million dollar house, drives a porsche, spends afternoons at the beach and votes democrat. Its all they get to see.

Most of the state is rural and agricultural and hotter than heck in the summer, many parts are mountainous and heaped with snow all winter.

And the people are as varied as anywhere else you'd care to visit. For better and for worse.

 

[Gone4Good]

Okay, now you have me worried. We moved our CA muni bond funds into CA tax-exempt MM a couple of weeks ago right as the muni NAV prices started to fall off the table. Are you saying if CA defaults, goodbye CA tax-exempt MM fund?

It's not my intention to throw gasoline on the fire (although I admit to doing a bit of that in my futile attempts to persuade the 'let them all go bankrupt' crowd that massive, cascading, bankruptcies may not be the best solution).

The first thing I'd do is check to see if your MM fund has signed up for the federal insurance. If it has, I'd probably sit back and enjoy the high returns (yup, this is called 'moral hazard'). If not, I'd have to think a little harder.

My fear is that everyone will try to hit the exits of these funds at the same time (and I own Vanguard's NJ MM fund which, judging by the yield, is having some of the same issues). Even if the borrower never defaults, a run on the money fund could cause problems as it tries to liquidate the portfolio to meet redemptions.

 

[cute fuzzy bunny]

If it helps, I wouldn't put any of my money into any of the muni MM funds or any short muni bond funds right now.

At best you'll pick up a few dollars worth of extra interest for a month, maybe two. At worst either people will all yank their money the minute the yields drop or the municipalities will be unable to make good on the debt.

Either way something bad is going to happen. To the best of my knowledge, Vanguard hasnt signed up for any MM insurance, there isnt any on the bond funds, and any money you moved since the insurance was put in place wouldnt be covered anyhow. But maybe they'll reach into their pockets and make it right if theres a problem on the MM funds. If they can.

 

[laurence]

California gets only 80 cents from every dollar of federal tax it sends off, where states like Mississippi, New Mexico, and Alabama get twice that or more. More than 10% of the country's population lives in California, of which 45% are Republican. It's GDP makes it the 9th largest economy in the world. Some of the finest research institutes and universities in the world are in California.

Meanwhile I often experience a hostile, looked down upon attitude when traveling out of the state. If there is a little backlash from people who are happy to have their lifestyle subsidized by our tax dollars yet treat us like the dead weight dragging from the back bumper of "their" wonderful country, I'm not surprised.

As for the Brit, your song sounds familiar. How do we always attract a few commonwealth residents who like to bash America?

So how about instead of loaning California any money we have the other states simply pay us back the 20 cents on the dollar we've been subsidizing for the last half century. We won't charge interest! Thought so.

 

[Razor]

California gets only 80 cents from every dollar of federal tax it sends off, where states like Mississippi, New Mexico, and Alabama get twice that or more. More than 10% of the country's population lives in California, of which 45% are Republican. It's GDP makes it the 9th largest economy in the world. Some of the finest research institutes and universities in the world are in California.

Meanwhile I often experience a hostile, looked down upon attitude when traveling out of the state. If there is a little backlash from people who are happy to have their lifestyle subsidized by our tax dollars yet treat us like the dead weight dragging from the back bumper of "their" wonderful country, I'm not surprised.

As for the Brit, your song sounds familiar. How do we always attract a few commonwealth residents who like to bash America?

So how about instead of loaning California any money we have the other states simply pay us back the 20 cents on the dollar we've been subsidizing for the last half century. We won't charge interest! Thought so.

Minnesota only gets 77 cents back. Calif isn't subsidizing our lifestyle.

 

[Marquette]

Minnesota only gets 77 cents back. Calif isn't subsidizing our lifestyle.

And you should try being a Minnesotan visiting Wisconsin or Iowa (or vice versa for that matter).

 

[laurence]

Minnesota only gets 77 cents back. Calif isn't subsidizing our lifestyle.

And Minnesota citizens have always been polite, too! I bet there is some sort of correlation between amount of federal welfare a state gets and how loudly it cries to be free of the tyranny.

 

[Gumby]

Connecticut only gets back $0.69 for each dollar of federal taxes paid (as of 2005). This website shows the figures for each state from 1981 - 2005

The Tax Foundation - Federal Taxes Paid vs. Federal Spending Received by State, 1981-2005

On a quick run through the data, I note that the states that are relative "takers" are the politically red states, while the "giver" states are blue. Interesting.

 

[cute fuzzy bunny]

Yeah, aint that a coincidence! :

 

[Caroline]

And the people (in California) are as varied as anywhere else you'd care to visit. For better and for worse.

I was instantly reduced to an unworthy red neck because I have Alabama license plates on my car.

Thanks, folks, for chiming in and helping me to make my point. We're all different, we're all people, and whether we're from the Southern United States (as is my father), or from California, or carry a British passport (as do I), or hail from anywhere else in the world, we're all worthy of respect from strangers until they find that we deserve otherwise.

Wow, that was quite a painting of the people of Utah and Nevada.

I merely reported what individuals had said to me in the course of my daily business, without name calling. Their words speak for themselves. At the time these things happened I responded politely to them and wished them a good day. This is known as "rising above it."

 

[Urchina]

As a former Oregonian who never planned to move to the Golden State, I'm sad to say I've experienced this phenomenon from both sides of the state line.

While rudeness is rarely excusable, and generalizations are usually unfair, I can understand how people in other states love/loathe California. It can be very challenging to folks in small towns when a sudden influx of money and early retirees from another state push housing and land prices up (making it hard for your kids to buy a home where they were raised), or when the area you loved for its "rural" character becomes strip-malled because of the machinations of a developer who cut their chops in LA county. From the CA side, it's easy to have pride and preference for your home state come across as haughtiness. It's hard to make room in your heart for the things that threaten your lifestyle, and its easier to find a scapegoat than seek common ground and a path forward.

ST -- in statistics there's a saying, "the larger the sample, the better the inference." Maybe spending some time with Californians that you don't work with will broaden your view of the state. It worked for me when I spent time in London -- I no longer believe that all Brits are humorless snobs who eat terrible food.


As for the credit crisis, here's one Californian who's holding her breath, wanting our state workers to get paid so they can put food on the table. Isn't that what this comes down to? Why would I wish bounced paychecks and hard times on my neighbors?

 

[FIREd]

Thanks, folks, for chiming in and helping me to make my point. We're all different, we're all people, and whether we're from the Southern United States (as is my father), or from California, or carry a British passport (as do I), or hail from anywhere else in the world, we're all worthy of respect from strangers until they find that we deserve otherwise.

I agree 100%. Well said.

 

[laurence]

As a former Oregonian who never planned to move to the Golden State, I'm sad to say I've experienced this phenomenon from both sides of the state line.

While rudeness is rarely excusable, and generalizations are usually unfair, I can understand how people in other states love/loathe California. It can be very challenging to folks in small towns when a sudden influx of money and early retirees from another state push housing and land prices up (making it hard for your kids to buy a home where they were raised), or when the area you loved for its "rural" character becomes strip-malled because of the machinations of a developer who cut their chops in LA county. From the CA side, it's easy to have pride and preference for your home state come across as haughtiness. It's hard to make room in your heart for the things that threaten your lifestyle, and its easier to find a scapegoat than seek common ground and a path forward.

ST -- in statistics there's a saying, "the larger the sample, the better the inference." Maybe spending some time with Californians that you don't work with will broaden your view of the state. It worked for me when I spent time in London -- I no longer believe that all Brits are humorless snobs who eat terrible food.


As for the credit crisis, here's one Californian who's holding her breath, wanting our state workers to get paid so they can put food on the table. Isn't that what this comes down to? Why would I wish bounced paychecks and hard times on my neighbors?

Well said.

 

[Gone4Good]

On a quick run through the data, I note that the states that are relative "takers" are the politically red states, while the "giver" states are blue. Interesting.

Another way to look at it is that "rich" states are givers and "poor" states takers (it just so happens that "rich" states tend to be blue and red states, well, less so)

 

[Bubble Babe]

Thanks, folks, for chiming in and helping me to make my point. We're all different, we're all people, and whether we're from the Southern United States (as is my father), or from California, or carry a British passport (as do I), or hail from anywhere else in the world, we're all worthy of respect from strangers until they find that we deserve otherwise.



I merely reported what individuals had said to me in the course of my daily business, without name calling. Their words speak for themselves. At the time these things happened I responded politely to them and wished them a good day. This is known as "rising above it."

If your point was to respect others, I would have chosen to leave out the less than flattering anecdotes. Just me though. Time for a bubble bath here in Hawaii.

 

[cute fuzzy bunny]

Just so that nobody gets lathered up, I believe we're being OAP'd yet again... :

GET A LIFE DUDE!