cute fuzzy bunny
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Yeah, it was interesting when everyone thought those 5%+ MM yields were a free lunch.
This isn't about taxes or spending. It is about short-term liquidity.
Remember all the discussion about commercial paper (CP) and how companies may not be able to meet payroll, etc. etc. because of the credit crunch? Remember how some folks were opining that we should just let everyone default? Well the crisis is spreading and now entire states are at risk, with CA looking to be the first victim.
You may have noticed how tax exempt mutual funds are paying really, really, high yields? Do you think they are just being generous? Sorry, but no. They are struggling to raise short-term liquidity like everyone else.
But don't worry, the market will sort it all out.
The finances charges on those short term loans must be a big waste of taxpayer money! It's kinda like living on credit cards for 3 to 6 months, and then you have a big lump sum coming in, you repay your CC debt and you start digging the hole all over again until another lump sum comes in...
So do you think it is more efficient for the state to borrow from the capital markets at 2% or from its tax payers at 9%+?
You've identified the precise mechanism by which the market is working it out. Higher interest rates will bring more money to be loaned. CA will pay more money for this short-term loan--which brings us back to taxes, spending, and the need for fiscal responsibility on a personal, state, and national level.
Well, there's "efficient" and then there's "effective" and then there's "prudent." In the present situation, it looks like California's "live on credit" policy is none of these, wouldn't we have to say? Maybe in the past it was "efficient", but, based on what we now see, it was never prudent.
Money isn't free. If the state sits on piles of cash to manage its day to day expenses someone is paying for that cash. That person is you.
So what is your cost of funds? 18% on a credit card? 9%+ on a home equity loan? Meanwhile the state typically borrows at 2%. So do you think it is more efficient for the state to borrow from the capital markets at 2% or from its tax payers at 9%+?
Do you honestly believe this? That there is no rate at which California could borrow funds?. . . it doesn't think it can raise the money it needs, at any price.
California bet that interest rates would stay low, and that's the assumption upon which their state budget is built. They bet wrong, and foolishly. Just like a homeowner betting that his ARM wouldn't go up. It's not that California can't get the money--it's that they can't get the money at the interest rate they want to pay. Too bad. I'll bet a lot of states have similar struggles, and would love to go to Uncle Sam for a temporary loans ("just this once!!" )It is completely irrational that the market would not give CA money for 30 or 90 days, but fear is overwhelming people.
I guess I don't understand how it costs more money to sit on piles of money than to live on credit.
Do you honestly believe this? That there is no rate at which California could borrow funds?
Im still wondering where that huge surplus that California had went... The mysteries of the universe. Good news though they finished working on I 5! Hot damn! By the way I cant stand Arnold either.. Bring back Petey boy.
I may very well be naive about all this. But I guess I don't understand when it became acceptable practice for states and companies to borrow money to cover operating expenses, that's all. Borrowing money through bonds to finance large projects, I understand, but borrowing money for routine outlays, I don't understand.
Even if you can get access to cheap money, isn't it still more expensive than sitting on piles of money (that could earn interests until they are needed and therefore reduce the amount of taxes to be collected) and pay your bills from that pile of money? I guess I don't understand how it costs more money to sit on piles of money than to live on credit.
But CA is saying that it needs an emergency loan because it doesn't think it can raise the money it needs, at any price. It is not asking the Federal government to intervene because it wants a lower rate. The money is simply not available. Meanwhile CA is a viable long-term credit. It is completely irrational that the market would not give CA money for 30 or 90 days, but fear is overwhelming people. Now that CA has said it needs help you can almost hear the sound of money being drained out of tax free money market funds around the country.
You need to accept the fact that the market is breaking down . . . and market solutions alone will not fix it.
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I'm in SF nearly weekly for negotiations (Barclays Capital associate) with Wells Fargo and my American counterparts are very clear that California represents the very best of America. Very "tall poppy" attitude.
It has come up many times that they feel like it would be in their best interest to secede from the US and become a separate country.
So maybe toss in an extra billion for the cost of secession and a few rashers of bacon and be rid of them.
California represents both the very best and the very worst of America.
Money isn't free. If the state sits on piles of cash to manage its day to day expenses someone is paying for that cash. That person is you.
So what is your cost of funds? 18% on a credit card? 9%+ on a home equity loan? Meanwhile the state typically borrows at 2%. So do you think it is more efficient for the state to borrow from the capital markets at 2% or from its tax payers at 9%+?
Exellent point. This country has become a debtor nation. From the little guy making the minimum payment on his maxed out credit card to big government that continues to spend and borrow more than it takes in. This country can not last for long at this pace.I won't repeat everything that Firedreamer and SamClem have said. I'll just say that they make a lot of sense to me.
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. If I'm in the second group, it's more efficient for me to pay the taxes in advance of the spending, rather than in arrears. Why should the gov't run its operations to favor taxpayers who are net debtors instead of taxpayers who are net lenders?
I take an annual road trip through Nevada and Utah every year. I am often amazed at the unsolicited things people decide to share with me, a perfect stranger.
A fellow customer in a buffet line: "Hi, where you from?
Me: "San Francisco Bay Area."
Him: "Humph. California, land of fruits and nuts."
Me: "I do hope the weather holds up until we get to Reno."
Waiter in Nevada town: "Where you-all from?"
Me: "Northern California"
Him: "I hate California -- too many damned (insert homosexual slur here)."
Me: "You don't say. When's the last time you visited our fair state?"
Him: "Hell, I've never been there, and I never plan to go."
Me: "I'll have the eggs over medium, please."
Me: "Hi, would you fill her up, please?"
Oregon gas station attendant: "You've got California plates there, I see"
Me: "Why yes. I live near San Francisco."
Attendant: "Hope you're not planning on staying. We've got too much of you Californicators up here already."
Me: "Would you do me a favor and check the oil while you're at it?"
Person A on this board: "Lots of far poorer states do just fine. I have no tear for the Golden State."
Person B: "California is the best and worst of America."
Person B: "Let me guess. Best weather, worst people."
Why thank you all, so very, very much.
As it happens, I'll be in London later this month on business. I hope the good manners my parents taught me stand me in good stead if I'm tempted to verbally molest innocent natives going about their daily business.
Before I go, a shout-out to you, ...Yrs to Go. I thought you summed up the state's loan issue very well, and I thank you. But I suspect that the desire to see us "Californicators" get our comuppance (something we also saw expressed during the energy crisis a few years back), works against your getting the message through to a lot of folks.
A fellow customer in a buffet line: "Hi, where you from?
Me: "San Francisco Bay Area."
Him: "Humph. California, land of fruits and nuts."
Me: "I do hope the weather holds up until we get to Reno."
Waiter in Nevada town: "Where you-all from?"
Me: "Northern California"
Him: "I hate California -- too many damned (insert homosexual slur here)."
Me: "You don't say. When's the last time you visited our fair state?"
Him: "Hell, I've never been there, and I never plan to go."
Me: "I'll have the eggs over medium, please."
Me: "Hi, would you fill her up, please?"
Oregon gas station attendant: "You've got California plates there, I see"
Me: "Why yes. I live near San Francisco."
Attendant: "Hope you're not planning on staying. We've got too much of you Californicators up here already."
Me: "Would you do me a favor and check the oil while you're at it?"
It may be worthwhile to point out that once you get outside the metropolitan areas of SF, LA and SD, most californians are fairly conservative, lower to middle class, and in many instances very red neckish.