Business Insider:
Remember when the US government had to bail out investment banks
Now a bank is bailing out the state of California.
California had been covering its budget shortfalls by issuing IOUs to pay for services, making it the first state to issue its own fiat currency since the Civil War. The program ran into trouble when banks announced they wouldn't keep cashing the IOUs.
Eventually California reached a budget deal and kicked the can down the road, but there's still the issue of the outstanding IOUs.
Yesterday JP Morgan agreed to lend California $1.5 billion to fund the program to redeem the IOUs. State controller John Chiang has announced the redemptions will begin on September 4th.
A plausible case can be made that this is an indirect bailout by the US government of California. JP Morgan is deemed to big to fail, and can borrow from both the Fed and at reduced costs in the market because of its status. This makes it far easier for the bank to lend confidently to California. What's more, JP Morgan can assume that if California were to come close to defaulting on the loan, the US government would bail out California.
2 comments:
Lots of thoughts here.
Bad that California was so bad off.
And JPMorgan ate up, First Chicago Banks, WAMU, etc. Hmm. Wonder if this was a smart move in the long run for JPMorgan,..or a good move.
Interesting
Was that not J.P. Morgan himself who bailed out the U.S. decades ago?
Post a Comment