On one side, IOU recipients are beginning to trade them like currency, forcing the California state treasurer's office to issue guidelines if they are sold through eBay [EBAY 16.10 -0.35 (-2.13%) ], Craigslist or other means.
Meanwhile, Bank of America [BAC 12.2825 0.1325 (+1.09%) ] , Wells Fargo [WFC 23.67 0.57 (+2.47%) ], JP Morgan [JPM 33.18 0.58 (+1.78%) ] and Citigroup [C 2.695 -0.095 (-3.41%) ], among others, have said they will stop accepting the IOUs on Friday, according to a report in The Wall Street Journal.
A growing number of credit unions also are excepted to stop accepting them as well, and this will force more recipients to search for buyers online, according to the report.
This is situation is making it more necessary for there to be some guidelines for the use of IOUs.
California's treasurer is telling recipients of the IOUs that if they sell them to third parties, they will be redeemed by the state treasurer's office only if accompanied by a notarized bill of sale signed by their listed payee.
"We are in the process of contacting officials of eBay and Craigslist to post a notice of the policy on their sites," the statement said.
Speculation is rising over whether California's tax-exempt IOUs, technically registered warrants, can be bought, sold and traded.
The Securities and Exchange Commission must first determine if the IOUs are securities to regulate them, said Ernesto Lanza, general counsel to the Municipal Securities Rulemaking Board, adding that the board was not working directly with the commis—sion on that decision.
"It looks like it has all the hallmarks of a security," Lanza told Reuters. "If they are securities, I think they're pretty clearly municipal securities."
California last week started issuing "IOU" promissory notes for some bills to conserve cash for priority payments, including payments to investors holding the state's debt, while Governor Arnold Schwarzenegger and lawmakers try to plug a $26.3 billion budget deficit and stave off a cash crisis for the state's government.
The IOUs carry a 3.75 percent interest rate and are payable Oct. 2.
But at least one website aims to offer a platform for selling the registered warrants. Obed Dorceus, owner of ioumarket.com, said he sees a potential secondary market for the IOUs — and potentially other government promises to pay.
"I'm thinking there may be a situation where other states may follow California," Dorceus said during a telephone interview. To sell warrants on his website, holders of the IOUs would pay a fee to advertise them.
"I wanted to offer it as an alternative," said Dorceus, of St. Augustine, Florida. "If you're an average guy, with an IOU for $2,000, you go the website and post an ad ... It's there for a month, and for up to $2,000, you pay $9.99."
Dennis Ciocca, a senior managing director at public finance banker Sutter Securities Inc, doubts financial institutions that accept the warrants will try to sell them because their payment date is relatively soon, they offer an attractive rate and prospective buyers would demand a discount.
"Is it worth it to set up a secondary market for such a short-term instrument? I kind of doubt it would pay," Ciocca said.
California is not the only one with problems. They are getting all the press but New York, Florida, Arizona and Nevada also have big problems. Their revenues ARE NOT going to increase and solve their problem. They are going to have to make cuts and that means layoffs or fur lows. Falling revenues without the ability to raise them is a tough spot. In other words we are deteriorating and this will be the next big problem to hit the economy this summer.
Those economists and experts that say the recovery is coming are plain liars. Nothing that has been done has stopped the decline in the economy. The worst is yet to come. How will the market handle it? In the end bad but for now denial and a slow death.
The beat goes on...Mikey
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