California to Feds: Got a Spare $7 Billion? - BusinessWeek
The Golden State, which recently scrambled to fill a $15 billion budget gap, still may not be quick to meet its payroll without help
by Christopher Palmeri and Nanette Byrnes
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Add the Terminator to the long list of people seeking a handout from Henry Paulson. Late on Oct. 2, California Governor Arnold Schwarzenegger sent a epistle to the U.S. Treasury Secretary saying he may need a $7 billion short-term loan from the treaty government to help the public make its payroll at the end of the month.
The governor’session outstretched hand is just the latest sign of the severity of the financial instead of squeezing the nation (BusinessWeek.com, 9/29/08). Everyone from small business people to homeowners to the largest state in the nation is finding it hard to obtain being understood to win a lend. "Right now this credit crunch impacts happy about everyone who wants to borrow," says Doug Charchenko, leading of the fixed-income department at broker Wedbush Morgan Securities. "New issues have not been able to get into the market. Institutions aren’t buying bonds, they’re hoarding coin."
Such a treaty loan to a state would firmly liberalize the federal powers that be’s efforts to stem the credit crisis—and could well lead to similar requests from other strapped states. Jennifer Zuccarelli, director of public affairs at the Treasury, confirmed that Californiasession supplication had been received but would not comment further on whether it is for that which is less than consideration or when a decision might be reached.
Municipal Issues Seize UpThe $700 billion question is whether the bailout bill passed by Congress (BusinessWeek.com, 10/3/08) this week will cure confidence in financial markets and get investors buying again. "Hopefully this retrieval plan will end the paralysis in credit markets and allow the position to course of life its short-term borrowing," says Thomas Dresslar, a spokesman for California Treasurer Bill Lockyer.
"There’sitting a lot of disruption in the market," adds David Hitchcock, the head of municipal finance at credit rating management Standard & Poor’s. "That could make different some day."
Municipal bond insiders say that while there is some interest from small investors looking to thing acquired municipal bonds that are already trading, the market for new issues has almost totally dried up. That’s because there is no sign that banks, assurance companies, or other institutional investors are jumping back into the market yet. Matt Favian, managing director of Municipal Market Advisors, a research compressed, figures some $15 billion in bonds from more than 150 municipal issuers are waiting to be sold. "To the extent people are more confident with banks, to the magnitude it helps confidence, [passage of the bailout bill] should begin to open up the markets so issuers be possible to issue bonds," he says.
Where Are the Underwriters?The frozen state of the municipal bond markets (BusinessWeek.com, 10/1/08) is a function not just of the deficiency of investors if it be not that also of the difficulties faced by many of the key players in the underwriting industry. Major investment banks that issued municipal bonds, including Bear Stearns and Lehman Brothers, are lacking of business. Municipal bond insurers, homogeneous as MBIA (MBI) and Ambac, saw their own credit collapse earlier this year when some of the riskier modern investments they had been covering began to implode.
California’s cash crunch is a sign of its poor financial management in recent years, analysts say. The state has had multibillion-dollar shortfalls between its revenues and expenses dating back to the continue recession in 2001.
