It appears that the question of whether the federal government is going to bail out the state of California has been rendered moot. Two large banks have announced that they will accept the IOU’s issued from the State of California to its customers beginning today. Wells Fargo announced this afternoon that the bank would be accepting the monopoly money for a period of one week.
Wells Fargo & Company (NYSE:WFC) said today it will accept registered warrants issued by the State of California from its retail and business customers for a limited time. It will begin accepting the registered warrants for deposit on July 2, 2009 and stop accepting them no later than July 10, 2009.
Chase also made a similar announcement:
SAN FRANCISCO (MarketWatch) — Chase, the banking unit of J.P. Morgan Chase , said Thursday it will accept registered warrants issued by the state of California through July 10. “We will accept the registered warrants from our customers to help them through this challenging time,” said Pablo Sanchez, head of Chase’s branches in the Western region.
Now that the camel has its nose under the tent who thinks this scheme will be just temporary? The fact that the banks mentioned are TARP banks, beholden to Washington for their very existence, suggests that the U S taxpayer bailout of California has begun.
Update: According to Seeking Alpha, it’s looking a lot more like currency:
Watch out Ben Bernanke, the Federal Reserve now has competition in the currency game. California is planning to create its own money in the form of IOUs, just like the Fed. What is the California IOU – currency or an interest bearing note?
Officially the IUOs will be called “registered warrants”. State Controller John Chiang planned to issue $3.4 billion, maturing on Oct. 1 to replace state payments. The interest rate is set to be determined on Thursday, but cannot exceed the statutory limit of 5%.
California’s ingenuity poses an interesting dilemma for the Fed. The IOUs would be structured as short-term tax-free bills, but trade like cash. Banks are being asked to accept the IOUs and advance customers interest. Should the Fed sanction alternate forms of money?
This is all very surreal.