We put out an offer of 50 cents on the dollar for California IOUs last week, and while we got a lot of debate about what they’re worth, we got absolutely zero offers.
Admittedly it was a real low-ball bid, considering that banks (for now) are accepting them, they’re paying yield, and at least some assume they carry an implicit backstop from Uncle Sam. We were just hoping to shake out some weak hands somewhere.
The FT reports on some inchoate efforts to create a market in these IOUs. It notes that some people are offering to buy them on Craigslist, though to be honest the market there seems real thin — just a few people (like us) trying to shake out the desperate. They also point to some guy who tried to set up an online IOU marketplace, though that appears to have no activity at all. The attention from this FT piece will probably be its high point.
On the other hand, some hedge funds and the like are apparently interested in trading them.
All of this suggests that California has basically created its own currency. When legitimate financial institutions are willing to trade them (at least for now), and there’s no grey market on Craigslist, where big discounts to face value can be had, then you know that the California IOU is basically being treated like cash. It’s just more paper for our paper-filled economy.
The California IOU is like the currency of some third-world country that has to pay its debt in dollars. The only thing California can’t do is demand residents treat the IOUs as legal tender (that would be a violation of the Constitution [yeah, that ol’ thing]), but in a cash-short economy, some will probably choose to do so anyway.
In the meantime, expect a paucity of stories about California’s 11th hour crisis. They’ve solved it! What’s the rush to cut spending?
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