You knew this was coming.
There have been various ideas floated for how the federal government can bail out the state of California. Some of it’s already happening via money coming in through the stimulus. And a plan to backstop the entire muni market would be a (not so subtle) backdoor bailout of California, if it happens.
And now the state is just directly asking to be part of TARP.
MarketWatch: In a letter, Lockyer asked Geithner for TARP assistance for California and “other financially strapped states and local governments which face a severe cash flow crunch.”
“If we cannot obtain our usual short-term cash-flow borrowings, there could be devastating impacts on the ability of the State or other governments to provide essential services to their citizens,” Lockyer wrote.
In particular, Lockyer cited fire and police protection, education and social services.
See Tim? If you deny them TARP, there will be more crime, less educated children and more people will die in fires.
Getting TARP cash may actually be the state’s best shot at getting a bailout. If they actually had to get a law passed by Congress, there’s no way the non-California Congressmen would support it. But TARP — despite being a program to buy toxic assets from banks (ha!) — has morphed into a program that’s basically anything the Treasury sectretary and the President want. PPIP, cars, insurance companies, you name it. So why not states?