We’ve been predicting all along that California would be bailed out in some way, whether through a direct cash injection or some kind of federal backing for its debt, allowing it to raise more money. The state has already put out a request for TARP money, as its broken political system leaves little chance that they can fix their own mess.
Today the Washington Post reports that the White House has “spurned” California’s request, so you’d think, happily, that the government has finally put its foot down with respect to bailouts. But that’s not actually the story.
The story is that the government still thinks the state can fix itself, but if it can’t then a bailout may be forthcoming. The seventh paragraph is the big one:
…policymakers continue to watch the situation closely and do not rule out helping the state if its condition significantly deteriorates, a senior administration official said. But in that case, federal help would carry conditions to protect taxpayers and make similar requests for aid unattractive to other states, the official said. The official did not detail those conditions.
We wonder what kind of conditions and taxpayer protections they’re talking about. It appears some kind of diminished state sovereignty is in order.
Meanwhile, the article also notes that the Treasury is looking for ways to help the state of Michigan directly or indirectly via more help for auto suppliers.