Yesterday we reported on a the PIMCO California Municipal Income Fund II symbol PCK. It showed that interest in California bonds was crashing at panic levels. Basically, the credit markets are putting California municipal governments on a diet. This is the same as cancelling a consumer’s credit card for being a bad credit risk.
Today, we learned that Orange County had issued a new bond offering to raise hundreds of millions. Well guess what? There were no buyers for the bonds and Orange County managers pulled the offering and abandoned all hopes of raising any money.
It is hard to explain how historic this is. The credit markets have no confidence in California’s ability to repay. This is not surprising since a close look at the recent elections would confirm all. The voters of California denied via proposition the state legislature the ability to raise taxes by simple majority. Currently the legislature can only raise taxes by a 2/3rd majority which the democrats do not have. Taxes therefore cannot be raised very easily.
California was unable to borrow to get through the year because of the budget impasse. The officials were about to pull out the laser printing machine, again, but the legislature came through with ten days of fiction. Now this bond panic puts things off farther, and if not resolved California will be locked out and living on laser.
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