California WILL Default on its Debt

Inquiring minds are on Yahoo Finance where Chris Whalen during an interview stated that California will default on its debt and there will be no bailout:

Municipal bonds have plummeted in recent days, as investors have suddenly focused on huge state and city budget deficits that there’s no easy way to fix.

Nowhere has this collapse been more visible than California, which faces a massive $25 billion shortfall and red ink for as far as the eye can see.

After years in which every looming financial crisis has been met with a government bailout, you might think that the same solution awaits California, as well as all the other states that have huge obligations that they can’t afford to meet.

But this time that may not happen, says Chris Whalen, a financial industry analyst and Managing Director of Institutional Risk Analytics.

In fact, Whalen thinks that California will default on its debt–hammering all the pension funds and other investors who have loaded up on apparently safe state bonds.

The state won’t immediately default, Whalen says. It will start by issuing the same sort of IOUs that it issued to by itself time during its budget crisis last year. But, eventually, the debts will have to be restructured, and this will result in those who own California’s bonds receiving less than 100 cents on the dollar.

And why won’t there be a bailout for The (Formerly) Golden State? Two reasons…one political and one pragmatic. Politically, the new Republican House won’t lose anything by not coming to the state’s aide. It’s not like California elected any Republicans who could get voted out if money were not to come. Pragmatically, the public is finished:

Because the Republicans now control Congress, Whalen says. And also because, if California gets bailed out, dozens of other states will immediately line up with their hands out. The public is fed up with bailouts, Whalen says–and eventually, the country will be forced to face up to its bad debts and write them off.

The Progressives will get their way…California will lose a lot of its population.


One Response

  1. The Progressives will get their way…California will lose a lot of its population.

    that’s what i’m afraid of.
    those of us in flyover country will get a lot bluer.

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