California Runs Out Of Money Again, Comes Begging To Wall Street As Moody’s Threatens To Go Nuclear On Muni Market
by Tyler Durden
First New Jersey, now California. The cash-strapped state, which begged for, and got, a “bridge” loan from JP Morgan as recently as October 2010 (the same bank that recently bailed out Chris Christie), is asking for another bridge to the old bridge loan, ergo a “bridge bridge” loan. The excuse: the potential upcoming government shutdown, which would lock California out of the muni market. Surely the fact that it already has little to no cash left was not a part of the equation. BusinessWeek reports: “California is considering seeking a bridge loan from Wall Street ahead of an Aug. 2 deadline for raising the federal debt ceiling, in case talks fail and send the bond market into turmoil, Treasurer Bill Lockyer said. Proceeds from the loan would be used to help pay the state’s bills until Lockyer can sell an estimated $5 billion of so-called revenue-anticipation notes, or RANs, scheduled for late August. Without those notes, the state could run out of cash as it did in 2009, when it issued $2.6 billion of IOUs.” Of course if the US is downgraded, Meredith Whitney’s prediction will come true with a bang: as part of its warning yesterday, Moody’s also threatened to downgrade 7000 municipal ratings which would halt RAN, and any other, issuance for an indefinite period of time. And while this is merely more M.A.D. posturing to help the debt ceiling dispute come to a speedy resolution, the fact that California is now forced to issue new bridge loans to “bridge” old ones is oddly troubling.