The problems that home owners and lenders have been facing in California have begun spreading into various industries throughout our state. Most recently, Governor Schwarzenegger sent a letter to Treasury Secretary Henry Paulson letting him know that California is running out of money. Typically, California would access short-term loans from private banks to help fund these “day-to-day” government operations.
But with the credit crunch and liquidity crisis, Schwarzenegger’s letter informs Paulson that it is in need of an emergency federal loan bailout. Except in this case, congress isn’t just dealing with some cash strapped teenager looking for some weekend money. No, when California is short on cash we do it in the traditional California fashion and go BIG–7 billion dollars to be exact.
More than Homes and Mortgages
According to Schwarzenegger, the money is needed to avoid having to shut down state operations such as payments to school and other government entities. Such operations would be suspended and state employees could be laid off. California State Treasurer Bill Lockyer states that “unless the national economic crisis subsides and California can secure private short-term loans, the states cash reserves could dry by up the end of October.”
Personally, I’m against any bailout that would essentially prop up the value of bad debt and toxic mortgages still labeled as “assets”. But when it comes down to it, I don’t think many are ready to face the devastation that would occur without bailing out entities which are too big to fail, including the state of California. Either way, California will have to present the case to Congress, as Chairman Charles Rangel already responded “there is no way that the federal government can give away taxpayer’s money without coming to Congress. No way.” A few interviewed Congressman had their share of opinions, but the general consensus is such a request will unlikely be welcomed with open arms.
One thing is for sure, home owners who’ve managed to sidestep the ongoing housing downturn in California will have trouble avoiding this statewide financial crisis. And unfortunately, those who are employed by government entities could be facing a double whammy if they’ve already been dealing with these troubled mortgages.
For more information about this request by Gov. Schwarzenegger, here are a few quick links to get you up to speed:
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