Govinator to Treasury Secretary Paulson: Spare a Few Billion Baby? (Feds to Pay CA State Workers?)

BIG News in California - the LA Times reports that California Governor Arnold Schwarzenegger has told Treasury Secretary Paulson that California may need a $7 Billion loan in order to state workers. Why? Because the country's economic conditions are such that banks are not lending money. That means those that depend on loans can't get them. AND California isn't the only state in this situation. This is what supporters of the economic rescue language feared would happen in the market place. Once the banks stop lending, it creates a domino effect.

Here's why you care: Way back in June of this year, close to when we started this website, we pointed out that you need to care about a boring thing called bonds. Bonds, as we explained, are how most public works (buildings, schools, roads) get built. Basically bonds are loans. But, unlike a loan where you walk into a bank and apply for a loan, a bond is basically given out by the person who needs money. They put their terms down on a piece of paper and send it around the market place for those looking to make a loan and collect a return. It would be like a potential homeowner writing down that they'd like a $300,000 mortgage at 6%, and then taking that to the local supermarket and saying here are my terms, any takers? Thus, the state of California writes down its terms and sends it to Wall Street (the bond supermarket).

BUT, as we pointed out back in June, when times are tough people will only grab that bond if it is as better terms for the person lending the money. Or in the worst case (as in right now) no one wants to lend. Thus California has two choices, go for a buy at an incredibly high interest rate which would require RAISING TAXES on its citizens. OR, ask the federal government for help.