Online market for California IOUs may launch Wednesday

SecondMarket, which connects buyers and sellers of illiquid assets, says it expects to have an online trading venue operating for California IOUs beginning on Wednesday.

But the firm still isn’t sure whether prices will be transparent -- i.e., whether anyone signing onto the SecondMarket.com website will be able to see what buyers are paying sellers for their IOUs to cash them out.

Jeremy Smith, SecondMarket’s chief strategy director in New York, noted that federal rules forbid making prices of certain asset transactions public, in cases where regulators deem that the information could be considered a "solicitation" to investors for whom the assets wouldn’t be appropriate.

But by asserting last week that it has jurisdiction over trading of IOUs, the Securities and Exchange Commission ostensibly was trying to protect IOU recipients from ripoff artists. If that’s the goal, SecondMarket – and the SEC -- ought to support public price disclosure, so that anyone who wants to sell the state’s scrip can see what kind of discounts buyers are offering for the paper.

The only reason to sell at a discount to an investor, of course, is if an IOU recipient can’t find a bank or credit union to cash the thing for full value. IOU holders’ options became more limited this week as major banks stopped accepting them.

One decision SecondMarket already has made: Owners of IOUs won’t pay any fees to sell them on SecondMarket; buyers will pay a transaction fee of 1% or less.

The state has said it will redeem the IOUs for cash on Oct. 2. The paper is earning a 3.75% annualized tax-free interest rate until then.

-- Tom Petruno

Photo credit: Rich Pedroncelli / Associated Press

Comments

[Doug in Toronto]

I'm sure that Bear Stearns will offer some security based on these things (paying a zillion percent interest) , and that Enron will find a way for Californians (and others) to pay an outrageous price for what the rest of us see as nothing more than Monopoly money. Let's see: banks won't take them, and you can't redeem them until the fall (when this budget fiasco still won't be fixed). That's sound fiscal policy, Arnold. You should be proud.

[Dr.NosePikens]

The next time you take a bite of that Mc Hamburger think about who’s inspecting that restaurant for roaches, rodents and other common vermin. They won’t have the staff to do as many inspections as usual so what use to be annual will become every 5 years or 6 years and that’s a lot of unchecked rodent hair and insect parts getting into our food. Dog pounds will cut the euthanasia waiting time over half which can be a problem if your pet gets out of the yard and picked up. You will have only 24 hours to claim your pet before it will have to be euthanize. City maintenance will cut their staff so soon those safety signs, lights and reflective paint on the roads will be a thing of the good old days. No the only State employees California will have left will be the politicians they elected who took it all away from them, right Arnold?

[KingofthePaupers]

Jct: There's nothing wrong with small denomination California State IOUs if anyone can pay their taxes with them. When Argentina"s government workers were faced with cuts, their unions talked 6 state governments into paying them with small-denomination state bonds which could be used to pay for state services and taxes by everyone.
When the local currency is pegged to the Time Standard of Money (how many dollars per unskilled hour child labor) Hours earned locally can be intertraded with other timebanks globally! In 1999, I paid for 39/40 nights in Europe with an IOU for a night back in Canada worth 5 Hours. U.N. Millennium Declaration UNILETS Resolution C6 to governments is for a time-based currency to restructure the global financial architecture.
Too bad California IOUs won"t be accepted in payment for state taxes and services like state bonds were in Argentina. Too bad California IOUs will be denominated too big to use as local currency. Too bad Argentina people were smart enough to avoid the tent-cities catastrophe and California people are too stupid to follow their example.
See http://youtube.com/kingofthepaupers
We now read that state lawmakers back bill to make IOUs legal tender!!!
Great that Argentina people were smart enough to avoid the tent-cities catastrophe and California people are now going to follow their example.
I'll take back every joke I ever made about Girlieman Governor Musclehead if he engineers the California state currency lifeboat.

[KenH]

The current state of california's budget is due to overspending by way too much government spending. The city, county, state, spending is and has been out of control for a long time. There is way too many programs and most citizens think that this will solve most problems. There are way too many public employees, too many elected officials. The govt is simply way too big and costly for the population to afford. It has become a drain on small business revenue, it has become a drain on personal incomes. It has and will certainly lead to a reduced standard of living for most of the communities. The end of small business prosperity and entreprenuership is near, unless the population comes to its senses and reduces govt. spending by at least 50%. Americans need to be more responsible for there own way of life and prosperity. Americans need to quit putting there faith and well being in the hands of elected officials. Americans need to rely on there passion for hard work and the pursuit of their dreams, and their faith in god to live a better life. The only thing that MOST elected officials will provide is broken promises, and the sure bet that they will continue to take more and more from the working man, as the majority of them cannot muster the willingness to even take responsibility for theit own livelihoods, much less mange our economic futures to our communities best interest, and for the good of our fellow man.
WAKE UP !!!!!!!!!!!!!!!!