All posts by Barry Mercer

Deficit forces California to issue IOUs

By Matthew Garrahan in Los Angeles

Published: June 29 2009 19:26 | Last updated: June 29 2009 19:26

California is preparing to issue IOUs to its creditors this week as it grapples with an unprecedented cash crunch and prepares to begin its new fiscal year deep in the red.

Once the US’s richest state, California now has the dubious distinction of having the worst credit rating in the country.

It is facing a budget deficit of $24bn (€17bn, £14.5bn) yet Arnold Schwarzenegger, its governor, and the state assembly cannot agree on a budget that would address the shortfall.

California’s fiscal year ends on Wednesday but as the state’s cash reserves are empty, IOUs will be issued to a range of creditors, including contractors, such as information technology companies and the food service groups that cater for prisons.

“On Wednesday we start a fiscal year with a ­massively unbalanced spending plan and a cash shortfall not seen since the Great Depression,” said John Chiang, the state ­controller. “Unfortunately, the state’s inability to balance its chequebook will now mean short-changing taxpayers, local governments and small businesses.”

The state is also likely to issue IOUs to the US government. California currently contributes funding for government-run programmes for elderly and developmentally disabled people but is considering issuing IOUs to cover its contributions because of the lack of cash.

Education funding is ­protected under the state’s constitution while payments on the state’s bond debt are also guaranteed under state law.

Democrats and Republicans in the state government last week struck an agreement on a range of money-saving measures. However, Mr Schwarzenegger has threatened to veto the plan on the grounds that it was a piecemeal solution to California’s budgetary woes.

Mr Schwarzenegger said he would veto any bills that raised taxes without reforming the state’s government. “I will veto any majority vote tax increase bill that punishes taxpayers for Sacramento’s failure to live within its means,” he said. ”The legislature will have a difficult time explaining to Californians why they are running floor drills the day before our budget deadline. We do not have time for any more floor drills or partial solutions. It’s time for the legislature to send me a budget that solves our entire deficit without raising taxes.”

http://www.ft.com/cms/s/0/1940d18e-64cf-11de-a13f-00144feabdc0.html

Cradle to the grave?

I can’t see how this is going to work. The US is having enough trouble at the moment without having to invest billions in healthcare. Where will the money come from for this? They can’t tax people any more

From http://www.guardian.co.uk/world/2009/jun/11/obama-administration-universal-healthcare-reform

Barack Obama today set out a broad plan to replace America’s patchwork healthcare coverage with a universal system, the goal that has eluded US presidents for more than a century.

The Messiah
The Messiah

Obama, whose speech was preceded by emotional testimony from a cancer patient, said: “After decades of inaction, we have finally decided to fix what is broken about healthcare in America. We have decided that it’s time to give every American quality healthcare at an affordable cost.”

The political firefight that is about to engulf the US over the summer is over the 45 million people who have no health insurance that Obama wants to bring into the system.

One of the main doctors’ groups warned today that Obama’s plan would lead to an explosion in health insurance costs. The are testimonies from thousands of uninsured people relating horror stories of experiences in trying to obtain medical help.

There are also gripping stories from people with insurance but who found the companies failing to pay out for treatment. Others complain that insurance companies refuse to give them coverage because they already have a medical condition.

The president hopes to have legislation implementing health reform on his desk by 1 October and said today he would not tolerate “endless delay” by Congress.

Obama specifically chose to deliver his speech in Green Bay, Wisconsin because it has a healthcare system in place that is more extensive and cheaper than elsewhere in the US.

He proposed the establishment of a health insurance exchange, which would set up a government-backed insurance scheme in competition with private health insurance companies.

His scheme “would allow you to one-stop shop for a healthcare plan, compare benefits and prices, and choose the plan that’s best for you. None of these plans would be able to deny coverage on the basis of a pre-existing condition, and all should include an affordable, basic benefit package,” Obama said.

“And if you can’t afford one of the plans, we should provide assistance to make sure you can.”

Citi capital raising hit by FDIC threat

By Francesco Guerrera in New York

http://www.ft.com/cms/s/0/4b2f6266-5217-11de-b986-00144feabdc0.html?nclick_check=1

Published: June 5 2009 23:00 | Last updated: June 5 2009 23:00

Citigroup had to delay raising $33bn in capital in recent weeks after the Federal Deposit Insurance Corporation threatened to lower a crucial financial health rating as part of the regulator’s drive to replace Vikram Pandit, chief executive.

People familiar with the situation said the row over the rating with the FDIC has since been defused and Citi could launch the long-awaited conversion of preferred shares into common stock as early as next week.

However, Sheila Bair, the FDIC’s chairman, is believed to remain adamant that Mr Pandit, a former investment banker, and his team should make way for executives with greater experience in commercial banking.

The Financial Times reported in April that the FDIC was discussing possible replacements for Mr Pandit. So far, Ms Bair has failed to persuade other regulators of Citi, such as the Treasury and the Federal Reserve, that Mr Pandit should be replaced.

Citi’s board on Friday reiterated its backing for Mr Pandit and his team.

People close to Citi said a reason for the delay in the conversion was the FDIC’s warning that it was discussing placing the bank on the “problem list” of lenders at greater risk of failure. In heated exchanges with regulators, Citi executives said they could not launch the offer without disclosing the FDIC’s desire to lower its rating.

Citi is converting preferred stock into common shares as part of its efforts to bolster its balance sheet after government stress tests revealed a $5.5bn capital shortfall. The government will own about 34 per cent of Citi after the offering.

The FDIC declined to comment but officials said the delay in Citi’s offering was due to the bank’s own problems and the customary review by regulators such as the Securities and Exchange Commission. People close to the FDIC said that even if Citi’s financial health rating had been lowered, it would not have had to disclose it because the “problem list” does not contain bank names.

Citi executives, according to people close to the matter, did not want to be in the same position as Bank of America. It has been criticised for waiting to disclose it received billions of dollars in aid to complete its takeover of Merrill Lynch until after the deal closed. BofA says the government told it not to publicise the extra aid.