Even as Congress tries again to pass the behemoth $700 billion Wall Street handout bailout news comes from California of a $7 billion problem that has immediate and massive impact on regular working folks.
California may need an emergency loan of up to $7 billion from the federal government within weeks, the Los Angeles Times on Friday quoted Gov. Arnold Schwarzenegger as saying in a letter to U.S. Treasury Secretary Henry Paulson....
On Wednesday, California Treasurer Bill Lockyer said the most populous U.S. state's cash reserves may be exhausted near the end of October, and various state-funded services are at risk of grinding to a halt.
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In the letter, Schwarzenegger noted California's plans to issue $7 billion in revenue anticipation notes in the coming days to fund short-tern cash needs -- now put in doubt by the crisis in the credit markets.
Even a broken clock is right twice a day and Governator AHnold may actually understand what a dire situation this economic climate is becoming for the states:
"The economic fallout from this national credit crisis continues to drain state tax coffers, making it even more difficult to weather the continuation of frozen credit markets for any length of time."
Sean-Paul Kelley over at The Agonist spells out the implications:
Look, if the States can't function we're all hosed. And the so-called Congressional bailout does nothing to address these issues. It's not even remotely close to a 'clear resolution.' Even Krugman says as much, "Aid to cash-strapped state and local governments, which are slashing spending at precisely the worst moment, is also a priority."Remember Jefferson County and the City of Vallejo in California? We mentioned them here, as proverbial canaries in the coal mines and where was our government? Pretty much saying, "it's contained."
Here's a question for Paulson and others: how do you contain Armageddon?
More from Paul Krugman:
How bad is it? Normally sober people are sounding apocalyptic. On Thursday, the bond trader and blogger John Jansen declared that current conditions are "the financial equivalent of the Reign of Terror during the French Revolution," while Joel Prakken of Macroeconomic Advisers says that the economy seems to be on "the edge of the abyss."
As Congress and the President argue over exactly how many zeroes to add to the Wall Street bailout, California teeters on the brink.
If "across the board bailouts" are going to be the safe bet with the current leadership then lets make sure we apply this standard across the board. Because I don't trust Bush and Paulson not to gamble that California can be allowed to fail too. And Paulson's bets have been going bad lately:
The wave of bad news began on Sept. 14. Henry Paulson, the Treasury secretary, thought he could get away with letting Lehman Brothers, the investment bank, fail; he was wrong.
For a fifth of the cost of the Bear Stearns bailout, a tenth of the cost of the Fannie Mae/Freddie Mac bailout, and one one hundredth of the cost of the Wall Street bailout, we can keep California state government from going under.
Bear Stearns, Fannie Mae and Freddie Mac, Lehman Brothers, and now California. The Bush economy is turning into a black hole and threatens to suck us all in.
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