George S. May Business Blog

Big US banks say: California…NO DEAL!

A group of the biggest U.S. banks, that include but not limited to Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and J.P. Morgan Chase & Co., said they would stop accepting California’s IOUs on Friday, adding to the surmounting pressure on the state to close its $26.3 billion annual budget gap.

The banks had previously committed to accepting state IOUs as payment, but now that California plans to issue more than $3 billion of IOUs in July has decided against it.

The concerns voiced by the CBA were that there simply aren’t the processes in place necessary to safely accept IOUs. Ms. Mills of the CBA also mentioned that there were ‘fraud issues’ as well.

Hopefully, this will be the deciding factor for California to finally close its budget gap. California law makers have been basically treading water up until this point.

The whole IOU thing troubles me to begin with. It is almost like California is printing their own money. What I mean is, if the Constitution states that the Federal Government will be the one to create a common currency for citizens and states to use and California is handing out IOUs that are to be used the same as currency, then isn’t that illegal? At the end of the day, call it an IOU, call it whatever you want, but bottom line, California is handing out money that it doesn’t have and, furthermore, has no plan in place on how to recoup it.  

This all makes it so much clearer as to why my red light ticket I got in the mail was $500.

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