California doomsday: State could run out of cash_trigger global derivate credit default swap bond bust

U.S. municipal bonds were viewed as having more risk than U.S. high grade corporate bonds

for the first time on Wednesday, based on contracts insuring their debt.

Credit default swaps (CDS) protecting the debt of California meanwhile, jumped to similar levels as that of contracts insuring Mexico's debt.


Investors were fretting over the impact any financial bailout of California might have on its CDS.

"A confluence of events -- an economy in recession, decreasing home values and increasing unemployment -- has combined to reduce municipalities' sources of income," said Gavan Nolan, credit analyst at Markit, a data provider that owns a series of benchmark credit derivative indexes.

A CDS index based on muni debt, known as the MCDX, jumped to 330 basis points on Wednesday, compared with a spread of 269 basis points for the high grade corporate credit derivative index, according to Markit.

The muni index, which is based on 50 muni CDS, is less liquid than the corporate index, making its moves more exaggerated.

Nonetheless, the record spread still indicates increasing concern over the health of muni finances, analysts said.

"Several municipalities have announced recently that they are experiencing financial difficulties," said Markit's Nolan. "The likes of Michigan and New York City, exposed to the struggling auto and financial sectors respectively, demonstrate the importance of credit risk in the municipal market."

CALIFORNIA

The cost to insure California's debt remained elevated on Wednesday, after hitting a new high on Tuesday, on concerns that any government bailout of the state may take a similar form to the bailout proposed for the auto industry, which may trigger payments on the contracts.

California's credit default swaps have jumped

bring on the doom

Well you could be right. It is the 5th largest economy in the world among rankings of nations.

It's bonds are near junk status already. There is no end in sight.

On the other hand around 1990 real estate prices here crashed, falling 50% in a year and 20% of the states residents simply moved out of state. There were some municipal bankruptcies. But the state recovered.

Look at it this way: it can't get any worse here than it is in Baja and Tijuana.

I suspect that when CA finally crashes, it will trigger all kinds of problems throughout this country. Bonds, pension plans etc. All will suffer. It won't be long now.

It's called CDS gambling NEW WORLD ODER STYLE


+++++++++++++++++++++++++++++++++++++++++++++++

AIG was the first insurer

the trigger was sub prime defaults in 2007-8

paid by the fool usa sheep chumps through the baillout

wake up sheep its now game over

denial is not a river

its in your asleep minds


prep now .............time is almost up

=====================================


in 2009

the arnold will finish off the rest of the CDS world

with Obama helps as he refused to baill out CA now

the illuminati plan comes together again

all vatican Illuminati minions

for their NWO Oder

======================================


pay up boys........................The illuminati want paid

you loose boys............... just like in vegas by the mafia


pay up the cds insurance bills now

============================================

this triggers the rest of the CDS collapse

onlu this time its states and muni cds busts


dont forget CDS insurance written on automaker debt needing to be paid out, though this will depend on the language in the final bailout bill.

If a bailout of California uses similar language, this also means that contracts protecting the state's debt may need to be paid out

No data specifying outstanding CDS volumes on California's debt are available, though around $780 billion in net volumes are outstanding on muni CDS indexes, according to the Depository Trust & Clearing Corp, which confirms the majority of trades in the market.

The government of California, the world's eighth-largest economy, is struggling with a growing deficit


what we dont know which is a secret of the CDS Illuminati writters is what is the Ponzi scheme leverage on this debt


$780 billion x 10 or 100 or 1000

we shall see

we need to ask maddoff

he know a lot about cds Ponzi schemes

old article

its much worse than this now........


The accountant who predicted the nation’s largest municipal bankruptcy says as many as 10 insolvencies will roil the $2.7 trillion U.S. market for state, county and city debt next year as public finances worsen amid calls for federal aid to state and local governments.

John Moorlach said in 1994 that Orange County, California’s leveraged investing strategy could wreck its finances. The county went bankrupt about six months later after losing $1.6 billion.

As many as four cities in the Golden State and six others nationwide may seek court protection from creditors next year under Chapter 9 of the bankruptcy code, the section devoted to municipal governments, Moorlach said in an interview.

“The total could be higher,” said Moorlach, 53, now chairman of the Orange County Board of Supervisors. He didn’t name any cities outside California, which has seen the cost of insuring state debt against default more than quadruple since September. He said his estimate was based on general economic conditions.

States project a $97 billion shortfall over the next two years, according to the National Conference of State Legislatures. This mounting pressure on public finances gives President-elect Barack Obama’s administration “strong incentives” to provide federal aid, wrote George Friedlander, a municipal strategist at Citigroup Inc., the largest U.S. underwriter for tax-exempt bonds, in the firm’s Dec. 12 Municipal Market Comment.

Three Considering

“In an environment where the federal government needs to stimulate the economy, keeping states from being forced to take steps that are rapidly and severely restraining will become absolutely essential,” Friedlander wrote. He could not be reached for comment yesterday.

Two California cities, Rio Vista, with a population of 8,000, and Isleton, a 10th as large, have said budget gaps and debt loads may force them into insolvency. Likewise, Jefferson County, Alabama, which is trying to restructure $3.2 billion in sewer debt, has considered what would be the largest U.S. municipal bankruptcy.

The most such filings in a year is 104 in 1940 at the end of the Great Depression, according to a 1964 study, “The Postwar Quality of Municipal Bonds.” Since 1980, the record is 18 in 1987, the year of the Oct. 19 stock-market crash.

There may be 36 bankruptcies over the next two years, said Richard Ciccarone, chief research officer of McDonnell Investment Management LLC of Oak Brook, Illinois.

Borrowing Cost

Ciccarone predicts a dozen defaults in 2009 “and at least double that number in 2010.” He didn’t identify cities or counties and said his forecast is based on studying how municipalities respond to economic crises.

If well-known localities turn up among the insolvent, he said, borrowers’ costs will increase at least 50 basis points. A basis point is 0.01 percentage point. If the interest rate on 10- year bonds worth $1 million increases to 5.5 percent from 5 percent, borrowers pay an additional $50,000 over the bonds’ life. Tax-exempt yields on the Bond Buyer 20-bond index were at 5.46 percent on Dec. 19.

Orange County sought court protection on Dec. 6, 1994, about six months after Moorlach, a Republican, predicted the bankruptcy while running for the treasurer’s office. Incumbent Robert Citron, a Democrat whose investment strategy required heavy borrowing to increase bets, resigned. Moorlach, a Republican, replaced him and held the office through 2006.

California Insolvencies

Now, he says, three or four of next year’s insolvencies will be in California, the biggest borrower in the municipal bond market. State lawmakers are grappling with a $14 billion shortfall in the fiscal year that ends June 30. A $42 billion hole is projected for the year that begins July 1. The state this year has sold $21.6 billion in tax-exempt bonds while localities have sold $31.1 billion, according to data from Thomson Reuters.

Democratic plan to fix budget headed for defeat
06-25) 04:00 PDT Sacramento - --

State lawmakers failed Wednesday in their first attempt to solve the state's $24.3 billion deficit when a key budget bill proposed by Democrats failed to win the two-thirds majority needed to pass.
Moments before the Legislature voted, state Controller John Chiang warned that, without quick action by lawmakers to close the budget gap, he would begin issuing IOUs next week to local governments, private contractors, state vendors and to taxpayers awaiting tax refunds.

The warning apparently wasn't enough to pressure lawmakers into adopting a solution.

The bill lawmakers turned down was part of a 20-bill package proposed by Democrats. It called for cutting spending by $11.4 billion.

But it failed largely along party lines, with Republicans refusing to budge from their promise not to support any part of a package that calls for increased taxes. They also argued that the Democratic proposal is $1 billion shy of bridging the budget gap.

"The deficit is at $24 billion ... and the state is rapidly running out of cash. Everyone knows this," said Senate Republican leader Dennis Hollingsworth of Murrieta (Riverside County). "This is not only partial and incomplete, this is not a (credible) solution."

Democrats disappointed
Democratic leaders said they were disappointed by Republicans' refusal to support the bill.

"I find it ironic when they say they're voting no because it's not enough, when voting yes would not prohibit additional cuts. We have to get started somewhere," said Assembly Speaker Karen Bass, D-Baldwin Vista (Los Angeles County).

Speaking on the floor of the upper house of the Legislature, Senate President Pro Tem Darrell Steinberg, D-Sacramento, said that if Republican lawmakers can't support the Democratic plan, they need to offer their own ideas.

Hollingsworth said Republicans have identified as much as $19 billion in spending cuts, but he did not detail what they were.

Steinberg said that while he will consider new ideas, he will not agree to eliminating programs such as health care to poor children, welfare grants that help single mothers find jobs and cash grants to college students - ideas that Republican Gov. Arnold Schwarzenegger has proposed.

"We have a sacred obligation ... to stand up for the least among us," he told reporters after the bill failed.

'Closer to insolvency'
Aaron McLear, a spokesman for Schwarzenegger, criticized the Legislature for "running a floor drill (that) has cost the state valuable time and pushed us closer to insolvency."

A spokeswoman for Steinberg defended the senator's decision to put the package up for a vote.

"We understand that the governor is comfortable eliminating health insurance for 950,000 poor children but not signing a voluntary tax on a pack of cigarettes. We're clearly not. The Senate will vote on the cigarette tax and the rest of our budget revision in the coming days," said Alicia Trost, Steinberg's spokeswoman.

Both Steinberg and Bass have scheduled another round of floor sessions today, but exactly what the lawmakers will do was unclear Wednesday.

Meanwhile, the state is taking steps to conserve its cash.

Chiang said he will send the first IOUs on July 2, even though the state is not expected to run out of cash until July 28. The early IOUs, however, will help the state conserve enough money to meet the obligations required by the state Constitution, including debt payment and funding for schools.

Deficit will grow
"Next Wednesday, we start a fiscal year with a massively unbalanced spending plan and a cash shortfall not seen since the Great Depression," Chiang said in a statement. "The state's $2.8 billion cash shortage in July grows to $6.5 billion in September, and after that we see a double-digit free fall. Unfortunately, the state's inability to balance its checkbook will now mean short-changing taxpayers, local governments and small businesses."

Wednesday's voting involved only the bill on spending cuts - not on tax increases.

In the Assembly, the bill failed with a 48-30 yes vote, while in the Senate, the bill got a 22-16 vote.

The legislation needed a two-thirds majority to become immediately effective. In the Assembly, that meant a bill needed 54 of 80 votes; in the Senate 27 of 40 votes
[link to www.sfgate.com]

"July 28"??? According to yesterday's pins, California had only seven days left? WTF?

why July 28 as THE day? I thought the FY ended June 30?

California bankrutcy

CA State Teachers' Retirement System · and other muni Pension Plan Investment ...will trigger more defaults


the largest pensions cds and these money schemes

called Sovereign wealth funds - A pool of money derived from a country's reserves that are set aside for investment purposes.


The rest of world has a lot of their money tied to these investments.... CA triggers the collapse as planned...


when CA goes so goes Dubai and the other world investment fools


www3 must be soon after


pissed China and rest of the world


everyone will loose

but SATAN wins

They have to make huge sweeping cuts and lay off a lot of people. They have to cut their expenses. There is no other way.

like i said earlier, pilgrim.

banks closing late summer/early fall

CA plight will be one of the triggers.

the public will see the necessity of the bank closures.

slow and easy...we get wrapped in shackles.

pot is boiling. frogs are not jumping out.

Yeah OP what do you say about that?

HIGGENS BOSS QUARK PARTICLE

You may be right:

"The top-performing letter that predicted the Crash of 2008 now predicts a confiscatory Franklin D. Roosevelt-style "bank holiday."

[link to www.marketwatch.com]

its called bluffing and fearmongering.

the doom carrot is ALWAYS dangling 1-3 months away.

Lesson # 1:

Don't believe the pins.

Celente, Schiff, Pupluva etc have all been warning for quite awhile. Yet many will be caught unprepared and will pay the price. The signs are all around. Wake Up!

There was some explanation for this July 28 date elsewhere on the forum a week or so ago in one of the many CA threads. I would look for it but I am supposed to be working.

Bankruptcy was imminent February, then March, then April, then May, then June, and now July.

Soon, bankruptcy will be imminent for August, September, October, November, and December.

See the pattern?

They're trying to push an agenda with the false bankruptcy scare. They won't allow the system to collapse.

We weren't sheep, ASSHAT. 90% of the population did not want the bailouts and the RAT BASTARDS in DC did it under threat from Paulson and Bernake of Martial Law.

RAT BASTARDS and CRIMINALS are driving the boat.

A chain reaction of failures in the CDS market could trigger the next global financial crisis. The market is entirely unregulated, and there are no public records showing whether sellers have the assets to pay out if a bond defaults. This so-called counterparty risk is a ticking time bomb...

Credit Default Swaps from setting off a global chain reaction that might have brought the financial system down. The Fed's fear was that because they didn't adequately monitor counterparty risk in credit-default swaps, they had no idea what might happen. Thank Alan Greenspan for that.

Those counterparties include J.P. Morgan Chase, the largest seller and buyer of CDSs.

The Fed only has supervision to regulated bank CDS exposures, but not that of investment banks or hedge funds, both of which are significant CDS issuers. Hedge funds, for instance, are estimated to have written 31% in CDS protection.

The credit-default-swap market has been mainly untested until now. The default rate in January 2002, when the swap market was valued at $1.5 trillion, was 10.7 percent, according to Moody's Investors Service. But Fitch Ratings reported in July 2007 that 40 percent of CDS protection sold worldwide was on companies or securities that are rated below investment grade, up from 8 percent in 2002.

A surge in corporate defaults will now leave swap buyers trying to collect hundreds of billions of dollars from their counterparties. This will to complicate the financial crisis, triggering numerous disputes and lawsuits, as buyers battle sellers over the technical definition of default - - this requires proving which bond or loan holders weren't paid -- and the amount of payments due. Some fear that could in turn freeze up the financial system.

Well yeah. The tax payer can foot the bill like with Chrysler and GM. My guess is that they will have to raise income tax by at least 30% for all of us in the USA. That won't go over to well when you've got nothing left in your pay check.

man...

invest in flint...
invest in a rifle...
invest in a horse...(unless you like pedaling)

we're going back to the early 1800s boys! SADDLE UP!

One resolution would solve, the San Andreous triggers and California slides into the sea...as good as sweeping the problem under the rug...

Help me understand what happens when a state bankrupts. I have heard of cities going bankrupt and they are normally absorbed by a neighboring town. But, a state?

As I understand it, a State uses resident's birth certificates for collateral on loans. Most loans are served by foreign investors essentially making the residents slaves to some unknown master. So, if the State defaults on the loans what happens to the residents with birth certificates? Wouldn't they become the property of the slavemaster?

What happens when all loans are called due? What happens if a resident tries to "run for the border" and relocate in another state?

hasn't it been like 14 more days for the last
six monthes?