In the 1980s, Michael Milken went to jail for selling "junk bonds", which were risky debt. His crime? Offering to absorb all of the losses if he could have half the profits. Some of the bonds he sold yielded 18%. Like I said, risky. He made a lofty set of claims, vague threats and some questionable promises to get people to buy them.
California state Treasurer Bill Lockyer is also selling junk bonds and using vague threats and questionable promises, but these ones only yield 6%. Chances of him going to jail? Not high, because he's exempt unless he engages in dog fighting or runs over a kid in the parking lot.
What's the difference between a corporate junk bond and a state one? Apparently only the interest rate. A London financial firm going by the name CMA evaluates credit-default swaps, which are like insurance for bondholders. From an insurance point of view, CMA places the likelihood of defaulting on its debt obligations in the next 5 years at a whopping 26.75%.
It's rubbish, according to Lockyer's office. Yet the state has a $26.3 billion deficit and no one ... I mean no one ... who has been sucking at the taxpayer teat since the heady days of Gray Davis' .com boom capital gains tax windfalls, thinks they should give any of it up. Prison guards, who negotiated with Davis what was later called the greatest labor contract in history, aren't budging despite having salaries 50% higher than the #2 state in the US. Nor or any of the tens of thousands of loyal Democrats ... errr ... university employees ... Davis hired after his last election. The UC system alone now employees a whopping 180,000 people - triple what it was in the 1990s.
The state's issuing IOUs ... which banks don't want to touch ... but not to state employees, only to vendors. Fitch Ratings puts the bond rating at lowest in the entire US. So Californians can make fun of Tennessee and Mississippi but at least they can pay their bills.
According to CMA, Romania, former Soviet puppet regime (where all the hot girl spies came from, in case you get it confused with neighboring Bulgaria, where all the male Russian spies came from - because they look American) is a better risk than California. Worst off is Argentina, where the oddsmakers have it at 73.8%, followed by Ukraine and Venezuela. California is better off than Iceland, which is already bankrupt.
Is 6% a lot of money? Sure, compared to states not at risk, which pay under 5%. To put that in perspective I had a CD a few months back that was at 3.3% but that was a limited offer and I can't get that now that the government is printing money on overtime and banks aren't worried about a cash crunch.
Should I be concerned? Well, no, I would never buy California bonds. I'm wrong in my thinking, according to state Treasurer Lockyer, who says that paying off debt service is the state's second highest priority.
The first? Paying the members of the teacher's union.
- PHYSICAL SCIENCES
- EARTH SCIENCES
- LIFE SCIENCES
- SOCIAL SCIENCES
Subscribe to the newsletter
Stay in touch with the scientific world!
Know Science And Want To Write?
- Case For Moon: Gateway For Open Ended Exploration, With Planetary Protection Central - On The SpaceShow
- Sweet Irony: The Environmental Impacts Of GMO Sugar Science Denial
- The Real Cost Of Milk
- Why We Get Tired When We Stay Up Too Late
- We’re Not In Europe Any More: BfR Statement On EDCs Embraces The Risk-Based Approach
- When It Comes To Replicating Psychology Studies, Good Luck
- Can't Resist Temptation? That May Not Be A Bad Thing
- "Okay, that may be true, but we never hear from them. Instead we hear from Environmental Working..."
- "You lost me at: Environmental groups, who ordinarily love centralized government and social authoritarian..."
- "Mi Cro, I happened upon your global temperature charts recently, and want to be sure I understand..."
- "You make good points. I thank you for them. I am enjoying reading your work. I agree that asteroid..."
- "Oh, okay, glad you aren't worried about little asteroids. Yes I agree, I haven't come across that..."
- Ketamine Better than Haloperidol for Sedation Onset But Not Much Else
- TIps & Tricks To Ward Off Ticks
- What is CRISPR-Cas9 and why do we need to know about it?
- Pancreatic Cancer: Surgery Improves Survival in One-third
- Intervention Decreases Adolescents’ Obesity
- What Organic and Chemical Actually Mean: A Glossary of Hijacked Terms
- Science instruments of NASA's James Webb Space Telescope successfully installed
- Tiny wasp sniffs out, picks up 'good vibrations' to battle ash borer
- Abundance inequality in freshwater communities has an ecological origin
- Family size and education levels: The right support could reverse long-held theory
- New water-quality data on impact of corn, soybeans on nitrate in Iowa streams