California Leavin
Research for Online Investors

by John Dalt

7/21/09

California’s lawmakers approved a budget last night to address the $26 billion deficit, or nearly 30% of the general fund.  They did it with $14 billion in cuts, and the balance in slight of hand.  Borrowing from local governments, shifting money from one state account to another, and accelerating collection of taxes.

Great news for the rest of the country, the Governator succeeded in including a proposal to expand oil drilling off the coast.  This would be the first new off shore project for California in over 40 years!  Many state offices will continue to be closed three Fridays per month through next June.  This cuts payroll for some employees by 14%, causing the Service Employees Union to scream.  A Sacramento TV station’s website has the story on California’s Budget Fix.

How should they have done it?  Lower taxes, and less regulation.  According to Chief Executive Magazine, California is the worst state to do business in.  The Sunshine State has held this enviable title for four years in a row.  The best state for business?  Texas.  A study last year found that 5,000 of California’s top 25,000 taxpayers left the state.  Their combined tax payments were an estimated $8 billion per year.  This is exactly what the founding fathers envisioned, if one state has stupid laws, the citizens are free to vote with their feet.  Move to another state that has friendlier laws.

The problem is Californians that leave the state don’t realize they were part of the problem.  They go to Idaho, Arizona, Colorado and Nevada and start demanding the same silly stuff that ruined the state they left.  The green movement and other liberal policies are infecting adjoining states.  I even met a guy the other day in Kansas that left California because of taxes.  I’ll probably see him on TV next month organizing some hair-brained group to petition the state to do something.

Four banks were closed over the weekend, which makes 57 this year.

Bondholders agreed to extend more rope to CIT yesterday.  CIT receives another $3 billion at the low friendly interest rate of 13%.  This new credit vacuums up all available unencumbered assets.  One billion dollars is due August 17 on a previous credit line.  CIT needed capital (equity) not more debt, they filed a warning this morning with the SEC that the rescue may not keep them out of bankruptcy.  How would you feel if someone borrowed money from you, then filed legal paperwork warning of a bankruptcy?

The Fed bought $38 billion worth of debt last week.  There were $73 billion in Treasuries offered for sale the week before.  This came from testimony in the House Financial Services Committee with Fed Chairman Ben Bernanke.  No wonder the rates were down.  TBT is trading lower; there is another auction next week, buy on the dips.

Have you ever wondered how much it cost banks in political contributions to grease the skids for help from the Feds?  GS gave Oh! Bama $994,795, Citi (C) $699,790, JP Morgan (JPM) 695,132, Morgan Stanley $514,881, and General Electric (GE) $499,130.  The above banks have received directly, indirectly or loan guarantees in excess of $169 billion!

GE has raised $74 billion in FDIC backed loans (over 20% of the total FDIC backed securities), with another $50 billion in guarantee’s available.

"Government is not reason, it is not eloquence, it is force: like fire, a troublesome servant and a fearful master.  Never for a moment should it be left to irreponsible action"
----George Washington

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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