15:48 EDT 07/07
California Watch: State IOUs Sought On eBay,Craigslist;Pay 3.75%>
–Regulator’s Respond to Offers for IOUs
–Would-by Buyers seek Calif. IOUs on Craigslist, eBay
–Calif. Treasurer Issues IOU Trade Rules
–CalPERS Not Affected by State’s IOUs
By Chris H. Sieroty
LOS ANGELES (MNI) – Buyers of California IOUs will have to prove they are the legal owners of the promissory notes to cash them in when they mature in October.
That was the warning Tuesday from State Treasurer Bill Lockyer’s office after reports that the IOUs, or registered warrants, were being sought by third parties on Craigslist and eBay.
Tom Dresslar, spokesman for the treasurer’s office, told Market News International the treasurer’s office won’t redeem the state’s IOUs without a notarized bill of sale signed by the payee whose name appears on the note. He said Lockyer had asked Craigslist, eBay Inc. and any other marketplace that helps sell the IOUs to post a notice of the policy on their sites.
About $3.4 billion in IOUs are expected to be issued this month because California legislators have been unable to close a $26.3 billion deficit in the state budget. The first in a series of notes were issued late last week to residents who are owned tax returns from the state.
The IOUs carry an interest rate of 3.75 percent payable after Oct. 2. That high interest rate has attracted investors hoping to profit by buying them at a cheap rate and redeeming them later.
The idea is that investors will pay less than the face value to businesses or individuals that receive IOUs but need cash immediately to meet payroll or pay other expenses. Once the IOUs mature, the investors will cash them in for their full value plus the 3.75 percent interest the state is offering.
“We buy California IOU’s. Got shafted by California with an IOU check? Need cash NOW? We buy California issued IOUs and give you cash IMMEDIATELY at $0.85 per dollar,” reads one ad on Craiglist, surrounded by classifieds seeking the likes of a Serta full or queen mattress and an Xbox 360 game console.
“Sell your government IOU for cash” advised the banner headline at a brand-new Web site, BuyMyIOU.com.
For now, most IOU holders can simply deposit them. A number of major banks including Bank of America, Wells Fargo and Citibank will accept IOUs until July 10. But the banks haven’t said they’ll take IOUs after Friday.
Dresslar said if banks don’t extend the deadline for accepting the state’s IOUs, recipients have two choices: either hold on to them until you are able to redeem them on Oct. 2 or sell them to someone other than your bank.
“If you don’t need to cash it you hold on to it,” he said. “There are probably a lot of people who will pursue other opportunities to cash in the IOUs.”
Meanwhile, retirees who get their pensions from CalPERS as well as CalPERS’ vendors are not affected by the state’s decision to pay some of its bills with IOUs.
The California Public Employees’ Retirement System says retirees and beneficiaries will receive regular payments just like they have in the past. CalPERS employees, vendors, contractors, investment managers, health plans, and other providers of goods and services will also receive regular payments.
The state’s plan to pay some of its bills with IOUs, officially called registered warrants, is caused by a cash shortage in the state General Fund. CalPERS is a special fund agency and is, therefore, not affected, it says.
With approximately $182 billion in assets, CalPERS is the nation’s largest public pension fund.
** Market News International **
Chris Sieroty 