Reading time: 1 – 2 minutes

On July 9, 2009, the US SEC declared California IOUs to be securities subject to Federal law, as reported in an article in The Bond Buyer.

Further regulation is expected from the Municipal Securities Rulemaking Board.

California Governor Schwarzenegger

If these securities do not extend beyond one year, it would appear that they might be exempt from Federal income tax.

We might expect to hear more from the IRS on this.

The willingness of banks to accept this paper for deposit is closing down.

Classifying this issue as securities, rather than “negotiable instruments, similar to checks”, as state authorities have contended, suggests that the legality of this issue may be questioned.

This may effectively constrain California’s ability to issue these IOU’s, which were suspiciously beginning to look like money.

Shame, shame California!

You should know that only the Federal government can issue money to pay its debts.

States are supposed to be more responsible.