California Here We Come?

In The Grapes of Wrath a hard-bitten Oklahoma family heads for California to escape the Dust Bowl and the Depression. When they get there, times are still tough.
On Tuesday California voters rejected a revenue initiative designed to save the state’s finances. The resulting budget crisis could lead to insolvency. Since the state doesn’t have the ability to print money, they can’t fake their way out of this mess.

One option is to go to Uncle Sam for a bail-out. The political calculus is simple: rescue a critical, reliable constituency and cement the relationship, as the administration seems to be doing in Detroit. But the implications are huge. Once one municipal issuer is supported, there’s a strong indirect guarantee to every governor, mayor, and school board. If one overspending locality is saved, how can the Feds say no to anyone?

The straightforward path after that is to explicitly guarantee the debt of every municipal issuer in exchange for strict controls on how the money is spent. And sic transit Federalism and the Constitution. As a proud “Live Free or Die” resident, I hope it doesn’t come to that.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By |2014-09-04T21:10:54+00:00May 21st, 2009|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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