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If Credit Markets Unlock, California Might Not Need That Government Loan

03 Oct 2008 02:08 pm

Don't assume that California's notice of its possible request for a loan from the government is a bailout -- indeed, if that's how journalists cover it, it that's how it will be percieved, the likelihood of California's receiving the money will be reduced.

Every year, California goes out to the market to get a short term loan to pay bills to get revenue into the state, usually between $5b and $7b. (The size of the short term loan is larger than most state budgets).

The loan would get repaid; taxpayers wouldn't be on the hook.  California needs the loan from the government because there's zero liquidity on Wall Street even for a state like California. If, with the passage of the bailout bill today, the credit markets don't unlock, California might still ask for the loan; the state government has to make a large number of payments to law enforcement, schools and government on October 28.

NB: On the subject of terminology, it's probably not accurate to call the government's $25b in loan guarantees to the auto industry a "bailout" either, although the repayment terms aren't completely clear to me. It might not also be accurate to assume that foreign auto companies would be upset by what amounts to industrial subsidies, as the industry's supply plan is multinational and intermixed.

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