Fallout: The Financial Crisis

States can’t get loans either

Jeff Tyler Oct 8, 2008
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Fallout: The Financial Crisis

States can’t get loans either

Jeff Tyler Oct 8, 2008
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TEXT OF STORY

Kai Ryssdal: About the only thing worse than being a corporate chief financial officer today might be having the same job in a state government. They’re big players in the short-term credit markets too, and they’re increasingly finding it hard to get the cash to keep services up and running.

Marketplace’s Jeff Tyler considers the causes and the consequences.


Jeff Tyler: States like California normally borrow money to cover expenses until tax revenue comes in later in the year. To raise cash, they sell what are called revenue anticipation notes. They’re like bonds and are generally considered safe investments.

Tom Dresslar: Any offering or issue by the state of California is one of the safest investments you can make. In its entire history, it’s never defaulted.

That’s Tom Dresslar, spokesman for California’s Treasurer. Next week, the state plans to sell notes worth about $4 billion. But it’s worried there won’t be enough buyers.

Dresslar: Typically, that’s not a problem; 2008 is a year where obviously nothing is typical, except upheaval, chaos and currently the credit markets are frozen.

If it can’t raise the money it needs, California might hit up Treasury Secretary Paulson for a $7 billion loan. Economist Jared Bernstein is with the Economic Policy Institute.

Jared Bernstein: With due respect to Hank Paulson, we’re talking about $7 billion. You know, he spends that much before his morning cup of coffee. I strongly suspect that they’ll get this bridge loan.

But California isn’t the only state looking for help. Massachusetts is talking with the feds about a similar loan. And once they find financing, the next challenge for states is paying it off. Remember, these loans are meant to be paid back with future tax revenues, and that income is expected to fall this year.

In Los Angeles, I’m Jeff Tyler for Marketplace.

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