The Debts of the Spenders: IRS Declares California IOUs to be Securities and Not Legal Tender

Banks have good reason to be wary of accepting California IOUs as valid legal tender because only the Federal government has the authority to issue money. This is a basic principle enshrined in the Constitution. Article 1, Section 8 clearly states:

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

To borrow money on the credit of the United States;

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;

So, it comes w/little surprise that the IRS has declared California IOUs to be securities or negotiable instruments similar to checks. After all, they cannot contravene something that is taught in high school civics classes.

Source: http://capital-flow-analysis.com/capital-flow-watch/
sec-declares-california-ious-to-be-municipal-securities.html

Interestingly enough, this has opened up a whole new Financial "Wild West" where speculators are working on arbitrage opportunities to trade, lever, and exchange the IOUs on secondary markets.

The Debts of the Spenders: The End of Employer 401k Matches?

Translation: The little guy's money rolls in every pay period because ma and pa and Uncle Sam have convinced him that socking away as much as he can every pay period for that small 15% match on his first 6% is the path to wealth.

Goodbye 401(k) Match

By Money Management Executive

July 10, 2009

Whereas in previous recessions, companies that suspended 401(k) matches always brought them back, this time around, consultants to defined contribution plans tell the Associated Press, companies are thinking about doing away with the matches forever or reducing them drastically from the typical 50 cents match for the first 6% an employee puts in.

That said, some companies are looking at tying matches to profits, giving them the flexibility of making no contributions in bad years, or possibly using the money for other benefits, such as healthcare.

It’s easy to understand why large companies would consider eliminating the matches, consultants say. On an individual basis, it may not seem like much; a worker earning $50,000 a year who contributes 6% a year typically receives a $1,500 boost from their employer. For a firm 15,000 employees strong, those matches can amount to $25 million a year.

Fearing mandatory healthcare legislation in Washington, coupled with rising costs, many employers are afraid “about what the rules will be and what’s the cost,” said Mark Ritter, an executive director at Grant Thornton. “The thought is, ‘We may have to rob Peter to pay Paul, and depending on how the healthcare initiative impacts our company, we might have to get the money from the 401(k) match.’”

Employers “realize that the floor can fall out from under them now, and they want to stay loose,” Ritter continued.

Ginny Olsen, a principal with Towers Perrin, agreed: “We have a number of conversations going on at this point. There is a high level of employer interest in making sure they’re spending money for benefits most effectively.”

Source: http://www.financial-planning.com/news/
goodbye-401k-match-2663257-1.html

The Debts of the Spenders: Obama Mandatory IRAs?

Obama IRAs Could Raise $100 Billion in Five Years

By Money Management Executive

July 8, 2009

One of President Obama’s proposed financial reforms would require employers that do not offer a 401(k) to automatically enroll their employees into an IRA. If implemented, it would give the biggest boost to the retirement savings industry since the creation of the 401(k) in 1980, enrolling 40 million new investors, and attract more than $100 billion within five years, The Wall Street Journal reports.

It would require companies with 10 or more workers that have been in business for at least two years to participate. It would deduct 3% of workers’ salaries and invest it very conservatively, in inflation-indexed savings bonds, money market mutual funds or stable value funds. Once the portfolio reaches $3,000, it would be moved over to a target-date funds.

Experts estimate that it would cover 40 million of the 75 million Americans who do not have access to a 401(k) or other defined contribution plan. Naturally, they applaud the retirement protection the measure would offer, but they fear that small businesses could balk at the cost of having to hire a payroll service or accountant to manage the IRAs. Others criticize the plan for not investing the money aggressively enough

The Debts of the World: Bubblicious!

Who can print the fastest?

UK Looks at 125% LTV

http://www.nakedcapitalism.com/2009/07/nationwide-brings-back-125-ltv.html

Former US Treasury Secretary Admits Geithner Works for Goldman

http://zerohedge.blogspot.com/2009/07/former-us-assistant-secretary-of.html

Foreclosure Freeze Had Little Impact
http://ml-implode.com/staticnews/
2009-07-09_ForeclosureFreezeHadLittleImpactReport.html

AIG Equity Worth Zero
http://www.nakedcapitalism.com/2009/07/
citigroup-aig-equity-may-be-worth-zero.html

Chinese Drain Liquidity From the System
http://ftalphaville.ft.com/blog/2009/07/09/61171/quantitative-tightening/

The Debts of the Spenders: The French Challenge Dollar Hegemony at G8

The wolves smell blood. Now, France is joining Russia, India, China, and even Brazil in questioning the legitimacy of a flawed monetary system built on excess leverage and lax oversight.

The call to find an alternative to the U.S dollar as the global reserve currency is gaining momentum as France joined calls by China, India and Russia for a review of the world's currency practices.

French Finance Minister Christine Lagarde challenged the dollar's supremacy “in a world that has changed because of the crisis and the growing role of emerging countries.”

The questioning of the U.S. dollar as the key currency for central banks by a leader of a major European economy gives renewed life to the issue at this week's Group of Eight summit meeting in L'Aquila, Italy. The U.S. dollar has long served as the dominant medium of exchange, and tends to dominate the official money reserves that countries hold through their governments and at their central banks.

http://www.theglobeandmail.com/report-on-business/
calls-grow-to-supplant-dollar-as-global-currency/article1207242/

The Debts of the Spenders: Regulatory Capture of the SEC

Although this article is more than 11 years old, the author's main points remain as striking then as they do now. She wrote of the SEC at the inception of the Dot Com bubble where large market participants such as Goldman Sachs used their influence and leverage to push for agenda friendly legislation and rule making.

The SEC is not captured by a single group of regulatees. Instead, it is subject to
the influence in three different areas corresponding to its three realms of regulation, each defined by one of the three central pieces of enabling legislation that define the SEC’s mission. The Division of Corporate Finance writes and administers the rules pursuant to the Securities Act of 1933, which provides for disclosure regarding the character of securities sold to the public; the Division of Market Regulation writes and administers the rules pursuant to the Securities and Exchange Commission Act of 1934, which provides for the regulation of securities exchanges and dealer markets to prevent unfair practices; and the Division of Investment Management, writes and administers the rules pursuant to the Investment Company Act of 1940, intended to provide for registration and regulation of mutual funds and investment advisers.

Market Regulation is the division of the SEC concerns itself with the rules
concerning stock trading. This division is captured by the two large incumbent
organizations that trade stock, the National Association of Securities Dealers, and the
New York Stock Exchange.

The Division of Investment Management is captured by the trade group that
represents mutual funds, the Investment Company Institute. The incumbent firms in the industry are, not surprisingly, largely content with the status quo. The status quo is one in which the central legal document and sales brochure, the mutual fund prospectus, is mainly impenetrable to investors.

The division of the SEC that approves prospectuses for new securities issued and
regular disclosures for companies with publicly traded stock is not captured by the
companies who issue securities, its direct regulatees. Instead, it is captured by the lawyers who prepare their disclosures and the underwriters who take them public. This capture is easy to understand. The lawyers and underwriters are far less numerous than the issuers, and since they are involved in offerings every day, rather just from time to time (as are the issuers) they are far better informed as well.

http://www.sandhillecon.com/pdf/RegulatoryCapture.pdf

The Debts of the Spenders: US Fed Advises Customers To Make Sure that Their Banks Accept California IOUs

B/c you know. . . they might not be considered legal tender by the biggest recipients of corporate welfare.

Release Date: July 2, 2009

For immediate release

The California State Controller's Office has announced that it may issue registered warrants, or IOUs, for some payments as early as today. These registered warrants would not be payable immediately, but rather on a future date. These warrants will be identified with the word "REGISTERED" on the front.

Customers are advised to consult with their banks before depositing a registered warrant and should ask the following:

• Will the bank accept the registered warrant for deposit? Some banks may have arrangements to advance funds to depositors prior to the warrant's payment date.
• When will the funds be made available for withdrawal? These warrants will not be subject to the normal, federal check-hold limits and therefore could be subject to extended holds.
• Is there a potential to incur fees? The State of California will likely return unpaid any registered warrants that it receives before the payment date. Therefore, depositors of these warrants may be subject to returned-deposit fees if their banks attempt to collect these warrants before they are payable. In addition, if customers rely on these funds to make other payments, they may be subject to overdraft or bounced-check fees if the warrants are returned.

The State of California has provided additional information on these registered warrants at http://www.sco.ca.gov/5935.html.

http://www.federalreserve.gov/newsevents/press/bcreg/20090702b.htm