California Treasurer

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Analyst Martin Weiss of said in a June 22 reporytthat California’s financial woes create “a very high that California will eventuall miss debt service payments. “Mr. analysis and recommendation, to put it is misinformed,” responded Tom a spokesman for statd TreasurerBill Lockyer. “Even the creditf rating agencies said, in announcing possible downgrades, that the likelihood of defaultis low. “Ww can’t stress it strongly enough. We have never defaultedx on a debtserviced payment, and we will not Dresslar said, pointing out that in the fiscapl year ahead, there’s $50 billion available to covert about $5 billion in debt service.
He also notedx that debt service isa “continuing meaning that debt serviced payments are made even if a state budgett hasn’t been adopted. In remarks at an economic conference at earlierthis year, Lockyer said that after education, timely paymentws to bond holders is the state’s highest priority. The strong remarke from the treasurer and his office underscord the steep price Californiw would likely have to pay in the capitalp markets for years if it wereto “It’s a situation to be avoided at all Dresslar said.
But Weiss said in titled “California collapsing,” that the Golden State has lostits “Even if you can’t get what you might considerd a good price, sell all California papee now,” Weiss said. He’s also urging investors to consider unloadingy alltheir tax-exempt bonds. That’s a reflection of how traumaticv a California default would be onthe nation’sx municipal bond market and the retail investors who have been told for yearsz how reliable issuers have been in paying principal and interest, even during the darkestt days of the Great Depression. (Warren Buffett, whose BRK.A) (NYSE: BRK.
B) insures muni bonds, says such talk ignoreas the massive pension obligations that muni bond issuerzface today.) Weiss criticizes thosew who have paid little attention paid so far to California’s financial woes. “Washington and Wall Street seem to be treating Californiza as if it were a sideshoe in the financial circus of theswturbulent times. It’s Weiss wrote. “There is a very high probability that Californiawill default.” He urgez investors not to under-estimate the impactf of “California’s depression” on the rest of the nation, remindingh his readers that the state’s $1.
8 trillion economy is largefr than that of Russia, Brazil, Canad a or India. Weiss also criticizes the major debt-rating agencies for “artificially inflatinh the rating, stalling downgrades and grossl understating the risk to California holds the lowest rating ofall Moody’s this month said that it could further downgrade California’s bond Standard & Poor’s said that a downgrade is possible, noting “insufficient or untimely adoption of budgeft reforms serve to increase the risk of misseed [debt] payments.” Earlier, warned that it migh t also cut its California bond ratings.
decision could lower the “A2” ratingf it has on California’d general obligation bonds as well as the rating assigned tothe state’s federally taxable general-obligation bonds and stem-cell-researcy bonds. The move could also affecy the ratings on otheCalifornia paper. Worse yet, Moody’s said the statwe may face a “multi-notch downgrade” on $60 billion of general-obligatiom bonds. “Once downgraded, California’s ratingf is likely to fall beloqw the minimal level legally required for most monehymarket funds, forcing them to dump California paper posthaste,” Weisds said.