The Taxinator and His Terminally Ill State Budget: California Default Inevitable, Setting the Stage for State-by-State Fiscal Pandemic

that's a stunt chart wtf!
update: it has been brought to my attention
"dollars in billions" is the funny part of this chart
not that it's obviously fake. My bad.

Like that title? Hope so.

Anyway, as reported over at WC Varones, the citizens of the fine state of California have won our latest battle against being taxed to death to fund our own legislators' failure - this time. The war is still raging and we've got a maniac at the Fed presses more than happy to fund it. These are not simple times, and California's victory against the pure unadulterated evil of Prop 1A yesterday does not make things easier for California's financial future. That's not our fault and hopefully our friends in Sacramento will take this as a sign that the people of California won't stand for it. They'll get their act together, slice the cancerous tumors off of state payrolls, and we'll go back to being awesome.

Since Jr Deputy Accountant is all about stress testing the worst case scenarios, however, I have come to an alternate conclusion to our little financial fable: we are screwed.

I'll tell you why, and I am not referring specifically to California (though we are certainly the most screwed at this point). Because as we have learned by watching the crisis unfold, there is no such thing as an isolated event.

The Atlantic's Megan McArdle figures a federal muni guarantee is no different than "handing over the keys to the Treasury." That's a correct assessment I suppose however whereas the Treasury used to be a $100,000 Porsche, it's now a 1989 Toyota Celica with two sun-bleached baby seats in the back. And if autoparts makers are getting bailed out, why wouldn't the administration find it prudent to rescue the world's 8th largest economy?

Once it starts in California, it will only be a matter of time before other states line up for a piece. How's Kansas doing these days after Sebelius ran it into the ground? What about Arizona?

Cut the fucking cord already, please.

Via Sense on Cents:

“Tonight we have heard from the voters and I respect the will of the people who are frustrated with the dysfunction in our budget system,” Gov. Arnold Schwarzenegger said.

The Wall Street Journal provides full coverage, “California Voters Reject Budget Measures.”

What does California’s budget nightmare mean? The state will be forced to cut upwards of $20 billion from an $82 billion budget. How and why? In the face of the the massive recession, California’s tax revenues are insufficient to meet the state’s fiscal needs.

In years past, California and other states would tap the municipal bond market with bond insurance provided by a monoline insurer, such as MBIA or Ambac. Given the enormous losses suffered by these monolines, primarily on structured mortgage deals, they are no longer strong enough to provide insurance sufficient for California to raise funding. In a similar vein, California can no longer source a letter of credit provided by a large money center bank.

Where is California looking for a backstop to its financial woes? Well, much like the United Auto Workers, the strongly Democratic constituencies in California will look toward Washington for a backstop/bailout.

California’s representatives are downplaying the severity of the situation. California Treasurer Bill Lockyer, much like Barney Frank, condescendingly comments on the historically low level of defaults in municipal finance. Do I have to remind Bill and Barney that historical analysis was also highlighted in providing AAA ratings to sub-prime mortgage deals?

It's cute to think that California would actually be realistic in its own assessments. They were too busy spitting out the Prop 1A propaganda to consider how they would have to adjust should their scheme be defeated by the people of California. Guess what? We defeated your bullshit, now stop acting like asshats.

Damned if we do and damned if we don't. I would really like to believe in the first scenario of a state careening towards complete financial disaster that realizes before it is too late that it has overextended itself and corrects this fiscal imbalance. Having lived here for nearly 10 years (having also, then, witnessed the tech meltdown in my early years as a San Franciscan at the heart of the Silicon Valley circle jerk), I know better than to believe in those unicorns and rainbows. The LSD has long been watered down and even the leftover perma-fried hippies of Haight Street know better than to believe in that.

Schwarzenegger skips Election Day, heads to Washington to announce OMGObama's new fuel economy plan? I don't think so. That headline should read Taxinator hands over last of California dignity, pleads Obama for a handout like a bitch.

Fix it, Arnie, don't make us tell you again.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.