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SEC Destroys California

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  • Sat, Jul 11, 2009 - 12:56am


    Peter Bartels

    Status Silver Member (Offline)

    Joined: Dec 27 2008

    Posts: 194

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    SEC Destroys California

SEC Destroys California

Well now they’ve gone and done it:

"The staff of the SEC has expressed its belief that California’s recently issued IOUs are ‘securities’ under federal securities law. As such, holders of these IOUs and those who may purchase them are protected by the provisions of the federal securities laws that prohibit fraud in the purchase or sale of securities," the agency said.

That was a mistake.

Here’s why.

If you performed work or were otherwise owed money by the State of California (e.g. you are owed a tax refund) you’re owed money, not a bond.

What the SEC has just done is equivalent to declaring that you were not paid at all.

You did not agree to accept payment-in-kind, therefore, absent agreement you cannot be compelled to accept this bargain.

Therefore, if you are owed a tax refund, you still are.

If you invoiced the state, it remains outstanding.

I predict that the line in front of the courthouse is going to get very long, very fast, and furthermore, if you’re a vendor to California, you better quit shipping – now – before you wind up taking a forced haircut.

3.75% is nowhere near a reasonable interest rate for an insolvent institution, nor are you likely to appreciate the discount if you try to sell these "securities" for immediate cash.

I just love Karl Denniger’s Market Ticker. Highly recommended folks. You see Davos post links from time to time. Check him out. He’s outstanding.

Know why I think so? 

Because he’s smart as a whip, and tells the truth warts and all. But best of all it’s his style.

"If you’re going to share bad news to the public, do it with humor. Because otherwise they’ll kill you for it".

(Can’t remember whose quote that is). That is Karl’s sarcastic style in a nutshell. He’s shared some of the most awful financial news and had my fiancee and I in tears laughing.

Hey, better than throwing a brick through the PC, right? 


In any event, Karl nails the "law of unintended consequences" when the government that couldn’t shoot straight decides to act on something, or anything for that matter.


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