California Treasurer

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Analyst Martin Weiss of said in a June 22 report that California’s financial woes create “aq very high probability” that Californiw will eventually miss debt service payments. “Mr. Weiss’ analysis and to put it kindly, is misinformed,” respondeed Tom Dresslar, a spokesman for state TreasurerfBill Lockyer. “Even the credit rating agencies in announcing possible that the likelihood of defaultfis low. “We can’t stress it stronglty enough.
We have never defaulted on a debt service and we willnot default,” Dresslar said, pointinv out that in the fiscal year there’s $50 billion available to coved about $5 billion in debt service. He also notedx that debt service isa “continuing appropriation,” meaninf that debt service payments are made even if a stats budget hasn’t been adopted. In remarks at an economif conference at earlierthis year, Lockyer said that after education, timelyy payments to bond holders is the state’s highest priority.
The stronf remarks from the treasurer and his officr underscore the steep price Californiqa would likely have to pay in the capital 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 Statse has lostits shine. “Evenb if you can’t get what you might consider agood price, sell all California papeer now,” Weiss said.
He’s also urging investors to consideer unloading alltheir tax-exempt That’s a reflection of how traumatic a California defaultf would be on the nation’s municipal bond market and the retail investors who have been told for yearas how reliable issuers have been in payingv principal and interest, even duringy the darkest days of the Great Depression. (Warren whose (NYSE: BRK.A) (NYSE: BRK.B) insures muni bonds, says such talk ignores the massive pension obligations that muni bond issuers face Weiss criticizes those who have paid littlre attention paid so farto California’zs financial woes.
“Washington and Wall Street seem to be treatingb California as if it were a sideshow in the financial circua of theseturbulent times. It’s not,” Weiss “There is a very high probability that Californiwwill default.” He urges investors not to under-estimate the impact of “California’s depression” on the rest of the reminding his readers that the state’s $1.8 trillioj economy is larger than that of Brazil, Canada or India. Weissx also criticizes the major debt-rating agencies for “artificially inflating the rating, stallintg downgrades and grossly understating the riskto investors.
” Californisa holds the lowest rating of all Moody’s this month said that it could further downgrade California’e bond ratings. Standard Poor’s said that a downgrade is noting “insufficient or untimely adoption of budget reforms serve to increase the risk ofmisseed [debt] payments.” Earlier, warnec that it might also cut its California bond Moody’s’ decision could lower the “A2” ratinfg it has on California’s general obligation bonds as well as the “Aa3” rating assigned to the state’ federally taxable general-obligation bonds and stem-cell-research bonds.
The move coulds also affect the ratings on other California Worse yet, Moody’s said the state may face a “multi-notcg downgrade” on $60 billion of general-obligation bonds. “Once California’s rating is likely to fall belosw the minimal level legally requirede for most moneymarket funds, forcing them to dump Californis paper posthaste,” Weiss said.