The people come to California's rescue
Two weeks ago, Governor Arnold Schwarzenegger wrote a letter to Treasury Secretary Henry Paulson warning that California might need an emergency $7 billion loan to tide the state over until tax receipts started flowing in. Normally, California issues its own bonds, called Revenue Anticipation Notes, (RAN) but Schwarzenneger was worried that the credit freeze might dissuade investors from purchasing the debt, leaving the state high and dry.
Not to worry! Institutional investors are still mostly standing on the sidelines, but individual investors responded with unexpected alacrity to the state's offering of $5 billion worth of bonds. The Sacramento Bee reports that $3.92 billion of a first tier of $4 billion RANs went to "small investors." Institutional investors participated in a separate offering of $1 billion RANS.
California attracted the interest by offering relatively high yields on the short-term bonds. And the people came to the rescue.
The state said it was pleased with the issue. "Compared with U.S. Treasuries, the short-term notes were very attractive [to investors]," said Tom Dresslar, a spokesman for the California treasurer. "The whole point was to broaden our investor base so we wouldn't have to rely on large institutions to buy our bonds."
To paraphrase the words of the immortal Tupac and Dr. Dre: Californians, know how to party, with their savings. I appreciated one Californian's explanation to the Bee of why he was betting on the government in these troubled times.
Folsom resident Jay O'Brien said he bought $15,000 in RANs on Wednesday, enticed by their tax-free returns and government-backed security.
"It's a good deal," said O'Brien, who in June will collect about $425 on his investment. "I look at it like this: If the state of California goes away, I'll have a lot more to worry about than getting my money back."
