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The Biz Roundup January 17

First Circuit City. Then Gottschalk’s. Now California is about be liquidated.

The state will suspend tax refunds, welfare checks, student grants and other payments owed to Californians starting Feb. 1, Controller John Chiang announced Friday.

Chiang said he had no choice but to stop making some $3.7 billion in payments in the absence of action by the governor and lawmakers to close the state’s nearly $42-billion budget deficit. More than half of those payments are tax refunds.

The payments to be frozen include nearly $2 billion in tax refunds; $300 million in cash grants for needy families and the elderly, blind and disabled; and $13 million in grants for college students.

Even if a budget agreement is reached by the end of this month, tax refunds and other payments could remain temporarily frozen. Chiang said a budget deal may not generate cash quickly enough to resume them immediately.

(“California controller to suspend tax refunds, welfare checks, student grants,” Los Angeles Times, January 17) I was hoping to use that refund to . . . pay my taxes. Can I use my California IOU to pay my property taxes? I think it’s smarter for the controller to start sending IOU’s to our legislators, our governor, and all their staffs in lieu of paychecks.


So who would buy into the Bank of Bad Debt? Why, you, of course.

Officials at the Treasury, Federal Reserve and Federal Deposit Insurance Corp., in consultation with the incoming Obama administration, are discussing a plan to create a government bank that would buy up the bad investments and loans that are behind the huge losses that U.S. banks continue to report . . .

(“U.S. Plots New Phase in Banking Bailout,” Wall Street Journal, January 17) In exchange for what, exactly? And how are all these “bad” assets going to be valued? Market value? Or free-money-to-struggling-families-in-the-Hamptons value? As this whole bank bailout becomes downright Dadaist in its proportions, are we going to “purge” the banks of bad management as well as bad debt? Maybe Vikram Pandit can wash toilets in our new National Bank of Bad Debt. That would certainly be a better use of his time than what he currently does . . . or doesn’t.


And the ink isn’t even dry on the free money we just gave them.

General Motors has signalled it might be unable to meet a key condition of the $13.4bn lifeline extended by the US Treasury requiring a two-thirds reduction in the carmaker’s unsecured debt.

Mr Young told analysts the company views the two-thirds requirement as a “guideline” and “the ultimate test is financial viability of our enterprise”.

More generally, the ailing carmaker is understood to take the view that vaguely worded provisions of the government loan agreement might be open for discussion and modification with a “car czar”, to be appointed by the Barack Obama administration.

(“GM might fail to meet loan condition,” Financial Times, January 16) If you’re head isn’t reeling on that one, imagine pulling that trick on your GMAC car loan. Phone GMAC up now and say that you’re going to violate one of the loan agreements because you understand the contract you signed as “guidelines” “open for discussion and modification.” See how long GMAC lets you play in their sandbox. Waggoner and company — when these guys were kids, they’d cheat at monopoly by stealing all the money from the bank.

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