JP Morgan Chase to Loan $1.5 Billion to End IOUs

While some on Wall Street would prefer that the IOUs keep coming, it looks like they will end sooner rather than later.  JP Morgan Chase, one of our “too big to fail” banks, has decided to step in to the fray and loan the state some cash to cover expenses for the next month.

Treasurer Bill Lockyer says JPMorgan Chase & Co. has agreed to lend California $1.5 billion as part of Controller John Chiang’s plan to begin redeeming IOUs on Sept. 4.

The IOUs, which the cash-strapped state began issuing July 2 to pay many of its business vendors and other creditors, were supposed to mature Oct. 2. But Chiang said last week that the budget passed by the Legislature produced enough savings to allow for earlier redemption of the scrip — provided the state could get a $1.5-billion short-term loan by Aug. 28. (LA Times 8/19/09)

The risk here for Chase is almost zero, so what ever interest they get should be set at some sort of reasonable cost.  The state should begin issuing revenue anticipation notes soon, and Chase will then get its cash back.  I suppose it must be nice to have a billion or two to loan out when the mood strikes you.

At any rate, the ending of the IOUs was getting critical for small business that contract with the state.  They’ve been essentially financing the state during this round of the budget debacle, and these aren’t really people that can afford to do that.