SEC destroys California

[FarmerP]

http://market-ticker.denninger.net/a...alifornia.html
"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."


If IOU's are now considered bonds then wouldn't bonds be as worthless as IOU's?
This doesn't look good.

[Shinmen Takezo]

Who did something correct in the government?!
I demmand an answer!!

This should never be allowed to stand--it is correct, and we all know that has to go out the window.

I hope heads will roll for this.

ST

[Zack Attack]

The part I'm having trouble wrapping my head around is where the SEC derives the authority to just arbitrarily step in and declare that these IOUs are securities, and then impose regulation on them.

I have the feeling this is going to rapidly devolve into the typical government operation- a stinking, shitty mess that doesn't work well for anyone.

[onebigelf]

The part I'm having trouble wrapping my head around is where the SEC derives the authority to just arbitrarily step in and declare that these IOUs are securities, and then impose regulation on them.

I have the feeling this is going to rapidly devolve into the typical government operation- a stinking, shitty mess that doesn't work well for anyone.

Actually they should be considered a violation of the Constitution, which is probably WHY they were ruled securities, because if they aren't securities, then...

Article 1
Section 10
No State shall enter into any Treaty, Alliance, or Confederation; grant Letters
of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but
gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder,
ex post facto Law, or Law impairing the Obligation of Contracts, or grant any
Title of Nobility.

...would seem to apply, would it not? Actually, it would seem to apply anyway.

John

[Zack Attack]

Actually they should be considered a violation of the Constitution, which is probably WHY they were ruled securities, because if they aren't securities, then...

Article 1
Section 10
No State shall enter into any Treaty, Alliance, or Confederation; grant Letters
of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but
gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder,
ex post facto Law, or Law impairing the Obligation of Contracts, or grant any
Title of Nobility.

...would seem to apply, would it not? Actually, it would seem to apply anyway.

John

Good point. FTW, even! The Constitution rules. (Or it should!)
Still, where does the SEC derive the authority to make the call on that? Anyone know?