Seen in Sacramento.
California started paying some of its bills in registered warrants
just before the July 4 holiday. It's an extraordinary step.
With the state promising to pay an interest rate of 3.75 percent annually until the warrant is redeemed, a small market for the IOUs has already cropped up, with people looking to buy them and make a profit on the interest. Second Market, a company that trades illiquid assets, has set up a whole team to work on the warrants.
And as you can see in the picture above, the IOUs haven't made for a seamless system. Some banks are still weighing whether or not to accept them while others have set a deadline for cashing them in.
Last Thursday, the state issued warrants totaling $53.3 million. Warrants have been issued to private businesses, local governments and individual taxpayers.
Facing a budget gap of nearly $27 billion, California could end up doling out $4.8 billion in IOUs by the end of August. California is reportedly the only state to ever issue warrants — it has done so twice before, in 1992 and 1933.
The registered warrants can be redeemed on Oct. 2, 2009, or earlier if the state has sufficient cash.
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