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Time - Man of the Year
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Time_Man_of_the_Year_Compact_Publishing_3YX-Disc-1_Compact_Publishing_1993.iso
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1993-04-08
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THE WEEK, Page 21NATIONInsufficient Funds
California banks say they will no longer cash the state's IOUs
The jig is up. After three weeks of paying its workers with
IOUs because it has been unable to resolve a deadlock over an $8
billion budget deficit, California's state government has been
called by its banks. Three of the state's largest -- Bank of
America, Wells Fargo and Union Bank -- have curtly informed
Sacramento that they will no longer honor the IOUs, nearly $2
billion of which will be outstanding by the end of this week.
Bank of America had been handling about 30% of the IOUs since
California began issuing them on July 1. Said a spokeswoman for
the California Bankers Association: "We have no idea how long
we are expected to loan the state of California money."
The IOUs were floated after Republican Governor Pete
Wilson could not reach agreement with the Democrat-controlled
legislature on how to balance the budget. California had not
used such a promissory system widely since the Great Depression.
Known as registered warrants, the IOUs are numbered chits
resembling checks. Under the state's plan, depositors and their
banks were informed which numbered IOUs could be cashed as the
state found funds to back them. The state offered to pay banks
a 5% fee to process the chits, but banks maintained that the
cumbersome process of handling the unusual payments would cost
them much more. Still, the banks cashed them freely at first,
but they warned depositors that they might stop doing so at any
time -- and that time appears to be at hand.