The credit crisis is threatening states with budget shortfalls, and they could be the next group seeking a federal bailout, the Christian Science Monitor reports. California, looking at a $7 billion deficit, has informed the Treasury that it could come calling. States take loans to cover lean times, in the form of short-term bonds, much like the commercial paper market.
If banks won’t offer states credit, there may be a rush on an already depleted Treasury. But things are looking up: Massachusetts sold $700 million in debt last week, and California is planning a $4 billion bond offering. An analyst was optimistic about a fed response. “States are the safest loans out there. How can General Motors get a loan, if the state of Massachusetts cannot?”