Major banks in California, including Bank of America and Wells Fargo, will stop honoring the state's IOUs after today, reports the Los Angeles Times. While some credit unions may cash the promissory notes, taxpayers and vendors who need cash may be tempted to sell them on the cheap to third-party speculators eying the tax-free 3.75% interest they bear. To rein in speculation, the SEC has ruled that IOUs are securities under federal law, and therefore can only be traded by registered dealers.
"The SEC's action has the potential to reduce the shark factor and potential for taxpayers to get defrauded," says a source in California's Treasury. "We feel the state of California has to be responsible for living within its means," says a Wells Fargo spokesman. "The banks aren't the solution to the state's budget problems. We're trying to strike a balance between how grave the situation is and the needs of our customers."