California IOUs same as cash? Forget about it!
At least three major banks: Wells Fargo, JPMorgan Chase, and Bank of America will stop accepting the IOUs issued by the state of California.
Why is the state of California issuing IOUs?
That is a VERY good question, actually. 
Please direct all inquiries to the California State Legislature at the Capitol in Sacramento. Extremists in both parties of the State Legislature refuse to work together to pass a state budget for the “common good.”
Over 60 credit unions will continue to accept the IOUs.
In partial answer (but not really) to the rhetorical question above – State Controller John Chiang started issuing the IOUs on July 2 to save cash. Most state employees are now furloughed three Fridays each month without pay. There is still a roughly $26.3 billion deficit.
California is the world’s eighth largest economy. We used to be fifth. The way the State Legislature is “working,” we may continue to plummet. California has issued over 90.000 IOUs worth almost $355 million. The IOUs pay an interest rate of 3.75% and can be redeemed on October 2, or earlier if the State Legislature starts to do its job. Banks are hoping to send a message to Sacramento by refusing to honor the IOUs, and shorten the time needed to produce a budget. (Note added July 13, 2009: Although the preceeding statement sounds GREAT from a “marketing standpoint,” refusals to accept the IOUs is, of course, in the self-interests of the banks, because it minimizes their risk.)
As I mentioned a few days ago, some people are looking to BUY the IOUs on Craigslist, hoping to make a profit. On Thursday, the Securities and Exchange Commission (SEC) stated that the IOUs are securities and subject to federal anti-fraud regulations.
I have not talked to anyone recently who is happy with the California State Legislature, regardless of political persuasion or “walk of life.” If you think about it, it is a “good trick” to alienate that many people.
(Note added August 14, 2009: California will stop issuing IOUs on September 4, 2009. The state has issued 327,000 IOUs worth $1.95 billion since July 2 to conserve cash, but should now have enough cash to make it through the fiscal year, according to the CNN Money report.)
-Bill at Cheshire Cat Photo™
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