California Seeks Federal Bailout

Today's banner headline at the Los Angeles Times reads, "State Braces for Brutal Cuts: Governor Sees a Voter Mandate for His Plan to Slash Billions."

That's dishonest, actually. Governor Schwarzenegger wasn't really planning to "slash billions." In exchange for getting Proposition 1A on the ballot, Schwarzenegger made a devil's bargain with the California Teachers Association. The deal would have allowed the union to raid $9.3 billion from the rainy-day account that Proposition 1A was going to set up!

The voters said hasta la vista, baby!

Now Schwarzenegger and State Treasurer Bill Lockyer are seeking a federal bailout, "California Wants U.S. Treasury to Backstop Loans":

First came the banks and insurance companies. Then the auto industry. Now, with California on the verge of financial collapse, state leaders are demanding an unprecedented federal rescue of their own.

They say they need the Obama administration to step in and back billions of dollars in emergency loans. If Washington fails to do so, the state could start running out of cash in July and then would have to stop paying huge amounts of its bills. That, in turn, could set off dangerous ripples throughout the economy, state officials say.

The argument is familiar. Just like AIG and General Motors, California says it is too big to fail.

That's what Schwarzenegger's Tuesday junket to Washington was really all about! Get those Geithner bailout funds flowing for California!

Moral hazard here we come! (Sung to "California, Here I Come".)

And don't forget what Megan McArdle wrote yesterday, "If Uncle Sugar bails out California, California will not fix its problems":

California will go bankrupt, muni and state debt will spike, the federal government will backstop humanitarian programs and very possibly all state and local debt, and eventually, California will figure out whether it wants higher taxes or lower spending. But we will not actually make the world a better place by enabling the lunatics in Sacramento to pretend they can have both.