California could be the latest casualty of the credit crunch, unless the Federal Government acts quickly to stabilize the financial markets.
Credit markets have frozen in the most populated state, which has slowed investment and commerce and forced "tens of thousands" out of work, California Governor Arnold Schwarzenegger wrote in a letter addressed to Henry Paulson. This has cost the state billions in tax revenues, the Governor said.
The state is issuing about $7 billion in bonds to shore up cash flow for the time being, however, the current conditions in the credit markets might preclude these loans from being sold. As a result, California might require a sizeable billion loan from the Federal Government just to stay afloat and continue operations as usual if the government doesn't swiftly solve the credit crisis.
"Absent a clear resolution to this financial crisis that restores confidence and liquidity to the credit markets, California and other states may be unable to obtain the necessary level of financing to maintain government operations and may be forced to turn to the Treasury for short-term funding," Schwarzenegger wrote.
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