Major Banks Prepare to Begin Rejecting California IOUs

California, which began issuing IOUs on July 2nd, tried on Thursday to shore up confidence in those IOUs. These moves came as banks prepared to stop accepting the IOUs, after today.

From July 2nd through Wednesday, Controller John Chiang's office said it issued 91,213 IOUs totaling $354.4 million. Extrapolating, the IOU total could hit $2.87 billion if things continue unchanged throughout the month. The IOUs mature on Oct. 2nd, and pay 3.75% interest on an annual basis.

Bank of America, Wells Fargo, JP Morgan Chase and Citibank plan to stop accepting the IOUs after today, July 10th. Some smaller banks and credit unions will still accept them for existing customers.

Meanwhile, California Treasurer Bill Lockyer is trying to convince the banks to change their minds. Tom Dressler, a spokesman for Lockyer, said:

"Our office will be contacting the banks to try and convince them to extend the July 10 cutoff date. That would lessen the likelihood that recipients are going to suffer hardship after Friday."

Good luck. Obviously the banks are concerned that Oct. 2nd might turn into a soft date that gets pushed out if California still hasn't fixed its budget woes by then.

Meanwhile, those with some free cash are taking advantage of the situation. Both Craigslist and eBay are hosting secondary markets for the IOUs, as entrepreneurs offered to buy them at a discount; they would then cash them in later for full value plus their 3.75 percent interest rate.