A big story later this year will be the insolvency of some of the country's largest cities and states. Will Obama write bailout checks or guarantee debt issuance? California is the first state, but look for New York and New Jersey to follow. What do these states have in common you may ask? Well for one thing they have vast social entitlement programs and are endeared to public unions that have saddled them with huge legacy costs. Throw in massive amounts of corruption and you wind up in "financial ruin" but don't worry, the rest of the states that have been fiscally responsible will bail them out.-LouWells Fargo CEO says California in 'financial ruin'
Wells Fargo CEO John Stumpf said Thursday that California’s large budget deficit means state services will have to be cut.
“The state of California is in financial ruin,” Stumpf told those attending a statewide microfinance lenders’ conference at Stanford University. “The budget deficit in California is staggering.”
Stumpf said the recession is taking a toll on some of the loans made to creditworthy borrowers who lost their jobs and fell behind on payments.
“Today we’re charging off loans to people we should have made loans to,” said Stumpf, reiterating that the bank avoided many of the exotic mortgages offered by rivals.
Stumpf’s comments were not intended as guidance on how the San Francisco bank is faring in the second quarter, a bank spokesman said.
The state of California is struggling with a growing budget deficit after tax and financial measures failed at the ballot box this month. Earlier this year, the state delayed tax refunds and other payments due to what State Controller John Chiang called a “cash crisis not seen since the Great Depression.”
The state recently asked the federal government for assistance in guaranteeing California’s short-term borrowings, fearing that it could not raise the money standing on its own credit.
On the national economy, Stumpf said this is his “third rodeo” or downturn. He pointed to the deep recession of the early 1980s when the prime rate hit 21 percent and the struggling economy of the late 1980s that counted most the nation’s largest thrifts and major banks in Texas among its casualties. He says the economic fallout from the dot-com bust and Sept. 11 terrorist attacks was significant but not as harsh as the earlier recessions.
“This one feels different,” Stumpf said. “It feels different in the respect that the whole world is in recession.”
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