California IOUs Pop Up on eBay

State sets rules for redeeming notes.

by staff writer
- Jul 09, 2009

As offers for California-issued IOUs pop up on eBay and Craigslist, California has laid out ground rules to make sure IOUs sold online are authentic.

Investors have shown an interest in the notes, which carry a 3.75 percent interest rate, and have been posting ads on eBay and Craigslist looking for them. However, the state treasury says it will not recognize notes unless they come with a notarized bill of sale signed by the person the note was originally issued to, news reports say. IOUs mature Oct. 2.

"What we're trying to prevent is the situation where a person comes into our office to redeem an IOU and is trying to scam the state, whereby the IOU is not valid or they are not the legitimate owner," Tom Dresslar, a spokesman for the state treasurer, tells Capital Weekly.

The state began issuing the notes last week as a way to help ease California's fiscal crisis, which includes a $26.3 billion deficit. While some banks have said they will not accept IOUs, Bank of America, J.P. Morgan Chase & Co. and Wells Fargo have said they will recognize the notes at least until July 13. After that, some will issue loans and credit lines, which could increase the sales of IOUs online, according to news reports.

"People are in desperate need of [cash] these days, so when the government pays them in IOUs, they're getting killed financially," Michael Roberts, a Los Angeles resident who posted an ad for an IOU on Craigslist, tells the Los Angeles Times.

California is expected to issue more than $3 billion in IOUs during July. The state treasury has informed both eBay and Craigslist about the rule, and has asked both companies to post it on their sites.

While some investors do not want to pay face value for the notes, payees might be inclined to sell them anyway.

"Let's say we get past July 10. Customers are still getting IOUs, and what are they going to do?" Dresslar asks in reports. "They're going to be scrambling to find money for the IOUs in order to feed their families… A good way to allow recipients to get cash for registered warrants when the banks don't accept them anymore."

About the Author

Auctiva staff writers constantly monitor trends and best practices of those selling on eBay and elsewhere online. They attend relevant training seminars and trade shows and regularly discuss the market with PowerSellers and other market experts.

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