http://www.reuters.com/…

California Gov. Arnold Schwarzenegger has informed U.S. Treasury Secretary Henry Paulson that the most populous U.S. state may need to turn to the federal government for short-term financing because of a lack of liquidity in credit markets.

California needs $7 billion to cover short-term expenses and has planned to issue revenue anticipation notes for it.

“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 Federal Treasury for short-term financing,” Schwarzenegger said in a letter to Paulson dated Oct. 2 and provided to Reuters on Friday.

“The economic fallout from this national credit crisis continues to drain state tax coffers, making it even more difficult to weather the continuation of frozen credit markets for any length of time,” Schwarzenegger said, adding he supports a $700 billion emergency financial rescue plan due to be voted on Friday by the U.S. House of Representatives.

It’s not like we’ve had states go bankrupt before. Perhaps California will be the first in modern times. One can only hope.

http://www.reuters.com/…

An $85 billion government rescue of insurer American International Group Inc looked increasingly likely on Tuesday to stave off a bankruptcy that would have thrown world markets back into turmoil.

The Federal Reserve will extend AIG $85 billion in exchange for a nearly 80 percent stake to bail out the troubled insurance giant, a person briefed on the matter said.

The deal would avoid the biggest corporate bankruptcy ever and follows a government bailout of mortgage lenders Freddie Mac and Fannie Mae just over a week ago.

Then AIG shares, which had sunk 21 percent in regular trading, fell as much as 48 percent in after-hours dealings after reports of a rescue that could wipe out shareholders.

The New York Times, which had reported that AIG could file as soon as Wednesday for bankruptcy protection, later reported the deal with the Fed.

“This would mean another shareholder wipeout,” said David Ader, head of government bond strategy at RBS Greenwich Capital in Greenwich, Connecticut.

Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson were briefing members of Congress on the deal on Tuesday evening, a Treasury official told Reuters.

“They’re too big to fail. AIG touches too many people and too many companies globally, and it would be much more of a disorderly event if it went bankrupt than it was with Lehman,” said Anton Schutz, president of Mendon Capital in Rochester, New York.

Of course they did. The government goes back on it’s claim, tax payers get it in the ass and the economic problems will continue that much longer.

I bet Lehman Bros. is a bit pissed.

UPDATE:

A bit more info over at CNN:

The line of credit to AIG, which is available for two years, is designed to help the company meet its obligations, the Fed said. Interest will accrue at a steep rate of 3-month Libor plus 8.5%, which totals 11.31% at today’s rates. AIG will sell certain of its businesses with “the least possible disruption to the overall economy.”

AIG will sell certain of its businesses with “the least possible disruption to the overall economy.” The government will have veto power over the asset sales and the payment of dividends to shareholders.

The company’s management will be replaced, though Fed staffers did not name the new executives. The board will remain. For customers, it will be business as usual, officials said.

Two years ain’t no bridge loan.

http://www.reuters.com/article/ousiv/idUSN0952458820080511?pageNumber=1&virtualBrandChannel=0

A California man who has defaulted on nine homes and expects banks to foreclose on all of them, forcing him into bankruptcy, says he now considers it a mistake to have invested in the real estate market.

Shawn Forgaard, a 37-year-old software company project manager, bought one home for his family to live in and nine more as investments. He stands to lose all the investment houses in the mortgage meltdown but says he has come away wiser from the experience.

“Everyone stumbles. I’m not going to hide or run or live in denial, or with regrets,” Forgaard told Reuters in an interview. “On the surface it looks like total devastation but it’s just the opposite. I’m confident our lives will be much, much richer as a result.”

Forgaard bought a house in Santa Cruz, about 60 miles (100 km) south of San Francisco, in 2000. Four years later, using $800,000 in stock options, he began snapping up investment properties, putting 10 percent to 40 percent down on negative amortization loans — in which payments do not cover the interest so that a borrower’s balance grows over time.

It was those “neg-am” loans, which include triggers causing payments to balloon if the debt reaches a certain percentage of the original balance, that would come back to haunt him.

“I knew I was sitting on time bombs,” Forgaard said. “I knew the market was going to go soft and I knew that property values would decline. But I figured that I had enough equity to survive the storm and sell or take the loss and refinance.

“I didn’t anticipate a downturn of epic proportions such that home values are 40 percent less than they were,” he said.

That’s because you’re a fucking idiot.

While this type of scenario is very rare… having one or more investment homes was not and just as many primary homes are foreclosed so too are many many of these investment homes. They will all be counted in those numbers you see on TV when they report how many homes are in foreclosure. I’ve never seen them seperate it down into primary and secondary homes.

http://www.reuters.com/…

Communist Cuba has authorized the unrestricted sale of computers and DVD and video players in the first sign that President Raul Castro is moving to improve Cubans’ access to consumer goods.An internal government memo seen by Reuters on Thursday said the appliances long desired by Cubans can go on sale immediately, although air conditioners will not be available until next year and toasters until 2010 due to limited power supplies.

Only foreigners and companies can buy computers in Cuba at present, while DVD players were seized at the airport until last year, when customs rules were eased.

Now Cubans will be able to buy them freely, paying for them in hard currency CUCs, or convertible pesos, worth 24 times more than the Cuban pesos state wages are paid in.

“Based on the improved availability of electricity, the government at the highest level has approved the sale of some equipment which was prohibited,” the memo said.

It listed 19-inch (48-cm) and 24-inch (61-cm) television sets, electric pressure cookers and rice cookers, electric bicycles, car alarms and microwaves.Cubans were delighted with the prospect of being able to buy items such as microwave ovens and air conditioners that were previously only available as stolen goods on the black market.

Shop attendants in central Havana had not heard about the measure but said there was great demand for the items.

“That’s great. I hope this is the necessary start along a new path,” said second-hand clothes vendor Maritza Hernandez, eager to see further reforms to Cuba’s command economy.

Many Cubans expect the state to soon allow them to buy cellular telephones. While they will now be able to buy computers, access to the Internet remains controlled by the government.

Toasters in 2010 huh? Welcome back… to the 20th century. Too bad it’s only because of help from Venezuela.

They don’t have toasters or electricity but at least they have “free” healthcare.