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Broke California: Give Us The Facebook Manna Now
Wolf Richter www.testosteronepit.com
California is broke again. The “balanced” budget of last summer turned out to be another pile of overoptimistic assumptions. This time, the out-of-money date is March 8, Controller John Chiang said yesterday. $3.3 billion must be dug up, and pronto. The problem: $2.6 billion in “anticipated” revenues didn’t materialize, but $2.6 billion in “unanticipated” expenditures did. Last fall, California had to borrow $5.4 billion from Wall Street and another $15.6 billion from special state accounts just to make it to the hoped-for flood of tax revenues in April. And despite the government’s inelegant gyrations about budget cuts, the state payroll rose 3% in 2011.
But now all eyes are on Facebook. Its IPO will singlehandedly solve all of California’s budget problems forever—just like Google’s IPO had done.
Everybody still remembers the Google manna that descended on California. Holders of Google shares were able to sell them starting in February 2005. At first, people spent. They bought big houses at the top of the housing bubble and fancy cars. They splurged on restaurants and clothes and maybe a few boats. Sales taxes jumped. Then in early 2006, they paid their capital gains taxes, which coincided with a run-up of the stock market to produce a breathtaking and now legendary $7 billion leap in state revenues.
And the state budget jumped by 9.5%. With a Republican governor, who loved it too. Everybody loves manna. And then came the crisis, and the manna was gone, and California had to pay contractors and others with IOUs instead of real money because it was bankrupt for the second time in its history.
Facebook’s IPO is going to be far larger than Google's. Already, many Facebook employees feel rich, knowing that their stock options can soon be turned into lots of cash, and their spending habits may have already adjusted to that in anticipation. But after the IPO, their wealth will become liquid, and spending will start in earnest, or at least, that’s what everyone around them is hoping for.
They will buy fancy houses, expensive cars, toys, and gadgets, and those that feel really smart because they're suddenly among the one-percenters will dabble in angel investing, and much of that money will evaporate from their accounts and dissipate into the local economy and into the accounts of those who’ve been waiting for years for just that moment. Each step along the way, the state of California and cities will extract their share through sales taxes (8.25% - 8.5% in much of the Bay Area), through vehicle registration fees (around 10% in many cities), and through other means. And then, in 2013 and 2014, there will be the real manna: capital gains taxes.
Already, interest groups and lobbyists are forming thick droves around state legislators, even when they go to the bathroom, to urge them to fund worthwhile programs and ridiculous boondoggles alike. After years of unpopular, nay detested budget cuts, pressures are immense from all sides to shovel money this way and that way before any of it has even arrived and plow it not only into one-time projects, but into ongoing programs that will then run out of money because manna is a one-time event.
There are still some voices of reason audible above the din. Governor Brown, for example, said that it should be used to reduce California's mountain of debt. But this being an election year, promises need to be made and votes need to be bought and elections need to be won. It’s breathing new life into a gigantic project that ran into a wall of resistance after its costs nearly tripled before construction even started. For this astounding debacle, read.... California’s High-Speed Rail To Nowhere.
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This is a very stupid article because it perpetuates the myth that capital markets are not a zero-sum-game. Every nickel that Facebook employees extract from the market NOW will mean lower returns for everyone else in the FUTURE.
Uh-huh, like most money invested in Google shares didn't generate better return than where it had been up to that point.
I am not saying IPO is the next Google, I'm just saying your comment is far worse than the article itself which makes many good points (especially at the end) vs. yours which makes how many good points, exactly?
How about a border fence between California and the rest of the country. You would see mass immigration into Mexico. People screaming "LET ME OUT!!!" By the way, I have never used facebook or twitter and I'm damn proud of that!
I don't use them either. We should form a club.
I don't see how many of us can revile the shallow greater populace and then ignore the fact that their foibles could make us all filthy rich. Article below (admittedly from a place full of fools) has a nice chart down the mid-page. That's Facebook's numbers!
XOE invests real money on people's addictive vices - look at what's in the VICEX fund and that's the kind of thing. Smokes, booze, gaming, guns. All eternally needed.
Ego-stroking might well be the same class. So Facebook, LinkIn, Zynga (Not even sure what some of these do, but I'm sure it's ego-strokable! Call it part of Gaming!)
Cheers! XOE.http://www.fool.com/investing/general/2012/02/02/facebook-bares-it-all.a...
ditto... closed mine yesterday
Here's how sick and twisted this IPO will be. On the local news here last night they ran a story of the "artist" who from the beginning worked with Zucker.. to decorate the interior of the FB location. This guy is a "former" tagger, and his art looks like...well...tagging. He agreed to do the artwork in exchange for stock. Now apparently his stock is going to be worth...are you sitting down....$200 million dollars. So a punk ass tagger (once one always one) is going to get 1/5th of a billion dollars from his "work" with FB. SICK SICK world we live in.
I closed my Facebook account today.
How did you do that? I was under the impression FB never really closes anyone's account. They merely make them inactive. The record, all history stays in the database.
All he did was lock himself out. LOL
just go to google and type in how to perman.... it will fill in the rest
California State Payrolls increased %3 in 2011! Wow. California Dreamin. Austerity, California style. The most slap in the face astonishing statistic I've seen for days; they're in complete denial. Well, with regard to another article here on Zero Hedge; maybe not sell that Gold just yet.
There is no way facebook manna will make the capital gains as big as in 2006. The housing boom was so big then on top of google's IPO. I was doing real estate in cali back then. I had bought properties in 1998 & 2002 for $170,000 each. I sold them for $425,000 and $450,000. It's not like I was the only one. Lots of people were paying capital gains taxes back then.
What they need now is a capital lost tax; should be coming along soon.
I see a lot of pardons in Ahnold's future.
Thus legalizing all of the crime that led to him being titled Prime Minister of the UN (or its equivalent).
Cali is for pikers! Now Illinois, where I live has it right.
Tax supported unions, phantom workers, corruption that would make Satan blush and not one but TWO governors in prison by Valentines day!!
Get your ass in gear California, the rep as the most F'd up place is yours for the taking.
Dog
Chicago should be walled off, and left to rot, as it's completely destroyed the productive capacity of the remainder of the state.
Amen fellow Illinoisian. We did export it to DC though already.
Obummer kind of oozed out of the main body of the Amoeba there in Chi. Town; now he's their pseudopod in Wash. DC. What a sick joke.
And the next state to have a massive budget deficient is NY/AZ/NV/??????????
When you consider all the resources in California it should be way in the black. The military bases and ports and food producing valleys and tourism etc. Politicians are like weasils in the hen house. They kill everything.
Hate to bring up the obvious but everything happens first in California. Its the testing ground for every liberal left experiment that has and is in progress. Its where Pelosi, Boxer & Feinstein grew their balls. If California is being killed, the rest of America is following close behind.
Who's going to declare the war?
Besides Geithner?
Fukushima radiation will take care of California.
Better use the money for things that matter like saving your lives.
imho
Debacle?
California?
Say it ain't so!
When the more vapid Californians invade a community in the Intermountain West we call it "Californication".
Investing in Facebook is just another thing that doesn't make sense from the view at the top of the Hubbert Curve. Most business models will be structurally challenged by the Hubbert Curves forward looking expectations.
Facebook is a glorified identity manager. That's fucking all. A bunch of columns and rows in a fucking open source database. Big fucking deal.
18 year old dude on You-tube, gay; says he calls it Fuck Book; claims that 100% of his sexual conquests, dates, whatever, came from FuckBook. I looked on the FaceBook site, it says it's only for good wholesome things and they'll delete people for making dates, etc. Guess they aren't trying too hard. Craigslist with more cachet?
Opportune time to rally the calls for the new state of South California and the State of Jefferson again.
California is a very crafty state. They borrowed hundreds of billions, spent it like drunken lottery winners, and now will declare bankruptcy to avoid paying it back.
They learnt it from Greece.
moving metal south of the b....r to Argentina. Check Casey Reserch and Comparegoldprices.com to protect yourself and your metal!!
If Jerry Brown (the Gov) comes knocking looking for my gold .........Ummmmm……now where did I put that gold…..ummm it may be under rose bush #9 in the south garden at my place in Chile. Ummm, no I take that back……I can ’t remember where that is. Ummm, I might have lost it in Vegas ……what….ummm…ummm….ummmm…I have NO recollection of that Govenor.
Didn't you lose it in a tragic blimp accident over the Catalina islands?
Friggin' goats ate mine!
http://en.wikipedia.org/wiki/San_Clemente_Island_goat
James Cameron has the right idea.
http://www.infowars.com/cameron-fleeing-america-to-escape-collapse/
Cameron is a Canadian, who has [ had ] a residence in Los Estados Unidos. Curious, why he simply did not purchase an estate in his home country -- as the other notable spotlighted in the article, John Malone, did by purchasing lands in Quebec. One would have to guess that Mr. Cameron is not too fond of snow.
No one can purchase Lands in Canada,
All you pay for is the right to lease and your kid's right to lease,
But then I see the same in the US de A.
Hehehe, Maybe a north american Secession will help.
The shit is going to hit the fan globally, so the idea of fleeing is only enticing up to a certain point. Except of course if you've got a job lined up on the other side, are fleeing from your own criminality or hope to find a giant carrot with glittering stars on it. Fleeing worked in huge ways when the world was still pretty much undiscovered, but now we've got to team up and get our hands dirty in different ways.
The article is spot on. CA is hoping a internet echo bubble keeps rolling on so politcians get their hands on more Facebook and other shitty IPO money. Let's party like it's 1999 again.
The article writer is correct. Through taxiation - the new million and billionaires get fleeced.
The Facebook IPO isn't going to do jack shit for California's economy. That notion is just fucking metro sexual dip shitonomics.
I did not say it would do anything. The scum lib Dem politicians in Sacremento think they might be able to scam a few more billions. CA is a example of liberal and govt union kleptocracy.
Call the Bernank and tell him to fix it chop-chop.
California needs to lay off the Grecian Formula™...
There is no hope for Cali.....they pass massive spending programs, and then vote down every tax increase. When I lived there, Arnold got spanked hard when he tried to reign it in, and just a tad. All Cali did was borrow. And still do. And will continue to do. And they think they can get away with it because life is more or less normal on the coasts. They think prop 13 will be eternal, all the while their popo, fire, schools etc. go down the drain. A financialtsunami approacheth......I got out before it will hit.
While you can get out of Cali, can you get the Cali out of you?
I don't think escape is truly possible, due to the fact that it will be "rescued" in such a fashion that will doom us all, ala how the PIIGS are being used to bankrupt Europe.
it's not like Californian Govt is any different to anywhere else
Govt is the exact same socio-economic virus everywhere on the planet, always with the same end-game, spend your country/State/city/town into impoverished oblivion
politicians, a virus of parasites
California state and local government employees and unions are like a bunch of crack addicts.
Exactly, especially in a fiat or debt-based monetary system where fake money gets legal status like the illegal aliens.