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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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All started with US citizens, when through US citizenism, US started to declare they were legal migrants in all the world places.
Illegal immigration made legal, biz started in 1776,July, 4th.
California resident sees deterioration happening now.... More residents penny pinching, more people standing on street corners with signs begging for money. A lady outside the local home decorating store was fighting with an old dude for begging rights to the space.... Hmm seems everyones tempers are getting shorter. No doubt the state is going broke with the ten of thousands of worthless and entitled state employees suckling at the utter of the dying cow. Another few month and it might be time to lock and load.
There are going to be a lot of sad state employees. There are more than 15,000 state employees who are pulling in upwards of $200,000 in pay and benefits. They'll never make tat kind of money anywhere else.
SHIT. And wo only need 10% of that if even to think we are doing well.
200K?
Pretty soon no one will want to be Emperor because the pay is not good.
A bunch of crack addicts
Very sad. It was a nice place once. Before all the NY and east coast liberal shit moved in. I think Calif was over right around the time of Manson. Jusr before that it was the peak.
I feel bad for the non-libs who have stayed around. F Hollywood and F TV.
We had family who lived in Santa Monica back in the late '60s and early '70s. The summer trip to the Golden State was what I, as a kid, looked forward to at the end of the school year; this would have been '71-'74 or so. For many years after that, after said relatives moved back East, I did not return, until business brought me back to the very same L.A./Santa Monica area in '92. Even twenty years ago, the changes were extraordinary; much for the worse. Now, twenty years hence, it grows more dismal still. I would never again go back -- unless business compelled me. I concur with your opinion.
Yup. California was a beautiful place. The lib scum from NE cities like NY, Philly and Maryland moved out in the 1960s/1970s like Pelosi, Boxer, Feinstein, Waxman and other scum.
I think it peaked and hit the wall right around Charlie Manson's murders. It was pretty much game over then. You went from the early Beach Boys and Dragnet to San Fernando Porn Valley and the govt union thugs.
There are a lot of decent people in CA who have been like boiling frogs for 2 decades. It really sucks.
You both make interesting observations. The time of which you both speak would be right about the period when Reagan was governor, wasn't it? I always liked to remember California in its heyday...my image? "American Graffiti."
yep, I live in Californication
http://www.youtube.com/watch?v=YlUKcNNmywk&ob=av2e
Never enumerate your domestic fowl before they incubate...
Or if you do, at least remember to package them up in Incubation Anticipation Bonds. That way the risk is spread out to a large enough group to absorb it.
It would be hilarious if the billions and billions of dollars just fails to appear. Don't count your chickens before they hatch. It is no accident that Silicon Valley is known as the armpit of California.
Sell all the US trained illegal Mexicans back to Mexico! Should raise a few thousand bucks?
Mexico doesn't want them. We are stuck with them!!
Oh, I think we'll find a way...
http://en.wikipedia.org/wiki/Mexican_Repatriation
If everyone with shares of Facebook cashes in on this gift from God and decides to purchase silver or gold....err, wait!? Is there enough silver and/or gold for all these new multi-millionaire lottery winners? No? That's so weird! Can someone who reads this comment create a site that produces nothing, lease an office, hire me to wash the windows at night and pay me via shares of stock and take the company public? That'd be super! Thanks!!
Is facebook really worth more than all the gold and silver in the world?
According to the 17 year old girl down the street; it "definetely is"; however she may not have a clear grasp of financial reality. other disclaimers apply.
you mean to say people documenting every time they go to the bathroom isn't invaluable?
There will be what, 1,000 Facebook millionaires? So there will be 1,000 McMansions and 1,000 summer homes bought, 1,000 porches and 1,000 beamers bought, 5,000 TVs, 5,000 Brooks Brothers suits, 5,000 Burberry dresses, 5,000 Gucci sunglasses, and the employees will start buying $100 bottles of wine instead of $20 bottles. This is going to fix the fact that CA is living on borrowed time?
Heh.
Precisely, Mr. Lennon-Hendrix. This thesis which relies upon Facebook's maiden voyage in the public sea, frankly, smacks of desperation, tinged with a bit of utter madness.
Pretty sure in an article i read they said these 1,000 millionaires can't cash out their stock for another year and a half. By then the realization that "liking" shit doesn't create revenue, and instead of millionaires we'll have 1,000 50,000aires.
6 month lockup, they want to unload before cap gains hike next year.
Like. Smike. 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.
Damn right Dasa - Just say NO to "liking"....what does that do to Facebook revenues?
In Californa a million will only buy you a condo and a porsche...there will not be this big ripple effect on our economy.
California is the Citibank of States
Too Big To Fail and Too Fucked Up to Govern... Like Shitibank, it's time to break California up...
They have been overstating revenues and declaring balanced budgets once a year for over a decade now... What the fuck else is new?
Oh yeah... CalPERS 7.5% annual ROI assumptions came in at 1% in 2011... Better chase more HY junk bonds and REITs you idiots...
I actually tryed reading the list of Calpers holdings once; it was flabbergasting; their concept of diversification is to own everything; everything in the world; the Kiwi shoe string company in Auckland; everything. I gave up after ten pages in sincere admiration for human stupidity gone super nova.
We (I'm Californian) ought to create city states out of the San Francisco Bay area and the LA Basin area...let them be responsible for their own shit..they spend the majority ofthe state tax dollars while the rest of us pay for it. Time for this shit to stop.
The state of Jefferson is still a dream held by many up north and rightly so.. Drive up 5 and you will see signs all the way up through Oregon.. I am all for the new bear republic.. Sonoma county needs to secede from mexifornia.. We came up with the state flag and were on our way to becoming a sovereign nation till they annexed CA from the mexico.. Sonoma has arguably the finest wine, herb, abalone, and redwood trees the earth has ever known.
Call it Jefferson, Call it Columbia, but the Northern part of the state needs to leave, and has dreamed of it for over a hundred years now.
As far as Sonoma County having the finest wine, herb and redwoods - dream on, city boy.
Humboldt kicks your ass on those three - you can have the fucking abalone, although the Shelter Cove lads would piss on you for that one as well.
Briceland Sauvignon Blanc kicks Sonoma whites ass.
http://redwoods.info/showrecord.asp?id=4391
And the US of A's largest tallest Redwoods: (Humboldt Redwoods State Park) in Humboldt County, not Sonoma, which is too far south and too dry for real Redwoods. I mean, Redwood Trees? Sonoma county has redwood trees? You mean the ones Jerry Brown planted along 101 during his first tenure? They are nice little trees. But for real fucking Redwood Trees, come to Humboldt County - people from all over the world do every year. http://redwoods.info/capsule.asp?category=Play%20Outdoors&type=The%20Redwoods
And factually (Wikipedia): The county contains over forty percent of all remaining old growth Coast Redwood forests,[5] the vast majority of which is protected or strictly conserved within dozens of national, state, and local forests and parks, totaling approximately 680,000 acres (over 1,000 square miles).[6]
And weed? Don't even have to make the argument. Sonoma ain't even in the hypotenuse of the Emerald Triangle - is to laugh almost as much as the redwood comment.
But California does have the dysfunctional governments - county and state - (although Brown is doing some pretty good stuff in the cracks where there is room to move) and we are way broke - the state employee pension liability alone is enough to break half the countries in the world - and don't forget the earthquakes! and fires! and hippies! and naked women! and pandhandlers! and all manner of weird shit. So stay away and make snide comments about us. Thank you.
NFP
California needs to be split, but not the way most people think.
You could draw a line beginning at the coast between LA & Orange Counties eastward. Carve out LA, Santa Barbara, SLO, Monterey, San Jose, the entire bay area including sacramento, and cut back to the coast just below Humboldt. This would become the new state of "Socialist Utopia" while the remaining portion would keep the name California.
Problem solved.
The largest seqouia sempiverins the world has ever known came from an area near armstrong redwoods park by the russian river.. The wine i could really care less because all the new development is threatening our rivers, but the largest winery in California is in sonoma and there is lots of grapes up here. The herb i have an affinity for that area I just think sonoma up by the mendo border is an excellent climate for the outdoor. Depending on where you stand Sonoma countys proximity to the SF bay area and santa rosa make it more desirable then Humboldt although i can see the argument going either way. I do love trinidad and shelter cove.... and the big jetty on humboldt bay..
I think Bernanke fucked everyone. Funny how the status quo looks happy.
:)
[smiley face on drugs]
Re-Hype-IPO-thecation
Like...errrr...Take California
http://www.youtube.com/watch?v=Dd8WjeK8riE
Simple, CA should just tax IPO derived funds at 75% - budget fixed, until Silicon Valley is empty . . .
Tax Hollyweird! Obama telling the evil banksters they make too much but doesn't say a word about hollyweird celebs making 10-20 million a movie?
Hell just tax Silicon! You tax the IT people and all the fake boobs! win-win
IPO Tax ... great and make it retroactive to 1995. Take a vote on in in Cali and it would pass in a breeze.
That's it! And just to keep a steady flow of badly needed, and well deserved, tax revenues why not make the income tax rate at 75% as well - flat across the board - think of the incredible tax stream! Oh, and why not boost the minimum wage to a "living wage" of $300 per hour? Everybody wins, plenty of money for all the programs that government needs to fund (maybe plenty of room for even more "programs") and plenty of income for people to spend! Its all so simple.
Sorry won't work ... too many state employees
Our federal and state governments are nothing more than a crack addict.
This shit economy will never improve until these assholes get off our backs.
Yeah, they should go do something necessary and productive like flipping insurance default swaps with the full faith and support of mommy government should anything go wrong...