(California state worker goes through the motions.)

Hi Tom-

I’m getting a funny feeling about the actual health of the banks lately. And I have to admit I’m a little disconcerted that only the most bailed-out, de facto US-owned, triple-input banks are accepting Cali’s cute little IOUs that the Governator has been passing off currency. So far, only BofA, Wells Fargo and Chase are offering to turn Cali’s Golden Promises into dollars (though tiny East West and Union Bank also pitched in for a short time). And even these “institutions” are warning they will stop on Friday.

So why is that, do you think? Two possibilities come to mind that both seem kinda bad.

1)    Despite the dramatic Treasury-engineered Great Bank Reflation Rally of 2009 that not only rigged the balance sheets of all the major banks but also allowed thugs like Goldman Sachs and JPM to “de-leverage” their toxic debt onto the public, the banks’ balance sheets are so poor that they cannot survive the temporary illiquidity that would be caused by the IOUs.

OR…

2)    The banks actually know the IOUs to be the worthless scribbles of a known Banana Republic that has no more intention of honoring their romantic notion of eventual payment than it is likely to legalize gay marriage, address its flawed constitution or any of the millions of other things California should have done the first opportunity it had.

Either way, Tom, it seems a little shady—as the kids are so fond of saying now. And when you combine the IOU crisis with the sudden, massive deflation in commodities across the board, it’s beginning to feel like an ill wind is once again blowing in this direction.

Oh yeah, that’s the back end of the financial hurricane that hit last October and had everyone looking deep into The Abyss by February. We’ve just been in the eye of the storm for the last four months.

Anyhoo, just some thoughts on the weather, Tom…

Big IOU Hugs Maybe Sometime in October,

The Abyss