Forbes:

What are the odds that California defaults on its debt payments? Using the market for credit insurance as a guide, one in four within five years. Those are amazing odds, signalling that those who buy insurance on debt think that the federal government will allow California to fail where it thought that AIG and Citigroup simply had to be rescued.

In the past month, rating agencies have warned that California’s $24 billion budget shortfall for the fiscal year beginning in July threatens its credit ratings — its mark of A already makes it the lowest-rated state in the U.S. on Standard & Poor’s scale — and the Obama administration has reportedly spurned requests for a bailout. The price of credit default swaps, a form of insurance on bonds, has made a predictable turn: a 5-year credit default swap on California’s debt jumped from a midpoint of 250 basis points on May 22 to 325 on June 23. On Tuesday, dealers asked for 339 basis points, which works out to $339 million on $10 million in debt, implying a 26% chance of default.

My comment: The idea that the entire state will stop and millions will suffer if the state government goes bankrupt is stupid. What will happen is quite a few cuts in services, that the government should not be providing anyways. Most peoples lives will continue on completely unaffected. The state and its media shills like to use scare tactics to bamboozle people into forking over more revenue via taxes. If you don’t hand over the money then media stories about rapists being let out of jail and closing of schools are plastered all over the media. Don’t believe the hype. If the state goes bankrupt it will have to do what most businesses and families are having to do. Get by with less and start making hard choices about what is a priority and what is a luxury.

John Polomny
The Real Deal