What can we say, we've been warning about California (and many many more states following suit) for a long while - over a year now. (Dec 16 2007: California in a State of Emergency - Coming to a Theater Near You)

Here it begins folks.... as I stated in this week's piece (The Web of Credit Snares Another: Cleveland) One point I forgot to mention in the 2008 1st half predictions piece is the role of ever decreasing housing values on state (and city) revenue. A large part of revenue inflows is based on an asset (real estate) that is decreasing throughout the country. Budgets (and benefits) are set to recent 'good times'. Like most enterprises very few government institutions will save for coming rainy day times - they just assume the good times will continue to roll. But when they don't, they are in trouble. Especially if a very large revenue source starts to shrink (property taxes). And this should be happening over the next few years throughout the country.

Why do you care if you don't live in California? Well it will be hitting a lot of other states for one, and secondly eventually the "real economy" affects the market ... eventually...

Ah December 2007 - the good ole days; 401ks used to be 401ks, and not 201ks, the Federal Reserve was going to save us (some things never change), Hank Paulson was on his first plan to save his buddies on Wall Street (the SUPER SIV plan!) Bear Stearns was still an apple of all our eyes, Fannie and Freddie were still the biggest lobbyists on Capital Hill. We're usually early and just enjoy sitting here aghast watching the market completely miss things until that are in plain sight. By "enjoy" I mean, sit in raw horror that so many miss so much that someone with a thinking cap could ferret out. Even in those fanciful days when I did not have to walk uphill, both ways, barefoot, avoiding hedge fund carnage to trade stock - we targeted this coming budget year (summer 2009-summer 2010) as when the proverbial bleep hits the bleep. (watch for teacher strikes and major fights over school funding coming this fall)

Back in May 2008 we talked about the first California town to go under (May 7: Vallejo California Votes for Bankruptcy) There seems to be a bit of a disconnect in our public employee system; while the private sector has seen wages stagnate and benefits cut - more and more has been promised to those in the public sector.