Schwarzenegger Tells Paulson Fed Rescue Is Working

(Update1)

By Michael B. Marois

Oct. 9 (Bloomberg) -- California Governor Arnold Schwarzenegger told U.S. Treasury Secretary Henry Paulson today that federal actions to thaw frozen credit markets are working, signaling that the state may not need a government loan.

Schwarzenegger in a letter to Paulson said there are signs municipal bond investors might be willing to lend the state the $4 billion of short-term notes it needs to pay monthly bills. Massachusetts was able to sell $750 million of similar short- term notes yesterday after delaying the deal twice.

Schwarzenegger told Paulson last week that the state may seek a federal loan if it can't raise money from investors amid turmoil in the credit markets. Other borrowers including the Long Island Power Authority and Ohio were able to find buyers for $2.4 billion of debt this week, the most since before Lehman Brothers Holdings Inc. filed for bankruptcy Sept. 15.

``Although it's difficult to assess market conditions with perfect precision, the passage of the Emergency Economic Stabilization Act and ongoing actions by the Federal Deposit Insurance Corporation and the Federal Reserve System appear to be improving liquidity,'' Schwarzenegger, a Republican, said in the letter sent to Paulson today. ``We're hopeful we can successfully sell these notes.''

California Treasurer Bill Lockyer next week is planning to sell $4 billion of revenue anticipation notes, a type of short- term financing commonly used by states and local governments to pay bills until tax revenue arrives.

Scaled-Back Sale

Lockyer had wanted to sell $7 billion and instead settled on a smaller offering because of the market strains. The state will run out of cash by the end of the month without the money.

Something smells rotten in Denmark!

I thought it was 9 billion a couple of days ago.

It's what we get when only 5 own most of the media. High 5!