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A blog about the economy and the Sacramento-area real estate market.

July 15, 2009
Start trading those IOUs

    A New York investment firm said today it is officially opening trading in California IOUs today.

    SecondMarket Inc., which creates markets for hard-to-sell financial instruments, said it is opening an electronic market for California's registered warrants. The state has issued several hundred million so far, and plans to issue a total of $2.8 billion this month, as it struggles with a cash shortage.

    The firm says hedge funds and other investors have expressed interest in buying the interest-bearing IOUs. Trading is conducted at the firm's Web site, www.secondmarket.com. Trading is free for sellers, but buyers will pay the "standard transaction fee," the firm said.

     While it's not clear what price the notes will bear, a search on Craigslist shows that buyers are offering 80 to 95 cents on the dollar.

    Local governments and private vendors are the main recipients of the IOUs. Taxpayers expecting refunds from the state are also getting the notes.

    The secondary market took flight after most major banks stopped accepting the IOUs last Friday. The Securities and Exchange Commission has declared that the notes are investment securities and recommends that sellers use a registered broker-dealer.

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