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The City of Oakland, Calfornia has become the first city to specifically tax the sale of medical marijuana. And The State of California is considering legislation to legalize the sale of (non-medical) marijuana an impose a tax of $50 per ounce.  My sources estimate the current retail price to be about $300 per ounce.  This is an early stage but that would put the tax at roughly the same rate as cigarettes in California (87 cents per pack which retails at around $7).

Other taxes are being considered:

Republican state Sen. Jack Murphy’s proposed “pole tax” would have charged patrons of strip clubs a $5 entrance fee. The bill was not approved.


See the press release here. The practical significance of this is that trade in IOUs is subject to standard regulation.  Brokers or other intermediaries facilitating trade between buyers and sellers must be registered as exchanges with the SEC.  In related news, the three largest banks in California will stop redeeming IOUs tomorrow.  Its going to be a nice summer for the Check Cashers. Note that the IOUs pay 3.75% interest, tax free.

At the blog Everything Finance, Jonathan Parker breaks down the implications of the State of California issuing IOUs to rollover its debts, essentially creating a new currency whose value is pegged to the US Dollar.  He makes a number of interesting points including the observation that since California cannot print Dollars, and cannot issue (conventional) debt, the IOUs place the State in a predicament reminiscent of financially-distressed countries having to defend a pegged exchange rate.

And unfortunately, the history of fixed exchange rates in practice includes lots and lots of these effective defaults.  Governments that can issue these i.o.u.’s and have trouble balancing budgets tend to issue a greater value of their currencies than they have the will or ability to maintain.  And default follows.

Prior to “maturity” will these IOUs trade at some market price reflecting the probability of default?  One question is whether banks will be interested in buying IOUs, offering liquidity in return for the asset and a premium?  The strategic issue is whether politically the State will find it more or less attractive to default if the IOUs are still largely held by private citizens, or instead mostly by banks?

My guess is that, in a crisis, a small number of banks would more effectively pressure the State to meet their obligations than if IOU holdings were less concentrated.  If so, then I would expect banks to be buying IOUs at a steep discount.  But does this create a Grossman-Hart style free-rider problem analogous to tendering shares in takeover bids?

Obama gave an interview yesterday on TV where he was asked about nationalizing banks.  His response is an interesting look into the way the administration thinks about things, comparing the US to Japan and Sweden.  You can read a transcript here.

What caught my eye was his use of the word “like” in the following excerpt (second sentence.)

So you’d think looking at it, Sweden looks like a good model. Here’s the problem; Sweden had like five banks.

This is the so-cal “like.” It stands for “about” or in this case “not many more than.” It lends an informality to the sentence which adds to its comical and therefore rhetorical punch.  On top of that it brings the President further down to Earth even when talking about something esoteric like bank nationalization.

I like it.  Is this the first occurence of the so-cal “like” in Presidential prose?

Be wary though, this mild version is the gateway “like” to more serious transgressions such as “We were discussing TARP and Geithner is like, ‘No way Larry, I am the Treasury Secretary and I say no caps on executive pay’ and then, like, Summers is all ‘Whatever.’ “

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