California's Dreamin (Of A Federal Bailout)

California may want Federal help, but while both the Bush and Obama administrations had no problems offering trillions in loan guarantees and hundreds of billions in cash directly to banks, doing the same for the largest state government in the country (home to 1/7th of America and an economy larger than Canada) is apparently politically unpalatable for the current administration.

The Obama administration has turned back pleas for emergency aid from one of the biggest remaining threats to the economy -- the state of California.

Top state officials have gone hat in hand to the administration, armed with dire warnings of a fast-approaching "fiscal meltdown" caused by a budget shortfall. Concern has grown inside the White House in recent weeks as California's fiscal condition has worsened, leading to high-level administration meetings. But federal officials are worried that a bailout of California would set off a cascade of demands from other states.

With an economy larger than Canada's or Brazil's, the state is too big to fail, California officials urge.

"This matters for the U.S., not just for California," said U.S. Rep. Zoe Lofgren, who chairs the state's Democratic congressional delegation. "I can't speak for the president, but when you've got the 8th biggest economy in the world sitting as one of your 50 states, it's hard to see how the country recovers if that state does not."

The administration is worried that California will enact massive cuts to close its deficit, estimated at $24 billion for the fiscal year that begins July 1, aggravating the state's recession and further dragging down the national economy.

After a series of meetings, Treasury Secretary Timothy F. Geithner, top White House economists Lawrence Summers and Christina Romer, and other senior officials have decided that California could hold on a little longer and should get its budget in order rather than rely on a federal bailout.

These policymakers continue to watch the situation closely and do not rule out helping the state if its condition significantly deteriorates, a senior administration official said. But in that case, federal help would carry conditions to protect taxpayers and make similar requests for aid unattractive to other states, the official said. The official did not detail those conditions.

Let's deal with reality here: there's no way the GOP will allow Obama to try to bail out America's largest blue state, Republican governor or not. After all if thousands leave the state and relocate to other states, reducing California's population and electoral votes and putting them in more competitive western states or more GOP friendly states like Texas or Arizona in time for the 2012 elections, then that's worth $24 billion to the GOP.

You'd better believe that the Republicans want to do to Los Angeles and San Francisco what they did to New Orleans. If California was a reliable red state in dire economic straits, we'd be hearing daily how the Golden State was vital to our economy and recovery...not from Democrats, but Republicans.

Still, it doesn't change the truth -- I'd rather see California get $24 billion than say, Citigroup.