Buddy, can you spare $7b?

If nothing else, the prospect of California having to be bailed out by the feds helps explain how serious the credit crisis has become. Gov. Arnold Schwarzenegger warned Treasury Secretary Hank Paulson that the state might need an emergency loan of as much as $7 billion from the federal government within weeks. California finance experts told the LAT that they know of no time in recent history when the state has done something like this. Of course it’s impossible to know whether House passage of the rescue package today would turn on the credit spigots and make the $7 bailout unnecessary (you hear lots of chatter both ways). Here's more from Bloomberg:

"While some states may be able to absorb a delay or obtain high-interest financing through private banks, California is so large that our short-term cash-flow needs exceed the entire budget of some states," Schwarzenegger wrote. Without the short-term funding, the state may be forced to halt or significantly delay payments for teachers' salaries, nursing homes, law enforcement and ``every other state-funded service,'' [Treasurer Bill] Lockyer said. Tax-exempt issuers have postponed more than $12 billion in note and bond deals since Lehman Brothers Holdings Inc. declared bankruptcy Sept. 15, according to data compiled by Bloomberg. Louisiana postponed plans to sell $500 million of bonds this month, while in Chicago, school officials will have to decide which improvements will go forward after delaying a similar offering. Erie County, New York, has delayed dozens of capital projects.