According to Chris Whalen, it’s not a matter of IF the People’s Republic of California, it’s a matter of WHEN (and for the record, we agree 100%).
There’s no way out of current debt and pension obligations, Whalen told Yahoo Tech Ticker (full interview and video here). Something’s gotta give – and it’s likely to be California Muni bond holders who get left holding the bag here.
But the default is just the start of things getting interesting – as a sovereign state, California is not obligated to accept a Federal bailout (if one is offered). So if you’re holding CA munis on the expectation that California won’t be allowed to fail, you may want to reconsider the risk/reward of this situation.