The California budget situation is completely out of control. Raise taxes and you'll drive the last few productive people out of state. Slash spending and you'll add thousands of layoffs to an already bleak economy.
Arnold Schwarzenegger destroyed California with his reckless spending during the boom years:
At the time Mr Schwarzenegger promised an end to California’s tax-and-spend policies and runaway expenses, yet over the past four years of his administration the state’s budget has grown by 40 per cent to $144.5 billion.
How will this play out? I predict a huge federal bailout for California and any other states that need it. If we are going to throw away hundreds of billions of dollars on single companies like AIG and Citigroup, we can certainly spare tens of billions for the states.