Last Friday I wrote a diary about the IOUs that CA is handing out instead of real money. This is a quick update.

A brief summary if you missed the original:

• CA has a State Constitutionally mandated “balanced budget”.
• For the first six months they are $26B in the red.
• They’ve been dallying for about a year on this budget. The Ds want to raise taxes, a handful of Rs want to cut spending.
• They are issuing IOUs redeemable on 10/2/2009.
• Some banks are treating the IOUs as “cash”.

OK, so, the Governator called a meeting yesterday with Ds to talk about balancing the budget. Note that all CA politicians are paying lip service to “balancing” the budget. And the meeting? From SFGate…

Budget negotiations broke down Monday when Assembly Speaker Karen Bass refused to meet with Gov. Arnold Schwarzenegger because he is insisting that a package of solutions to close the state’s deficit include long-term changes to reduce spending.

Oh, and what does the pesky “market” think of CA’s situation?

This latest hiccup could delay a compromise as the state’s finances continue to crumble. On Monday, Fitch Ratings, a Wall Street credit ratings firm, downgraded California’s general obligation bond rating, which is already the worst among 50 states, to triple-B from A-minus.

The downgrade “is based on the state’s continued inability to achieve timely agreement on budgetary and cash flow solutions to its severe fiscal crisis,” the agency wrote in a two-page note to investors.

And don’t forget that Wells Fargo, who said they’d redeem the IOUs, is only committed to redemption through this coming Friday.

It might be too soon to say the sky is falling in the West, but it’s probably not too soon to start looking…