JP Morgan: California Bigger Risk than Greece

While international financial markets are in turmoil over the possibility that Greece could default on its debt, California is a bigger worry for JP Morgan Chase.

CEO Jamie Dimon told attendees at the bank’s annual meeting that "there could be contagion" if the country’s biggest state can’t pay back all its debt.

"Greece itself would not be an issue for this company, nor would any other country," he said.

"We don't really foresee the European Union coming apart."

JP Morgan and other U.S. banks have largely hedged their European debt exposure anyway. So a crisis in Europe shouldn’t hurt them much, Dimon says.

But California and its $20 billion budget deficit are another matter.

The state legislature just passed bills to trim the gap by $2.8 billion, but Gov. Arnold Schwarzenegger wants reductions of $8.9 billion over the next 16 months and is asking for up to $7 billion of aid from Washington.

If a viable budget plan isn’t implemented soon, State Controller John Chiang warned that California will have to return to issuing IOUs, the London Telegraph reports.

"I can't write checks without money. That's against the law,” he said in a speech.

A big problem for California’s legislature is that budgets and tax increases must be approved by a two-thirds majority.

“We've created the strongest possible disincentive toward any bipartisan cooperation,” Dan Schnur, director of the University of Southern California’s Politics Institute told Reuters.