Monday, September 01, 2008

More Signs of a Local Economy Going Belly-up

Standard-Examiner: Wasatch Front subcontractors going under

More evidence concerning the harsh impact of the percipient U.S. recession on the local economy this morning, with this Bryon Saxton story, reporting on the travails of Wasatch Front subcontractors who are squeezed out of their preferred creditor positions when unfinished or unsold residential construction projects are lost to lender foreclosure. Under Utah law, foreclosing senior lenders take foreclosed properties free and clear of junior liens. Even contractors holding valid mechanics' liens are wiped out when such properties are taken back by senior lenders.

In the instant case, the article puts the focus on one Pleasant View plumbing contractor, Dean Henefer, who expects to take a $150,000 write down for labor and materials furnished in projects running up and down the Wasatch Front. Except for the existence of Hennefer's "reserve fund," it's fair to speculate he'd possibly be out of business already. Even under his relatively fortunate circumstance however, (in having had the sense and prudence to save a little money for a rainy day,) Hennefer's been forced to lay off half his work force of six, which means there are now three fewer Utah households who've been propelled into survival mode... three fewer Utah families without discretionary cash to fritter away on restaurants meals, high-adventure recreation centers, ice towers, gondola rides to nowhere and other amusements.

Mr. Hennefer's knows his experience does not occur in a vacuum. Mr. Hennefer suggests "I'm feeling like I'm a good example of what's happening." Mr. Hennefer is of course quite correct. His circumstance is merely a microcosm of the general economy, a single example of what's happened in a single instance, as the destructive effects of reckless and greed-driven credit policies begin their inexorable ripple across the local economy.

Words to the wise from the bottom of today's story: "The party is over. We are back to the chicken coop as it really is."

Words to the wise also for Emerald City officials, as they craft their new grand plans and schemes, hoping to cash in on that mountain of credit-driven consumer spending which no longer exists.

In closing, we'll again note that Mr. Hennefer's survival was the result of the establishment of a "rainy day fund." Something for the Emerald City Council to think about, wethinks.


danny said...

I was going to post links to all this, but . . . here goes anyway.

The interest rate at which banks loan each other money has risen back to the high level it was at this time last year.

This in spite of the fact that the Federal Reserve, in unprecedented action has loaned out half it's $800 billion reserve to prop up its favored crony banks and brokerages (leaving the rest to twist in the wind.)

Banks are currently being allowed to falsify their asset values by the SEC, to avoid the appearance that they are almost all bankrupt. The hope is things will get better before they have to show these losses. This was the hope a year ago too!

Home prices are projected to fall much further, leaving the only currently functioning part of the home mortgage business, Freddie and Fanny, completely bankrupt.

The US government, run by two socialist parties, will continue to try to use US Treasury borrowing to paper this all over. When will people realize the US Treas is the most bankrupt of all and stop lending it money? Then the real terror begins when Treas rates shoot up.

Tomorrow, Ford and GM will ask the gov't for $50 billion in taxpayer loans, because the market will no longer loan them money. They will be out of cash by this time next year without help.

It goes on and on.

The SE article is small potatoes.

Then once the financial system collapses, watch for starvation to lead to disease that sweeps Asia and spreads to Europe and the Americas.

The Federal Reserve will tell you this is the real reason they have shot through half their book trying to save this rotten mess. I hate to be gloomy but I don't see any way out.

The government has been swallowing every financial panic for the last 80 years and the poison has now become too great I fear.

Curmudgeon said...


You wrote: The SE article is small potatoes. Not to the sub contractors who have gone under, and will continue to go under in this mess. Not to the people they used to employ. Not the families they used to support.

I'm happy the particular subcontractor highlighted in the SE story had money put away for expanding his business that he can now tap to save his business. But as I read that, I kept wondering about all the folks who live at the margins, pay check to pay check, who have no or negligible savings, or if they did, saw them eaten up by a reduction in hours, or a loss of job that went on for months, or a medical bill for which they had no insurance.

Part of the problem is the punditry [mostly cable, but network as well] that focuses so heavily on the stock market, in the deluded belief that the stock market is the economy.

As for GM and Ford... just another example of all our industrial "the magic of the market" CEO's who whine endlessly about "getting government off the back of business" until their own cupidity and stupidity put them into near bankruptcy, at which point they demand that the same government they denounced as the root of all economic evil during the fat years come bail them out of the hole they dug themselves into.

The Auto industry is particularly good example. Scoffing at Toyota and Honda for building those little, high mileage low profit margin cars, and betting the house instead on more and ever bigger SUVs and similar tanks. And look where they are now: losing their shirts, shutting down plants, laying off workers, and begging for billions of dollars in government subsidies. The estimate is it will take two years for Ford and GM to retool SUV plants to produce smaller, lighter, gas efficient cars [which are now selling like hotcakes]. Honda has plants that can switch production lines from one model to another in a matter of days. US mfgs require years. And they fought tooth and nail, and successfully, increased CAFE standards [i.e. govt. regs requiring higher MPG standards for each manufacturer's fleet, which would have forced a more varied product mix including more high mileage vehicles being built]. Their argument: "We know better than the Congress does what consumers want and how to run our business. Butt out!" Ah, only now, having used out better knowledge and understanding to run our companies into virtual bankruptcy, the tune they sing has become "could we please have $50 billion or so... each... to help us out?"

In short, Ford, GM got out-competed. Toyota and Honda ate their lunch. And now these high priests of "the free market" want to go on welfare. And they make their pleas with a straight face. If they get it, two years from now, the same SOBs will be wailing about "getting government off the back of business." To the cheering applause of the Republican Party from coast to coast.

RudiZink said...

I'm gonna have to go along with Curm on this Danny.

I view the "small potatoes" as the "canary in the coal mine."

danny said...


The coal mine is full of dying canaries everywhere.


Of course I must comment, since it is after all, a rainy day.

By small potatoes I mean this.

Small Potatoes:
Families losing homes and jobs
Banks going bust
A "tsunami" that killed 200,000 Asians a few years back.

Medium Potatoes:
Mass financial collapse leading to mass starvation and pandemic, killing people in the hundreds of millions.

Big Potatoes:
Collapse of civilization leading to near extinction of the human race.

So you see, "potato size" is a matter of perspective. My prediction is for medium potatoes.

You wanna talk corruption? Our free enterprise system has become so gamed, so tilted, so warped that it is hardly free enterprise at all anymore. I agree with your comments except to say you touch only the tip of the iceberg and blaming the Republicans only is incorrect. The deregulation started with Reagan reached its full flower with Clinton and Robert Rubin.

Also remember that some regulations are precisely the gaming of the system to which I refer.

Look how far we have fallen. I still remember the headline regarding Bush and Congress's recent stimulus package.

"His imperial highness has announced, that to save our great empire, 600 denarii will be issued to each Citizen (the proceeds to come from denarii we will borrow from the Persians and from a general debasement of the denarrii itself.)"

Republican,Democrat, Liberal, Conservative, all cheered. Rome is saved! Long live Rome!

But it took ancient Rome centuries to reach our present level of softness and corruption.

RudiZink said...

Shall we take then Danny, that you're "long" on "guns and gold?"

no problem said...

No problem at all. Obama is waiting in the wings to save us.


WhatWardRUin said...

the world economy is one thing. good luck trying to solve that from a local position. i am just as concerned with our local economy. how many more months can ogden city spend more than it earns with no savings or assets to fall back on. 14 months and counting so far. someone from the from the pioneer foundation just told me the city is building a homeless campground across the river from ogden stadium. say it isn't so.

OgdenLover said...

Nah! It's probably Godfrey's concentration camp for naysayers. (Just joking, folks.)

PointyPoopKickers said...

Jean Luc Picard for Prez!!!

WhatWardRUin said...

vote for pedro.

danny said...

I forgot the other headline,

"The Emperor dismissed his critics in the Senate today, who consistently draw his attention to Rome's mightiest legions that continue to be bogged down by the barbarians at the edge of the Empire. His majesty reminds the Senate that Rome is the greatest nation in the known world and there is no task beyond her abilities. He has pledged additional troops and denarii to fulfill the Empire's commitments in [Iraq] and notes that the local savages may decide to join the Empire any day now, offering assistance to Rome's legions. On another subject, the silver denarius is now 99% copper."

Rudi, guns and gold? Folks have been saying to have at least a little of each for what, 50 years now?

Predicting the future is hard. Knowing what to do about it is even harder.

You could buy SKF and watch it double, then go to zero when the counterparty defaults. But it's all interesting to watch anyway.

danny said...

. . . or buy SKF, hold it while it fluctuates, and when it spikes sell it before the counterparty defaults (or maybe they won't default.)

So many decisions.

danny said...

Since we're being geopolitial,

Who do you want to bet comes out ahead,

This guy, or

This guy?

PPK said...

Oh...I'm totally putting my loose change on THIS GUY!
Any bets???

Curmudgeon said...

Off topic but worth a note, I think. Charles Trentelman has a post on hurricane Gustav up on his blog at the SE. Contains some interesting stuff on the kind of comments he's been seeing on-line about the storm, and he challenges readers to help out those Utahns who are flying down to help by matching his contribution of $25 to the Red Cross relief fund. Not a half bad idea, it seems to me.

[Full disclosure: I have two children living in the storm zone, neither of which, happily, had to evacuate this time, and both of which came through OK. But one of them had to flee Katrina and was materially helped out by the relief efforts then.]

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