Just in Time for Winter! Credit Crunch Claims GA Gas Provider!

Well, it starts.

The credit crunch has officially claimed the life of a Georgia natural gas provider.

Read this story carefully and absorb all its implications:

Catalyst Energy Filed for Ch.11 after it's credit facility evaporated overnight.

Overnight everyone. I mean, one moment they were in business, chugging along with a solid business plan. The next -- sorry, you no longer have access to capital to buy that gas to service your customers.

That also potentially means no gas service for thousands of Georgians, just in time for winter!

Now, understand, in Georgia, we have a system in which gas marketers buy natural gas from suppliers and then in turn sell it to consumers. The idea is to break up the monopoly en-force here for many a decade that the supplier also be the retailer. There were honest criticisms to the system, but overall it seemed to work.

And as for now, I suspect that Catalyst customers will probably switch to new providers (assuming they don't have to pay penalty fees for severing their contracts early -- and since Catalyst served the poor community, I kinda laugh at the irony of this whole thing).

Look, I can speak with some insider knowledge on Catalyst. They were growing just a month or so ago -- seeking bigger office space. And then the credit crunch destroyed a viable company overnight. Banks are so scared of losing money -- so determined to hoarde cash -- they actually stopped loaning money to a company that provides gas -- a product that's almost guaranteed to sell out! Where the hell's the risk?!

This is the panic that is going to spread - and fast. I can only imagine that if this happens to another two or three marketers here in Georgia, the governor will probably be forced to deliver gas through state control.

These are also the first signs that the credit crisis will ultimately create an economic catastrophe unheralded in modern times. Think your local grocery store will keep its shelves stocked all year? Think again. Do you have unwaivering faith that your local hospital or doctor's office will have the necessary medicine on hand to help your dying friend or relative? Not tonight, baby.

I mean, when McDonald's can't get credit to fuel its own growth, then we know something is terribly, horribly amiss not only on Wall Street, but Main Street as well.

How much longer before your own local municipality will go bankrupt? How much longer before actual school teachers are laid off, before states have to suspend the school year due to lack of funding? You want to know what's at stake in this credit crisis -- and at the same time, why you need to be pissed at everyone who was in power in the last 30 years? Imagine you wake one night to someone trying to break into your house, perhaps to steal some canned goods you have stored in case this emergency gets worse. And you pick up the phone and do what's natural -- call the police. Only, you're greeted with a recorded message that 911 is unable to answer at this time.

Yep, all your local cops have been laid off because your city or county can't get the credit to pay their salaries.

Welcome to the New World, the proto-Wild West. God help and have mercy on us all.

I wonder why everything has to be bought on credit. Is it so wrong to wait and save until you have enough money to buy something? It just seems part/all of the problem is that everyone is buying things they may or may not be able to afford with someone else's money.

Could this be a good thing...getting people to buy things with money they actually have?

Did you get your gas from this company?

By the way they can still operate out of Chp 11. I believe this is a chance to reorganize.

I am not an expert so I reserve the right to be full of bulldodo!

Thanks
WR

Yep, all your local cops have been laid off because your city or county can't get the credit to pay their salaries.

A side note...

I agree with a lot of what you said until this point. Local governments are NOT BUSINESSES. They DO NOT operate with a certain level of current debt versus future income and they don't have debtors.

Local governments are largely funded by your property taxes and they also get a small amount from the state. How is a credit crunch going to affect a local government's operations, which are planned out a year ahead of time, when the money in the budget was already available at the time the budget was approved?

If your town concil has to suspend operations for any reason it is because they refuse to trim the copious amounts of fat from their budgets in response to falling property values and not because Wall Street won't give your town a loan.

Bank on Topic

The reason that places like the Georgian gas supplier went out of business has to do with the risk for a bank to get involved. You said yourself their customers were the poorer type. Do the math.

Lets say a business has $100k in creditors (the gas suppliers) and expected to receive payment from their debtors of about $150k in the next three months. Everything is good and they should be able to keep operating that way.

Suddenly, 10% of the customers a month are defaulting because of their exposure to the economic crisis as "poor people." In three months 30% of the people they serviced had either failed to pay or payed very late.

Now it looks like they will pull in less than the $100k that they needed to pay suppliers. The gas company has little choice but to go to a bank and ask for a loan.

The bank is going to ask some hard questions:
What is the expected default rate going forward for the next year?
What is the expect profit margin given this level of defaults?
How much are the assets of your business worth?
What is the exit plan?

If your answer to any of these questions is not acceptable the bank has the duty to declare you a high risk investment. By making such a proclamation, the bank is helping to protect both the people who invested in the bank and the people who have savings there.

This is the kind of prudence banks should have used for the past 10 years instead of fueling runaway growth because the money was cheap. A company like this gas company was simply a bad business with too low a level of efficiency and a poor (hah!) choice of market sectors. Business like this should be allowed to fail so that people with skill in creating sustainable businesses with no fat can step in and get investments.

Economics of Inflation

Economic disasters eat the companies that weren't any good at what they were doing. These businesses just got lucky because there was tons of new money in the market every year and they were basically riding the inflation curve. They weren't actually profitable as much as they were able to skim "profit" off of each year's monetary inflation.

To put it another way they were performing below the rate at which the Fed was creating new money. When your profit margin is only 5% but the money supply is inflating at 6% a year are you really making a profit?

This is the Achilles heel of our Federal Reserve based economic theory. With a variable money supply, businesses become unable to make good decisions about their position in the market. "Am I profitable?" Is no longer easy to answer. The same uncertainty spreads to banks which is why they were giving out bad loans for years. The artificial money supply told them to give out money willy-nilly because so much was available (from Greenspan and Bernanke.)

It isn't the banks' fault that the money supply was so plentiful that they had to constantly find more investments and so cheap (bank interest) that they discounted risk. The blame rests solely on the Federal Reserve and their criminal monetary policy.

Jon

No, I didn't get my gas from them. And yes, they probably can still operate.

But not every company, particularly those in critical areas for human health, will be so lucky in this economic demise.

It was confirmed last night on Keith Olbermann via an email from McDonalds that they ARE NOT experiencing any credit problems. I also tend to beleive we wouldn't be in this problem if folks would have bought within their means. All these forclosures going on wouldn't be happening if people weren't buying homes they knew they could not afford. I don't feel sorry for anyone losing their home because they fell for those adjustable rate mortgages and bought something that wasn't within their means.

reply to post by TonyClifton


Yes, it is a good thing. It's sad and disturbing that so many politicians and media folk are out in droves beating to death this notion that we have to keep living on "fake" money and keep this artificially inflated economy alive. They can't escape the reality of economics and by propping up this credit circus they're only putting off the inevitable. The longer the correction to reality is delayed the worst the eventual collapse will be.

This situation is the best thing to happen to the country. It could technically fix all of the meddling nonsense since the New Deal but god-forbid we live in a real-world with a real-economy. Everything has to be fake as hell like some terrible MTV reality show.

We should be embracing the coming correction with open arms.

Originally posted by Voxel

Yep, all your local cops have been laid off because your city or county can't get the credit to pay their salaries.

A side note...

I agree with a lot of what you said until this point. Local governments are NOT BUSINESSES. They DO NOT operate with a certain level of current debt versus future income and they don't have debtors.

Local governments are largely funded by your property taxes and they also get a small amount from the state. How is a credit crunch going to affect a local government's operations, which are planned out a year ahead of time, when the money in the budget was already available at the time the budget was approved?

First off, excellent counter. I'm very impressed.

Secondly, you're not entirely wrong on the need to trim budgets. That should be a common goal for all governments, but alas....

But to answer your question, many municipalities and counties do operate based on income received from the bond market. Now, often a city will package a bond for Wall Street to fund something like a new sewer project or a new arts center or some crap like that.

In good times, with its tax base increasing, this wasn't a big deal. Now, with the crash, all governments' tax digests are going to shrink -- that has already sent shockwaves through the bond market as government-backed bonds were believed safe and secure.

Once this ball starts rolling, it doesn't stop until it hits bottom. With governments unable to raise money on Wall Street, and with tax income dropping, most governments will engage in either budget cuts, tax hikes or both. Probably both. Either way, the net effect will be chilling to their citizens.

Now, essential services are certainly the last holdout on spending. But even a year ago, with the economy "solid," cities in Georgia were in budget crises, and even one made vieled threats that ambulance and/or fire service would be halted. Never happened, but then again, the credit world wasn't in chaos at that moment.

Bank on Topic

The reason that places like the Georgian gas supplier went out of business has to do with the risk for a bank to get involved. You said yourself their customers were the poorer type. Do the math.

This is the kind of prudence banks should have used for the past 10 years instead of fueling runaway growth because the money was cheap. A company like this gas company was simply a bad business with too low a level of efficiency and a poor (hah!) choice of market sectors. Business like this should be allowed to fail so that people with skill in creating sustainable businesses with no fat can step in and get investments.

I'm not disagreeing with you on principle. I largely agree that bank terms are and need to be tightened. But the pendulum is swinging waaay the other way, and it's killing companies that probably are solid.

Economics of Inflation

This is the Achilles heel of our Federal Reserve based economic theory. With a variable money supply, businesses become unable to make good decisions about their position in the market. "Am I profitable?" Is no longer easy to answer. The same uncertainty spreads to banks which is why they were giving out bad loans for years. The artificial money supply told them to give out money willy-nilly because so much was available (from Greenspan and Bernanke.)

Agreed. And ultimately Greenspan will be rightfully demonized in the eye's of history. This man is nearly solely reponsible for our country's evolving demise.

Originally posted by behindthescenes

Originally posted by Voxel

Yep, all your local cops have been laid off because your city or county can't get the credit to pay their salaries.

A side note...

I agree with a lot of what you said until this point. Local governments are NOT BUSINESSES. They DO NOT operate with a certain level of current debt versus future income and they don't have debtors.

Local governments are largely funded by your property taxes and they also get a small amount from the state. How is a credit crunch going to affect a local government's operations, which are planned out a year ahead of time, when the money in the budget was already available at the time the budget was approved?

First off, excellent counter. I'm very impressed.

Secondly, you're not entirely wrong on the need to trim budgets. That should be a common goal for all governments, but alas....

But to answer your question, many municipalities and counties do operate based on income received from the bond market. Now, often a city will package a bond for Wall Street to fund something like a new sewer project or a new arts center or some crap like that. But states, see California's recent warning letter to Paulson, also get short-term credit financing in the bond markets to pay for state employee payrolls, from schools to fire departments and, yes, police departments. States use this to cover these expenses until the taxes roll in later in the year.

In good times, with its tax base increasing, this wasn't a big deal. Now, with the crash, all governments' tax digests are going to shrink -- that has already sent shockwaves through the bond market as government-backed bonds were believed safe and secure.

Once this ball starts rolling, it doesn't stop until it hits bottom. With governments unable to raise money on Wall Street, and with tax income dropping, most governments will engage in either budget cuts, tax hikes or both. Probably both. Either way, the net effect will be chilling to their citizens.

Now, essential services are certainly the last holdout on spending. But even a year ago, with the economy "solid," cities in Georgia were in budget crises, and even one made vieled threats that ambulance and/or fire service would be halted. Never happened, but then again, the credit world wasn't in chaos at that moment.

So it's not in the realm of impossibility that this credit crisis could in fact force states to suspend essential services.

Bank on Topic

The reason that places like the Georgian gas supplier went out of business has to do with the risk for a bank to get involved. You said yourself their customers were the poorer type. Do the math.

This is the kind of prudence banks should have used for the past 10 years instead of fueling runaway growth because the money was cheap. A company like this gas company was simply a bad business with too low a level of efficiency and a poor (hah!) choice of market sectors. Business like this should be allowed to fail so that people with skill in creating sustainable businesses with no fat can step in and get investments.

I'm not disagreeing with you on principle. I largely agree that bank terms are and need to be tightened. But the pendulum is swinging waaay the other way, and it's killing companies that probably are solid.

Economics of Inflation

This is the Achilles heel of our Federal Reserve based economic theory. With a variable money supply, businesses become unable to make good decisions about their position in the market. "Am I profitable?" Is no longer easy to answer. The same uncertainty spreads to banks which is why they were giving out bad loans for years. The artificial money supply told them to give out money willy-nilly because so much was available (from Greenspan and Bernanke.)

Agreed. And ultimately Greenspan will be rightfully demonized in the eye's of history. This man is nearly solely reponsible for our country's evolving demise.