States Likely to Default – The Imperfect ‘10’

We’re Sitting in the Crow’s Nest?

Our City of Rockwall mayor recently spoke before the RCRMC (Men’s Club). On the issue of City finances and the effect of the national economic recession, he acknowledged the “ship” is sinking – but not to worry, because “We are in the crow’s nest.” By this I suppose he intended to say that despite what happens on the national and State of Texas scenes, the general economy is going down, but our beloved City of Rockwall will be immune – we’ll keep our feet dry, so to speak.

Business Insider lists ten states likely to default, based on the proprietary Fitch CDS-IR model.

State Rankings in Descending Order – Number 1 is most likely to default

Rank                   State                   CPD

1                           Illinois                 41.2%

2                          California           39.3%

3                          New York           35.3%

4                          New Jersey        34.7%

5                          Michigan              33.8%

6                          Nevada                 32.0%

7                          Massachusetts   22.0%

8                          Ohio                        20.9%

9                          Texas                      15.0%

10                       Virginia                  12.3%

CPD = Cumulative Probability of Default

CDS = Credit Default Swap

CDS-IR = Credit Default Swap – Implied Ratings

What to Do?

I hope by now we are in general agreement that one cannot spend oneself out of indebtedness. For those who believe we can, you go right ahead and race your credit card charges against your credit card payments. Let’s see which comes out ahead.

Does it make sense to go the bank, borrow money, then borrow more to repay the first loan? No? Then why does it make sense to borrow money from China so we can repay loans from China, and Japan?

What’s the Point?

The City of Rockwall, city staff and council, are “looking ahead” to meet the needs of a growing city. However noble that may sound, the big need they overlook is this: how do we pay for it?

All around the “crow’s nest” homeowners lose their properties to foreclosure. Renters default on rental agreements. Unemployment runs high, very high. Unemployment is not solely the problem of low-income residents, professionals and highly educated specialists and even lawyers are either pounding the pavement or have given up altogether.

We can’t all get rich in the stock market. And, only a few will win the state lottery. Somehow, someway, someone has to actually produce something of value.

Produce something of value? Do you mean some kind of profitable enterprise? Indeed. Rockwall needs profitable enterprises – enterprises founded, funded and operated by entrepreneurs who are willing to take risks.

I attend City Council meetings from time to time. When I can’t, I read about them on http://rockwallzoo.com and the City-owned website http://www.rockwall.com/ under the “Happening How!” tab.

My opinion: City Staff and Council seem to be pushing for uniformity in building design and construction – monotonous stone appears everywhere we have new buildings. Which one is the doctor’s office?

Signage is another issue, all unto itself. Let’s make them small, very costly and difficult to be seen. There. That ought to improve a business owner’s chances for success.

Formula for Success

Profitability is really quite simple to understand. Buy low, sell high. Keep operating expense low. At the top of the list: location, location, location.

Knowledge Quiz

Question number 1 | Which state has the most Fortune 500 companies?

Question number 2 | Which city has the most Fortune 500 companies?

Question number 3 | How did that city with the most Fortune 500 companies grow so large and have such a diverse economy?

Okay, boys and girls, here are the answers:

Number 1 | Texas

Number 2 | Houston

Number 3 | No Zoning

How did all those ignorant Houston millionaires make their fortunes without the help of a Planning and Zoning commission and the oversight of a panel of elected officials and bureaucrats?

Is the point obvious, or do I need to fill in the blanks for you?

People smart enough, clever enough and daring enough do the best job of building a successful business. Would it not seem logical that a city staff member or a city council member who thinks himself/herself so wise as to dictate how, where and when a business can operate should go out and prove to the world they know what they’re doing?

I invite the City of Rockwall, Rockwall County and surrounding municipal governments to realistically evaluate our situation. We need wealth-building enterprises that employ income-producing workers to pay government-sustaining taxes.

Income-producing workers rent or buy homes that produce property taxes. These same hard-working folks purchase their daily bread and other material goods from local merchants, thus generating sales taxes.

Sales taxes and property taxes are the fuel that sustains local government.

We need to cut spending and to cut taxes: municipal, county and school district. Tough economic times are rapidly coming upon us. The time to prepare was yesterday – but it’s never too late to start.

As it goes with the nation, so it goes with Texas, and Rockwall. We may very well end up with a lot of expensive buildings, like my customer Dallas, but we will have to cut payrolls to pay for them.

12 thoughts on “States Likely to Default – The Imperfect ‘10’

  1. John,

    I was just in Houston and was appalled to find porn shops, liquor stores and churches in the same center…with the rest of the businesses out of business. I agree we need fortune 500 businesses but adamantly disagree that no zoning is the answer. I in no way want to be Houston and I think you don’t either. It is not a model to emulate.

    1. Glen,

      Thanks for your input. One might think all Houston to be porn shops and liqour stores, but it’s not. I was born and raised very near that great city. Some of the greatest churches in America are found there. My sister has lived there for nearly 40 years, along with her two adult children and grandchildren. Houston was one of my marketplaces, before I retired to my small business here in Rockwall.

      Law enforcement recently closed “massage parlors” in our little city, wine and beer are openly sold in grocery stores and before long, we will have our share of liqour stores.

      I can think of no city that qualifies as a model city. I personally know business owners who placed their businesses outside Rockwall so they could operate freely and economically. If you would like to meet even one of them to hear why a business owner would look elsewhere, it will be my pleasure to arrange the meeting.

      I appreciate your hard work and your contribution to young people.

  2. Actually John,

    we don’t necessarily need fortune 500 businesses, just businesses that bring workers and pay taxes. Not every city will attract 500’s.

  3. Specifically John, What about the current zoning ordinances do you think needs changing. You know from my voting record that I support business. I really am interested….what needs to Change?

  4. Thanks to Ben for question 4. Despite individual crime reports one hears from the greater Houston area, it’s a terrific place to live and home to almost 6,000,000 persons, almost one-fourth of the entire Texas population. Crimes rates compare with Dallas that does have zoning. Therefore, zoning plays no role in crime rates. Crime rates are a function of population dynamics. Houston proper, population over 2,000,000, is the very heart of Texas commerce and industry.

    1. Jerry, this article you link is good information. The bottom line is this: with respect to a robust local economy, the small collective intellect of a committee will always be inferior to the collective thinking of the population as a whole.

      A current trend among central planners is to essentially create artificial homeowner associations for entire cities.

      Central planning for purposes of societal engineering inherently produce flawed results.

  5. There is one key problem with the removal of zoning laws. When the government provides any sort of subsidy to a property developer, that subsidy has the effect of distorting the market and causing developers to make economic decisions based on false economic stimuli. If for no other reason, zoning laws might be necessary as a means for preventing these kinds of economic distortions.

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