In 2008, pain was par

<p>The toll is measured in soaring mortgage foreclosures and tumbling home prices, rising unemployment and failing retailers.</p><p>Banks suffered sharp increases in loan losses as housing's downturn worsened. Auto dealers closed as gasoline prices skyrocketed and lending tightened.</p><p>Not all the news was bad. Commercial airline service from Sonoma County expanded. Medical technology companies here continued to register strong growth.</p><p>But with the region's economy contracting, dark clouds still hover over the landscape.</p><p>Chris Thornberg, an economist who studies California, provided a gloomy outlook during his annual talk last month hosted by the Sonoma County Economic Development Board.</p><p>"It's going to be a bad recession. It's not pretty, but it's not a depression," he said.</p><p>The problems began with housing's deepening decline. Foreclosures spiraled to record heights with banks taking back nearly 60 homes a week -- four times the number a year ago.</p><p>Most vulnerable are those who bought around the peak of the housing boom three years ago with risky loans featuring low initial payments that explode when higher interest rates kick in. If they now owe more than the home is worth on the market, there isn't equity needed to refinance. Selling is the only alternative to foreclosure, yet it's a struggle in a market flooded by bank-owned homes.</p><p>Sales finally started to pick up this fall as prices hit seven year lows in Sonoma County, plunging to $325,000 after reaching $619,000 in 2005. But sellers still outnumber buyers and economists have said prices likely won't hit bottom until the second half of next year.</p><p>Tighter mortgage lending has hampered sales, particularly for the market's upper half, reflecting lender caution in the wake of rising foreclosures.</p><p>More builders also have been falling behind on loans taken out to buy land and put in subdivisions. Poor sales and plummeting prices have hammered developers and some local banks have been hit with losses as a result.</p><p>Delinquent loans cut into bank profits and that was particularly evident with Exchange Bank.</p><p>Sonoma County's largest local bank lost money in three of the past four quarters, ending a run of profits over more than a half-century. Its profits have been erased by the need to set aside increasingly large amounts of money in reserve to cover widening losses in the bank's portfolio of construction loans.</p><p>Exchange Bank's problems are concentrated primarily in loans made to developers in the Sacramento area near the peak of the housing boom.</p><p>While Exchange Bank remains on stable ground, its stock value has taken a steep fall and the bank stopped dividend payments to its shareholders for the first time in more than 60 years. The move led to the suspension of the Doyle Scholarships to SRJC students, which are funded by Exchange Bank dividends.</p><p>Exchange Bank's problems reflect how Sonoma County banks are heavily invested in real estate and their exposure to losses in what has been a deeper than expected decline.</p><p>But the housing downturn was just one in a series of blows to batter the economy.</p><p>Rising unemployment has followed a slowdown in business activity. Swelling jobless ranks contribute to consumer jitters and less spending, the fuel for the economy.</p><p>Sonoma County's jobless rate hit 6.5 percent in November -- its highest mark in nearly 14 years.</p><p>The economic slowdown is reverberating beyond job losses in the housing-related construction and finance industries to manufacturing, tourism, and the retail sector, where holiday hiring was down.</p><p>Retailers have been shedding jobs and closing doors.</p><p>Mervyns going out of business will be a major blow to many areas in California including Sonoma County. The department store's closure will affect 102 employees in Santa Rosa and 76 employees in Petaluma.</p><p>Additional major retailers to fall this year include Linens 'n Things, Sharper Image, Shoe Pavilion, Steve &amp; Barry's, The Bombay Co. and Levitz Furniture. Still others announced plans to close hundreds of stores including Ann Taylor, Foot Locker and Zales.</p><p>Falling home prices and rising job losses also are putting the brakes on car buying. Tight credit has contributed to driving down new car sales.</p><p>Plunging auto sales have led to the closure of three North Coast auto dealers this year, in Sebastopol, Asti and Ukiah. Dealers said more could follow despite the recent federal bailout for domestic automakers.</p><p>While gas prices have fallen back under $2 after hitting a record $4.55 this summer, cash-strapped motorists are more frugal and just as likely to keep an old car running than buy a new one.</p><p>Cost cutting is one way more companies are weathering the weak economy. Less visible than layoffs are postponing equipment purchases and expansion plans.</p><p>Agilent Technologies this month announced plans to cut employee pay 10 percent worldwide starting Jan. 1. The move avoids layoffs as sales of Agilent's electronic test and measurement products decline due to the slumping world economy.</p><p>The pay cut is expected to last through Oct. 31, 2009, the end of Agilent's current fiscal year, and save about $110 million, or 1,100 jobs.</p><p>The sagging economy also revealed an investment scheme that has cost hundreds of Sonoma County residents millions of dollars.</p><p>When times were good, Gary Armitage and Jeff Guidi had no shortage of clients eager to invest their life savings on the promise of double-digit returns.</p><p>Hundreds of Sonoma County residents -- many of them senior citizens -- believed assurances the money would be placed in no-risk or low-risk real estate investments.</p><p>But when the economy began to soften and housing prices plunged, everything collapsed.</p><p>The investments went belly-up, lawsuits accused the men of running a pyramid scheme with a convicted felon from Redding, the state Attorney General opened an investigation, and their firm, Santa Rosa-based AGA Financial, closed.</p><p>The case has been called one of the largest investment frauds in recent state history.</p><p>Investors desperate to recoup their money have few options. Some are suing. Some hope for court restitution. Most doubt they'll recover anything.</p><p>There is little question, however, where Sonoma County's economy should see growth. Economists predict good gains for technology-producing companies, led by those in medical technology.</p><p>Medtronic's Santa Rosa division is driving growth for the medical device maker. The company this year began selling its drug-coated stent Endeavor -- developed in Santa Rosa – and has captured almost 20 percent of the domestic market, according to Medtronic. Doctors use the device to treat coronary artery disease.</p><p>Medtronic is Sonoma County's largest biotech employer, with about 1,200 workers in Santa Rosa.</p><p>Attracted by the promise of improved stent graft technology, a group of venture capital funds brought Santa Rosa biotech company TriVascular back to life this year. Boston Scientific, which shut down TriVascular nearly two years earlier, retains a minority stake.</p><p>The new company, TriVascular2, aims to finish developing the stent graft system over the next two to three years. The new company reopened at its former headquarters near Charles M. Schulz-Sonoma County Airport.</p><p>Another bright spot for the economy has been commercial airline service out of the airport. Horizon Air has been filling more seats on flights out of Santa Rosa than its system-wide average.</p><p>The carrier added service from Santa Rosa to Las Vegas in April.</p><p>Horizon, part of Alaska Air Group, launched its Santa Rosa flights in early 2007. Service began with daily round trips to Los Angeles and Seattle, with Portland and Las Vegas added within a year.</p><p>You can reach Staff Writer Michael Coit at 521-5470 or mike.coit@pressdemocrat.com.</p>