Saturday, February 21, 2009

Bail 'em Out?

No additional words are necessary!

Official: Obama wants to halve budget deficit

Associated Press Writer

WASHINGTON – Barack Obama wants to cut the federal deficit in half by the end of his first term, mostly by scaling back Iraq war spending, raising taxes on the wealthiest and streamlining government, an administration official said Saturday as the president worked to finalize his first budget request.

Obama's proposal for the 2010 fiscal year that begins Oct. 1 projects that the estimated $1.3 trillion deficit he has inherited from former President George W. Bush will be halved to $533 billion by 2013. That's a difference of 9.2 percent of the overall economy now vs. 3 percent in four years.

"We can't generate sustained growth without getting our deficits under control," Obama said in his weekly radio and Internet address that seemed to preview his intentions. He said his budget will be "sober in its assessments, honest in its accounting, and lays out in detail my strategy for investing in what we need, cutting what we don't, and restoring fiscal discipline."

He's expected to outline some broad themes of his budget request Monday at a White House summit on fiscal policy and touch on it during his first speech to Congress on Tuesday evening. He is slated to officially send at least a summary of it to Congress on Thursday, barely a week after his $787 billion economic stimulus plan becoming law.

Obama's budget also is expected to take steps toward his campaign promises of establishing universal health care and lessening the country's reliance on foreign oil.

The official, who spoke on the condition of anonymity because the president has not yet released his budget, said Obama hopes to achieve his deficit-reduction goal by generating savings as he follows through on three core campaign promises over the next four years.

He has pledged to wind down the Iraq war by withdrawing most combat troops within 16 months of taking office. He also has said he would let the temporary Bush tax cuts expire in 2011 for people making more than $250,000 a year, effectively raising taxes on those people. And, he has vowed to scale back spending and improve government efficiency by eliminating programs that don't work.

The budget projections suggest that Obama hasn't backed off of any of those priorities, despite relatively little movement on them and at least one misstep in his first month in office as he concentrated on lobbying for the economic stimulus plan and rescuing the housing, auto and financial sectors.

Pentagon officials still are trying to determine exactly how to scale back the U.S. troop commitment in Iraq. The president's sweeping economic plan didn't include any of the tax increases Obama, as a candidate, had said he would impose on wealthy taxpayers. And, Nancy Killefer, his selection for a newly created position charged with eliminating inefficient government programs, withdrew amid personal tax issues.

Cutting the deficit by half in a mere four years is a lofty goal at any time, let alone in such dire economic circumstances. The question is whether Obama can do it while also turning around a recession now well into its second year.

Obama has pledged to make deficit-reduction a priority both as a candidate and a president. But he also has said economic recovery must come first.

In his first month in office, he has overseen enormous amounts of spending aimed at stabilizing the economy, reversing the recession and heading off even more turmoil.

Last week, he signed into law the $787 billion stimulus measure that is meant to create jobs but certainly will add to the nation's skyrocketing national debt. He also is implementing the $700 billion financial sector rescue passed on Bush's watch; about $75 billion of it is being used toward Obama's plan to help homeowners facing foreclosure. At the same time, the administration is weighing requests by General Motors Corp. and Chrysler LLC for an additional $21.6 billion. The ailing automakers already have received a combined $17.4 billion in federal loans.

Yet, even as he's spending a ton of taxpayer money, Obama also is pressing the need for getting "exploding deficits" under control.

The nonpartisan Congressional Budget Office says that this year's budget deficit will be at least a record $1.2 trillion — about two times that of the year before. That total includes financial bailouts and rescue plans Congress approved since last Oct. 1, the start of the government's budget year, but not Obama's hefty stimulus package that's now law.

Some private economists are forecasting that the budget deficit for the current year will hit $1.6 trillion. And, the Treasury Department has said that the recession and massive costs for the $700 billion financial bailout have pushed the federal deficit to an all-time high for the first four months of the budget year.

Obama's budget director, Peter Orszag, told lawmakers recently that even after the economy recovers, annual deficits could reach $750 billion or so and steadily exceed $1 trillion by the end of the next decade. And, Obama himself has said, without decisive action, "trillion-dollar deficits will be a reality for years to come."

Thursday, February 19, 2009

Rick Santelli's Squawk Box 'Chicago Tea Party' Video

This is a MUST SEE clip. Here is the Rick Santelli video calling for a "Chicago Tea Party." If they build it, I will come. Will you?

Wednesday, February 18, 2009

Inside the Auto Repossession Business

Due to the tough economic times that we are facing, I decided to post this article about the auto repossession business that was written by Ralph Thomas. While his article is about how much money a person could make if they were in the business, I thought it worthy of posting to let you know how the business works in case you find yourself on the short end of a repossession and they are coming after you. I'm not here to offer advice but merely pass on information. The only advice that I can give you is to pay your bills on time every time in order to avoid the repo man. Of course, if you did this, you wouldn't be in the situation where you were looking for repo information now, would you?

If you are facing a repossession - good luck! That's all the advice I can offer you. - Skydancer

By Ralph Thomas
Originally Appeared As A Business Opportunity Syndicated Article

The auto repossession business is a hidden market type of business which the general public knows little about. When we investigated this business we found a very healthy market from banks and loan companies who do not wish to repossess vehicles themselves. It is a billion dollar industry that every bank or loan company will use and most loan companies and banks us them quite often. There are some 5000 firms in the United States who are in the business working out of their homes and small offices. The great majority of them do no advertising and are not even listed in the yellow pages of the telephone book. There is no need. They simply contact every bank, auto dealership and loan agency in their area to obtain the work. There are three basic reasons why this business is such a money maker:

1) The volume of assignments from companies are relatively easy to obtain.

2) The fees charged compared to the amount of time it takes to perform the repossession is very high. A repossession can take anywhere from fifteen minutes to half an hour. However, the fees charged for such a service is between 150 to 250 dollars.

3) Once a client uses your service once, he will use you again and again. Some companies have as many as two or three dozen of such assignments to give out every month. Often times, three or four clients can give you more work than you can do.

In order for you to understand how this business works and how assignments are obtained, it is important to understand the hows and why of repo assignment to an independent agency. First, there are several different markets. They are:

Most banks in the United States today do a great deal of business in auto financing. When loans are past due they usually go to the bank collection department. The people who work in this department sit at desks and make telephone calls all day long to people who are past due with their car payments. When problems occur, the account is given to the collection manager who makes a determination on what to do. In a great deal of these cases, the collection manager determines that the best solution is to repossess the car. Depending on how easy he thinks this will be, he might either have one of his collection agents repo the car or call in an outside repo agency. Some banks rely solely on outside agencies to do this kind of work. Other collection departments will attempt to repo a certain percentage of the easy ones and turn the rest over to a professional repo agency. Even a percentage of these usually end up in the hands of an outside repo man.

These loan companies work much like the banks do. However, they usually charge a higher interest than most banks and deal with a higher percentage of loans gone bad.

Thousands of used car lots can be found throughout America that do their own financing. They are usually dealing with people who can not otherwise obtain credit. The way a great deal of these operators make money is to charge the buyer a down payment equal to the what they paid for the car and finance the rest. Payments are usually made weekly by the buyer. A large percentage of loans go bad. The used car lot owner makes money by repoing the car, putting it back on his lot and selling it a second and third time. These used car lots have a great deal of repossessions but usually want a cut rate price.

People outside of this business would think that a new car dealership would not have that much of a problem with repos. However, they do have some. It generally occurs when something is found to be wrong with the loan papers and the banks or loan companies throw the liability back onto the dealership. This is called recourse. Another thing that happens is someone comes in and puts a down payment on the car. The check is written to the car dealership and the check bounces. Although new car dealerships do not have as many repos as loan companies, banks and buy-here-pay here car lots, they do have their share.

There are independents and chains. When car rentals don't come back in, these agencies have big problems. They will need to jump on these cases right away. Most of the time, this will require a full scale location investigation in order to locate the renter.

Every once in a while, a private citizen will sell off one of their autos and be paid with a bum check. Their only recourse is to call in a repo man. However, this type of market is usually only targeted by established repo agencies who have been in business several years and list their services in the telephone book.

There are other specialized markets in this business such as semi-truck rentals, semi-truck loans, motor boats, house boats, airplanes, and motorcycles. Usually airplanes and semi-truck repos go for about twice the normal charges.


Repo fees seem to vary greatly within the United States and vary greatly from one type of market to another. The standard rate for a repo from a bank or loan company is about $200.00. The standard fee for a used car agency is about $100.00. The repo agency usually has a break down in the charges which might look something like this:

DRIVER FEE: $45.00
SKIP TRACE: 4 hours @ 25.00 per hour $100.00

But the basic repo fee is 150 dollars plus another 45 dollars for a driver fee. When a repo man picks up a car, he usually has to have someone drive him to the location. That is what this fee is for. He will also be required to produce an inventory and condition report. Some agencies also take a snapshot of the car which is included in the inventory and condition report. A great deal of repo cases require the repo man to first locate the subject although this is not always the case. Usually when you locate the subject, you have also located his car. The above total bill comes to $325.00 and repo specialists report they can do several of these assignments per day.

A great deal of the problems in auto repossession occur in the location of the debtor. There is a prospective technique employed by auto repossessors that is often referred to as backwards tracing. What the repo man does is look for vehicles with out of state or out of county tags on them. When he spots one he jots down the location of the car and the tag number. With the tag number he obtains a vehicle registration from state motor vehicle and does a title trace. What this tells him is, if the vehicle has a lien on it. If it does, it will give the name of the lending company. The lending company is then contacted to see if the vehicle is missing and needs to be repossessed. Many repo men report that they can obtain assignment to a repossession on three out of every twenty leads they perform a title trace on.

Dave Ramsey's thoughts on the Obama Stimulus

For Dave Ramsey's thoughts on the Obama Stimulus package, click here. You will be redirected to the Obama Alert blog for the complete story.

Monday, February 16, 2009

Venezuela Government Bonds Drop as Chavez Scores Voter Victory

By Laura Cochrane and Andrea Jaramillo

Feb. 16 (Bloomberg) -- Venezuela’s bolivar rose the most in a month on speculation President Hugo Chavez will take measures to offset a plunge in oil revenue after winning a referendum yesterday that eliminates term limits.

The bolivar jumped 2.7 percent to 5.65 per dollar in unregulated trading at 3:34 p.m. New York time from 5.80 on Feb. 13, traders said. It had slumped 4.3 percent over the past month amid concern that Chavez was putting off tax increases and spending cuts as he focused on winning the referendum, which allows him to extend his presidency beyond 2013.

“We’re not expecting Chavez to see the light and take a more pragmatic approach, but he will at least now be able to make the necessary adjustments to address the widening deficit,” said Edwin Gutierrez, who manages $5 billion of emerging-market debt, including Venezuelan securities, at Aberdeen Asset Management Plc in London.

Venezuelans turn to the unregulated market when they can’t get government authorization to buy dollars at the official rate of 2.15 per dollar. Chavez, who first took office a decade ago, has restricted currency transactions since 2003.

Barclays Capital Inc. said last week that the measures Chavez may take include the implementation of a financial transaction tax, an increase in the value-added tax rate, a devaluation of the official exchange rate and an increase in domestic gasoline prices.

No Immediate Plans

Finance Minister Ali Rodriguez said yesterday that the government doesn’t have any immediate plans to raise taxes or devalue the currency.

The 75 percent tumble in crude from a July record has throttled revenue in Venezuela, which gets more than 90 percent of its exports from oil. The plunge in oil has pushed the bolivar down from 3.38 per dollar in the parallel market six months ago.

The yield on the government’s benchmark dollar bonds due in 2027 rose 12 basis points to 18.6 percent, according to Bloomberg prices. The bonds’ price fell 0.35 cents to 51.54 cents on the dollar. Bond trading was light with U.S. markets closed, traders said.

The referendum, which allows Chavez to extend his drive to turn the oil-producing country into a socialist state, marked the second time in 14 months he sought to remove the limits that kept him from seeking unlimited re-election. The amendment carried with 54.4 percent of the vote to 45.6 percent, according to preliminary results, said Tibisay Lucena, president of the National Electoral Council.

‘Grey Political Scenario’

“It does present a grey political scenario: that Chavez will be there forever,” said Luis Costa, an emerging-market debt analyst at Commmerzbank AG in London.

The combination of Chavez’s political strategy and the plunge in oil is increasing investor concern about the country’s ability to pay its $46 billion of debt. Venezuela, the biggest oil exporter in the Americas, raised government spending to the equivalent of 36 percent of gross domestic product in 2007 from 23 percent in 1998, according to Standard & Poor’s.

Venezuela’s benchmark securities due in 2027 trade at a price that is about half their value of 99.2 cents a year ago.

“It’s an extremely shaky scenario to go long Venezuela bonds, especially with the prospect of oil trading in the low 30s,” Costa said.

In the first 10 months of the year the government had a 48 million bolivar ($22,354) budget deficit, according to the central bank. The budget report, based on information provided by the Finance Ministry, doesn’t include off-budget spending by the government’s National Development Fund or social spending by state oil company Petroleos de Venezuela SA.

‘Macroeconomic Weakness’

“Because of the macroeconomic weaknesses, social and political tensions could at any moment disrupt governance and oil shipments,” Benito Berber, an economist at RBS Greenwich Capital Markets, wrote in a report today.

The amendment allows Chavez, a former Army lieutenant colonel, to seek re-election as many times as he wants. The next presidential election is slated for 2012. Chavez, whose began his political career after leading a failed coup attempt in 1992, says he needs to rule beyond 2012 to carry out his “socialist revolution.”

Investors demand 18.05 percentage points more in yield on average to hold Venezuela’s dollar bonds rather than comparable- maturity U.S. Treasuries, according to JPMorgan Chase & Co. That’s more than four times the 4.24 percentage-point average yield spread for Brazil’s dollar bonds. Dollar-denominated bonds sold by Argentina, which defaulted on debt in 2001, carry yields on average 16 percentage points more than Treasuries, JPMorgan data show.

S&P’s Negative Outlook

S&P lowered Venezuela’s debt rating outlook to negative from stable on Dec. 10, saying the referendum will cause Chavez to put off “needed adjustments in economic policies.” S&P rates Venezuela’s foreign debt BB-, three levels below investment grade. Moody’s Investors Service, which rates Venezuela’s debt five levels below investment grade at B2, removed it from review for a rating increase on Jan. 15.

“We don’t expect any rating downgrade out of this,” Costa said.

To contact the reporters on this story: Laura Cochrane in London at lcochrane3@bloomberg.netAndrea Jaramillo in Bogota at

Nigeria Increasing National Debt

by Les Leba

The Senate, on January 21, 2009, brushed aside the initial opposition from its ranks to approve President Yar'Adua's request to borrow the naira equivalent of $500m (in bonds) from the international capital market, to be repaid at the current naira exchange rate in 2019. Indeed, when the proposal was initially tabled inYar'Adua's 2009 budget presentation to the National Assembly (NASS) in December last year, the naira equivalent of this loan was N60bn.

However, in view of the 'deliberate' devaluation of the naira in the last few weeks, the naira equivalent may have increased to N75bn. If the economy continues to be mismanaged and our export earnings are as usual stolen by treasury looters or frittered away on white elephant projects, it would be fair to assume that we may actually be repaying a capital sum of over N150bn in ten years time, if the naira depreciates by about 100% to N300/$1. This may not be an unusual depreciation, if we recognize that the naira was barely N80/$1 up till 1998!

In the event that our government is currently paying about 10 per cent interest on its short-term borrowings with treasury bills, we may assume that the fresh long-term loan would attract a minimum annual servicing cost of over 10 per cent. If the current rate on Federal Government naira bonds is also anything to go by, the cost of borrowing may approach 15 per cent per annum in spite of the availability of international multilateral agency loans, which attract much less for sovereign borrowings! We recall that Nigeria exited its debt burden with the Paris and London Clubs after shelling out over $13bn of reserves and at least two former Finance Ministers (in spite of their IMF antecedents) have described this payout as a simplistic and 'primitive' financial strategy.

Other notable analysts also queried the value of the initial loan burden insisting that the government had never been able to show how the loan was accumulated in the first place, and maintained that the atrocious and heavy penalty charges were inexplicable. Worse still, no one could identify the successful projects, if any, that the loans had funded. It was against this unsavoury background that the Senate Committee on Appropriation, rightly, some would say, objected in December 2008 to Senate approval for a fresh loan application for $500bn by Mr. President. In support of the veracity of this observation, we recall the loans unilaterally consummated by the former President from the Republic of China for the power sector and the reengineering of the Nigerian Railways. On the domestic front, we also recall the rapid accumulation of local debts, particularly through bond issuance by almost N2,000bn within four years, without recourse to NASS approval. There is practically nothing to show for these loans, and it seems that these loans were incurred specifically for non-tangible purposes with dubious and immeasurable yardsticks!

Indeed, the Debt Management Office (DMO) had indicated in earlier offers that the loan objective was to deepen or create a market for government long term borrowings, and also set a benchmark for other medium to long term loans in the capital market. In any case, since both objectives cannot account for the actual spending of the huge sums of monies borrowed, the mind boggles as to what ends the funds were actually applied. It certainly could not be for funding federal budget deficits, as our revenue from all sources exceeded our expenditure for the past four years. One can only imagine that the funds were simply stored idly in CBN vaults or in accounting records in spite of annual interest payments of between 12-17 per cent for such borrowings, just for the joy of creating a benchmark price and creating a market for long term government securities! Not surprisingly, the purposes stated by the Federal Ministry of Finance (FMF) for seeking NASS approval for its $500m or N75bn loan come from the same template for government's domestic bonds in the recent past; after all the former Debt Management Office boss is now the Minister for Finance!

However, the Senate Committee on Appropriation in a spirited attempt to do the right thing noted as follows in its response to the Executive request: "...the ultimate goal for the implementation of any public sector programme or project is to enhance the welfare of the citizenry...A major benefit allegedly derivable from this loan is that it will provide a benchmark for private sector borrowing. In our view, the Federal Government of Nigeria (FGN) needs to prove this assertion beyond any doubt; we should note that the FGN did not specify the beneficiary projects; that important information must be provided. It is also obvious that the loan would be sourced at market rates, which should be higher than for concessionary loans normally preferred for financing of public sector projects. The net benefit of this market-based loan must be convincingly articulated. FGN needs to demonstrate concisely the extent to which the procurement of the loan would reduce the cost of borrowing by Nigerian-based private sector operators from the International Capital Market (ICM). Both official and market sources of fund base their decision mainly on the Country Risk Assessment (CRA) reports. We are yet to decipher how procurement of the sovereign loan as proposed will reduce Nigeria's overall CRA. FGN needs to clarify this relationship."

As noted earlier, the nation has never prudently utilized external loans for the public sector, since the loan procured in 1957 for the construction of the national rail network. FMF should, therefore, demonstrate the fundamental institutional improvements towards achieving the stated benefits of this and other forms of external borrowing. Research evidence has adjudged the debt sustainability criteria being employed by FMF/DMO as misleading and lacking any theoretical underpinning. It is also geared towards a nation's perpetual dependence on loans rather than real development. Recourse to borrowing for development financing should be a stop-gap measure, and not a perpetual life support facility.The National Economic Empowerment and Development Strategy (NEEDS) places much emphasis on Public Private Partnership (PPP) as a major source of development financing. The continued emphasis on (especially) external borrowing by the public sector negates this orientation, and calls to question our real commitment towards evolving a private sector-led market-oriented national economy. Regrettably, in spite of the serious and powerful observations by the Appropriation Committee against the $500m loan, the Senate remained unmoved and never attempted to resolve the fundamental issues raised by its own Committee. Indeed, the Senate took cover for their action by insisting that further debate or evaluations of the loan application had been overtaken by the Senate's hastened approval of the totality of Mr. President 2009 budget within 10 days or so in December 2008, and noted that the budget approval had consequently covered the loan application which was embedded in the budget!

In this same vein, Senate's approval for the 2009 budget may also be seen as a blanket approval for the Federal Executive "to take the extraordinary step of exceeding , in the short term, the deficit target we set for ourselves under the Fiscal Responsibility Act 2007. However, we remain committed to reverting to a more conservative and sustainable fiscal deficit of 3%, or lower, in the medium term, consistent with international best practice." In plain language, what Yar'Adua is asking in the above excerpt from the 2009 budget is permission to borrow more money at his discretion above the acceptable limit of 3% of GDP without further or subsequent application for NASS' approval for such borrowings.

In the event that such further borrowings are not tied to any real application, and the prevailing tradition of waste and corruption, not to mention the self-serving habit of MDAs of shoring up unspent funds for personal gratification, it would be a great disservice to the nation, if the NASS gives Mr. President such an open cheque! Indeed, the lamentation of the Senate Committee with regard to sidetracking by the Executive even in a civilian dispensation from performing its constitutional oversight evaluation and approval for federal loans would have become crocodile tears!

Sunday, February 15, 2009

Obama the deficit hawk

Posted by Dan Spencer

“We are not going to be able to perpetually finance the levels of debt that the federal government is currently carrying.” — President Obama, February 12, 2009

That was yesterday, before the Congressional Democrats and three Senate Republicans gave President Obama his national debt-busting $787 billion bailout boondoggle, which will actually cost $3.27 trillion.

Now, with his so-called “stimulus” in hand, Obama will morph into a deficit hawk.
Obama’ has scheduled his “fiscal-responsibility summit” for February 23, and according to the Wall Street Journal, three days later, Obama will start to pressure politicians to address the country’s debt crisis.

Oh the irony hypocrisy Obama. How does this president get away with having everything both ways?

National Debt Clock