There’s A Czar For That Too * Our Trade Deficit Answer * California’s Mortgage Protection Plan

Yeah, There’s a Czar for That

It is beginning to appear that the job of high-up elected officials is simply to hire others to oversee the issues we elected them to solve. President Obama has appointed a czar for nearly every significant issue that faces his administration. According to a recent article in the Chicago Tribune, “Republican Sen. John McCain has joked that President Barack Obama has ‘more czars than the Romanovs,’ the dynasty of czars that ruled Russia for three centuries.”

While the President is unquestionably overwhelmed with responsibility, the answer cannot always be to appoint a new position, which often means a new hefty salary. These new positions help keep one pair of eyes dedicated to an issue, which adds focus to important problems that need quick solutions. But, we elect individuals we feel can handle certain responsibilities and, in turn, we hold them accountable. Eventually the government will be overrun by managers instead of employees. Responsibilities will be thinly outlined, feet will be stepped on and too many cooks will be in the kitchen.

According to, the Obama administration has appointed:

a drug czar, a U.S. border czar, an urban czar, a regulatory czar, a stimulus accountability czar, an Iran czar, a Middle East czar, and a czar for both Afghanistan and Pakistan, which in Washington-speak has been lumped together into a policy area called Af-Pak. There are upward of 20 such top officials, all with lengthy official titles but known in the media as czars …

The rampant appointing of czars is no longer just a symptom of the federal government. State governments are also clearing out new offices for czars. For example, in Nevada, “Gov Jim Gibbons wants to use more than $500,000 in state contingency funds to hire a ‘stimulus czar’.” In California, Gov. Arnold Schwarzenegger appointed his deputy chief of staff as the stimulus czar. Federal stimulus law does not require governors to appoint czars, but the Obama administration has nudged them in the direction to do so.

In lean times, a growing government may not be the solution. Although czars do not always inherit a budget to aid them in their problem solving, they do obtain a plump salary. Possibly we, the people, should appoint a czar to oversee government expansion as it appears the person we elected to do so is struggling with this responsibility.

Our Trade Deficit Answer: More Giveth, Less Taketh Away

In 2006, the U.S. balance of trade, the value difference between the goods we import versus the goods we export, was an all-time-high $760 billion. In 2007 the gap narrowed to $701 billion and in 2008 it reduced to just under $696 billion. This year we are on pace to nearly slice last year’s trade deficit in half. But, it took a global recession like most have us have never seen to splash the water in our faces and open our eyes.

In the arena of international trade, the United States is the most significant country in the world. But, while we have led the world in imports, we have struggled to remain a large player in exports. During the 1950s and 1960s, the United States dominated in exports. In the 1970s, the United States transferred from having a trade surplus, which is a positive balance of trade, to a trade deficit. Countries such as Europe and Japan became fierce competitors in a number of industries and our balance of trade has suffered ever since.

To put our country’s balance of trade in perspective, imagine your personal spending habits. You produce an income and you spend. If you have zero savings and you spend more than you bring in, you are forced to borrow money. Your neighbor down the street, we will call him China, agrees to lend you money if you agree to pay interest. You feel comfortable with this cycle and each month you continue to borrow, which increases the amount you owe in interest. Your income stays consistent and soon your interest payments are equal to your income. Therefore, you can only afford to make payments on the interest each month. Something has to change, either you begin buying less or you start bringing in more.

Because our country buys more than we produce, we are forced to borrow money from other countries in order to finance our impulse to overindulge. Plus, since we have always made our interest payments, other countries are happy to lend to us. Essentially, we let other countries handle the responsibility of saving and we do the spending. The countries that save their money and lend it to us are enabling our spending addiction to continue. With access to easy credit, why save? Well, the global playing field is dramatically changing, which is exposing the importance of saving in order to be sustainable.

This recession has forced us to examine our spending habits. Credit has gotten tighter, which has our country’s importing trends reducing dramatically. Our ability to spend more than we make is weakening on both a personal and a national level. Therefore, the gap between the goods we import and the goods we export is narrowing. This gives us an opportunity to reset the way we approach spending. Because it is unlikely our country will resurface as one of the premier exporters in the world anytime soon, it is important to create a sustainable economy by lowering our trade deficit. But, can our country prosper without overindulging?

California’s Mortgage Protection Plan: Ingenious or Disastrous?

In an effort to boost home sales, the California Association of Realtors (CAR) has introduced a mortgage protection plan for first-time home buyers. The plan, officially known as the Housing Affordability Fund Mortgage Protection Plan, offers a monthly stipend to eligible first-time home buyers who lose their jobs due to a lay off. The funds are to be dedicated to the home owner’s mortgage payment and can be up to $1,500 per month for up to six months.

Because of rising unemployment numbers many would-be first-timers are turned off by the option of buying a house. CAR has introduced this new plan as a way to minimize the worries of first-time home buyers. Plus, because the CAR’s Housing Affordability Fund has received $1 million in funding, the cost to the buyer is nothing. As with all housing programs these days, applicants must successfully jump through a series of hoops and meet a number of requirements. According to, applicants:

\ May not have owned a home during the past three years

\ Escrow must have opened April 2, 2009, or later, and must close on or before Dec. 31, 2009

\ The property must be in California

\ The buyer must be a W-2 employee, not self-employed, and cannot be an employee of a business or corporation that he or she owns or controls.

\ The buyer must have been represented by an agent who is a member of the California Association of Realtors.

Surprisingly, there are no limits on either the cost of the property or the buyer’s income. Also, a $1 million budget can only be divided about 660 times. Therefore, if each qualified applicant uses the funds for the full 6 months, then only about 110 people can benefit from the program. I fear a program like this can easily spread itself too thin. If they qualify too many people and a wave of unemployment sweeps through the state, then the fund will run dry and the CAR will be looking to the state government to cover its obligations. And, as we have seen everyday in the news, California is nowhere near suited to take on another entity with budget problems.






About TomPowell

Senior Managing Partner of Resolute Capital Partners. As chief strategist I combine my education and proven expertise in raising private capital, innovative deal structure, risk mitigation, portfolio management, and distressed debt recovery to lead the Resolute Capital team in building a cross-pollination program of Foreign Direct Investment between Asia and the United States. In 1999, I founded and led the growth of ELP Capital, Inc, a mortgage banking investment company. In addition I served as the Senior Managing Director for ELP Capital’s affiliated investment company - ELP Capital Advisors, a Registered Investment Advisor for the ELP Capital Family of Funds, Institutional Investors, and wealthy individuals. I began my career with Wells Fargo Bank when I was recruited in 1988 for a management position in business banking for the Silicon Valley market. I was instrumental in the architecture, development, and initial application of Wells Fargo's Officer Sales Training programs, led two separate branch offices to top 5 overall rankings, and in 1990 was named as one of the youngest Vice Presidents in the Company’s 140-year history. I am a widely sought after speaker, international guest lecturer, and am an Instructor in the Office of Executive Education at Harvard University. In addition, I publish a weekly economic newsletter and podcast The Powell Perspective. I am involved in numerous community and industry groups. Specialties:An innovative investment manager with particular expertise in credit risk analysis, distressed debt recovery, and deal structure. I understand the practical application of money management in response to risk on both Wall Street and Main Street.
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