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Disciple724
Veteran Poster
Username: Disciple724
Post Number: 117
Registered: 07-2008
Rating: N/A
Votes: 0 (Vote!) | | Posted on Thursday, September 18, 2008 - 08:23 pm: | 
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In a few hours the Treasury Secretary Paulson and fed Chairman Bernake will be releasing their proposal to the financial crisis. Below is a piece that I produce that addresses certain aspects of the mortgage crisis. I would appreciate any comments and or criticism. Thanks in advance. JR
A call for Economic Patriotism:
Every Nation's greatness rest upon 3 great pillars. Its foundation is its Constitution and the additional laws which confirm it and it in turn strengthen and refine them. It is flanked on one side by its Militia, which by its strength and might, upholds the Constitution and defends its citizen against physical assaults from foreign enemies. Lastly, it is completed by its Economy, which sustains its citizens and delivers them to prosperity; more or less.
For where the Law regulates our lives, and the military protects our lives, it is the economy by which our lives are sustained. If it fails, so have our Militia and our Constitutional right to Life, Liberty, and the pursuits of Happiness. Most important, and so does our Nation. Consequently, it is important for the citizens of a particular Nation to defend its economy with the same vigor as they would a Constitutional attack, or a Military one. In this manner we can all serve our country well and wear the title of American with the Respect and Honor of any military soldier.
In "Understanding the U.S. Real Estate and Mortgage Crisis: Part I", I outlined some internal economic developments that have weaken this nation's economy and its financial markets. The consequences of which have spilled over into all other nations of this world. As such, the same economic angst that are being felt domestically, are being felt abroad, and the fear of a global economic collapse looms large. In this, "A Call for Economic Patriotism: Part II", I outline an organized, structured plan by which these problems can be resolved.
But, before I disclose the nature of the plan, it is important for every citizen, regardless of the roles they hold in society to understand that they have a duty to contribute to the restoration of this economy. This may require some to make temporary sacrifices and or concessions, but in the end, this plan is one that will benefit everyone.
Part I Recap:
In Part I of this two part volume, I noted that the problem begins in the real estate market, more notably, in how we "price" real estate. Real estate prices are commonly established using the free market theory model, which in and of it is severely flawed in many ways. While I could produce an entire volume as to why, the nature of the problem is evident at just a few points, so let's examine these:
Real estate houses are appraised by using 3 recent and local sales of like kind and model, as the benchmark for pricing value in that neighborhood and its here where the problem begins. For one, in many cases 3 homes and buyers represent such a small percentage of total homes and individuals, that it is hardly a large enough sample to define the demands of the entire marketplace. Moreover, since the richest citizens are most likely to be positioned to buy a home first, it sets the benchmark high and it can only go up from there. This means that the less capitalized citizens that need to buy a home after them will have to most likely pay more and have to commit much more of their financial resources to do so. And since they make far less, this means they will mostly go into debt to do so. From this point it is plain to see how the spiral of price inflation is set into motion. These are the "bubble creating" consequence of using faulty economic models that in theory may sound great, but in practice produces unsustainable and undesirable results.
One key dynamic that also takes place as a result of inflated real estate prices is that Buyers, induced by the allure that inflated prices are a sign that they are getting rich ( another flawed premise), become more prone to go into debt for their homes because they are sold to them as an investment. Setting aside for now the flaws of this premise, this makes it impossible to acquire ownership of a home within a short or reasonable amount of time. Moreover, the presumed "wealth effect" erroneously makes individuals feel richer than they are, induces spending, and makes them far less diligent towards saving and investing for future risk. And since the debt is tied to a basic living requirement, citizens eventually have no other choice but to go into debt, which erodes their chance at creating any true wealth.
One key dynamic that also takes place as a result of inflated real estate prices is that buyers are induced by the allure of them and see them as a sign that they are getting rich ( another flawed notion). They become more prone to go into debt for their homes because they are sold to them as an investment. Setting aside for now flaws of this notion, the escalated price levels make it impossible to acquire home ownership within a short or reasonable amount of time. 30 years is the standard loan term which means individuals will generally have to work the first 20 years just to pay the interest. This is a ridiculous amount of time by which to secure shelter amounting to 1/3 of an expected lifespan and qualifies as servitude. In this advance civilized age, we can do much better than that for our citizens. The aforementioned "wealth effect" deceptively makes individuals feel richer than they actually are, induces overspending, and makes them far less diligent towards investing and saving and against future risk. Most importantly, since the debt is tied to a basic living requirement, housing, and citizens have no other choice but to go deeply into debt, which erodes their chances for creating any real wealth.
At the mortgage procurement level, the escalating price problems get amplified. Here, the rich get preferred rates, making debt more expensive for the lower level citizens on a relative basis. They can buy more home at less cost than the poor, whose relative cost of living is much higher. As more and more citizens buy homes, the price of shelter (a basic living requirement) exceeds the poorers earning potential, and also makes wages far too expensive for employers. This forces them to lay-off workers, hire illegal immigrants, increase workloads on those that remain, and raise product and service prices which pass these cost back to employee when they become consumer. Eventually, when cut and price raises reach their apex, he is forced to move jobs overseas to maintain profitable operations. While initially there is a profit spike which encourages competitors to do the same, eventually the job erosion chokes off consumption and consumers begin to default on loans as well.
This system of ever escalating prices and of long term debt is a grossly inefficient way to achieve ownership which is the underlying principle of capitalism. It serves neither workers nor employers well, and yet it has become so common and customary that we submit to it. But there is a better way. To correct this problem, we must design a more practical real estate appraisal method which I will outline in another report. But, undoubtedly, some will argue that we must keep these models. For one; because we have always used them in the past and they seem to be working fine, and secondly, because they have gotten rich--in most cases unknowingly-- at the expense of the less rich and unsuspecting. But the purpose of this report is not to point fault finding fingers and or assess blame, but instead to heal and correct these faults in a constructive manner by which everyone can benefit. Here' a basic outline:
1. Create a Super National Patriot Fund for the purpose of repurchasing mortgage securities and restructuring and redistributing the underlying mortgages.
Raises capital and provides liquidity to a market that has become seized due to uncertainty. Loosens the credit crunch currently gripping the markets. Restore investor confidence and National credibility.
2. Fund this account by granting tax incentives, cost cutting concessions, and possible profit incentives to the qualified Organizational Participants (i.e. Large employers, Unions, Institutions, Municipalities, Government Agencies) in order to attract domestic jobs, to kick-start domestic production
Attracts and increases jobs, and restarts GDP, avoids recession
Connects employer, unions and local governments in such a way so as to reinvigorate neighborhoods
Creates a vibrant local economy where workers can create wealth for their labor, employers can produces goods and services at affordable competitive prices and still turn a nice profit for their shareholders, banks are relieved from the pressures of defaulting loans and declining securities, local governments have an expanding tax base with declining expenses.
3. Create Individual Mortgage Accounts with tax benefits that enable qualified employees the opportunity to defer up to 50% of their incomes in to such accounts, for the purpose of buying homes within current FNM, FRE limits.
Benefits: gives the long termed (6-10 years) contracted employee with a way to create wealth much faster with less salary (a win-win for employee and employer).
Participants could acquire homeownership in as short as 1 to 12 years as opposed to the conventional 30 years. The remaining years could be dedicated to things like education funding, health care, and retirement.
4. Create a Regional Distribution System to separate mortgages and repackage them according to region and or states and performing or non-performing. With a wheel and spoke style system, all 50 state and connected will have access to the superfund and the mortgages in them.
Allows performing loans to orderly serviced in the area of the home
Benefit: allows non-performing loans to orderly restructured in the area of the home
Allows a local Real Estate Management firms to manage distress vacant property or prevent some from becoming distressed
Allows unworkable cases to orderly vacation, relocation, and reoccupation with minimum vacancy
Benefits: allows existing non-performing loans with gainfully employed workers in default to get a fresh start by drawing funds from the Super Patriot Fund that will be repaid out of the mortgagors (long termed,6-10 years contracted employee) Individual Mortgage Account thereby quickly turning non-performing loans into performing ones.
Rapid repayment would quickly replenish Super Patriot Fund and providing for an orderly redistribution of debt |
Cynique
"Cyniquian" Level Poster
Username: Cynique
Post Number: 12885
Registered: 01-2004
Rating: N/A
Votes: 0 (Vote!) | | Posted on Friday, September 19, 2008 - 04:47 pm: |
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Well, what can I say, Disciple? I appreciate that you've devoted a lot of time and thought to this manifesto and it looks good on paper. But the logistics might prove difficult because it's hard to get everybody on the same page.
For the greater good and the immediate survival, our omnipotent Uncle Sam has come to the rescue of his wayward nephews and will charge the bill to the rest of the family. This is the price we must pay for living in a country with the highest standard of living in the world. And so it goes. |
Disciple724
Veteran Poster
Username: Disciple724
Post Number: 122
Registered: 07-2008
Rating: N/A
Votes: 0 (Vote!) | | Posted on Friday, September 19, 2008 - 06:22 pm: |
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Cynique,
Thanks for your time and imput, I appreciate it.
Actually, one of the admirable quality of the Europeans, is how in the face of eminent danger they are able to put aside their differences to address a common enemy. In all my experinces, I have experienced this with my folk. We fight to the bitter end.
Today in an unprecedented move Democrats and Republicans united quickly and effectively to create a huge fund to put all the "toxic" debt-- similar to what I suggested in the first point of my plan, though their plan goes on to pass the risk to the Public in higher taxes. same old story there though. I hope to speak with a Congressman this weekend that expressed interest in my though so keep our fingers crossed. |
Chrishayden
"Cyniquian" Level Poster
Username: Chrishayden
Post Number: 7433
Registered: 03-2004
Rating: N/A
Votes: 0 (Vote!) | | Posted on Saturday, September 20, 2008 - 11:52 am: |
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Actually, one of the admirable quality of the Europeans, is how in the face of eminent danger they are able to put aside their differences to address a common enemy. In all my experinces, I have experienced this with my folk. We fight to the bitter end.
(You ain't never been around no white folks. About the only time they come together is when it's time to kick US in the butt.
The rest of the time they is fighting like cats and dogs.
See the History of Europe for the last 3,000 years.
Re: this other:
What kind of genius are you when you create an economy that will fall apart when ONE firm is faced with failure?
I think it was less that than AIG and it's creditors got their hand up the butt of our whole Congress.
Something got to give. You gonna spend all that money or Iraq or Afghanistan? You gonna raise taxes? You gonna borrow more money from the Japanese and Chinese? You gonna pay for Katrina, Ike, the mortgage mess?
How about all the infrastructure that needs to be fixed?
This ain't gonna be pretty. |
Disciple724
Veteran Poster
Username: Disciple724
Post Number: 124
Registered: 07-2008
Rating: N/A
Votes: 0 (Vote!) | | Posted on Sunday, September 21, 2008 - 02:54 am: |
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Chris,
That's all I have been around my entire career; there are relatively few brothers on Wall Street. You are right on many points, but you have to look closely what they are always fighting over; CONTROL! And they form power aliances and conspiracies to fight common enemies, US! Now I'm not ready to go down the old "conspiracy rant--that would be a waste of time--but I will tell you that there are an awful lot of conincidences. Too many thinhgs are happening at just the right time.
Conversely, we as a people have become too comfortable with things thus far and our only chance is to "change", no improve. How closely did you look at the original post? What do you think ? I would like you to critique it also. |
Disciple724
Veteran Poster
Username: Disciple724
Post Number: 126
Registered: 07-2008
Rating: N/A
Votes: 0 (Vote!) | | Posted on Wednesday, September 24, 2008 - 11:41 am: |
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Troy,
Its been some time since my last post. I've been refining my soultion that comprehensively addresses ALL of the issues that are currently being debated on the Senate floor as we speak. While I had hoped to put this forth through Democratic and Obama's channels, my efforts there seem slow and sluggish and the welfare of the Nation forced me to act. Therefore I had to Use my republican channeles and the wheels are turning there and the reponse has been overwhelmingly positive. I just hope I haven't cost Obama the election. It's still not too late. I would love to show you the entire plan, but the folowing link illustrates with pictures what I was discussing in my two previous post.
Interested in your thoughts! http://www.equitelligenceqr.com/wp-content/uploads/2008/09/us-web-of-inflation-i.jpg
and since this is a work in progress-- even though I have already published the unfinished work-- but here is what is currently under veiw by some pretty sharp economic minds that seem somewhat blown away so far.
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