Monthly Archives: September 2007

09/15/2007 FAQ #10: What economic theories might be applicable behind the SwapRent (SM) concept?

It has been proven in the recent human history that the socialist or communist economic system has never done a better job than the capitalism system to foster economic prosperity for our societies. Nor has any of the communal shared equity schemes under our capitalism system been ever proven to be a long term viable solution to the bottom half of our economic societies. To begin with, being a renter to a landlord or a serf to a master landowner does not provide the social respect or prestige to motivate people to work harder to maintain the property or to generate productive resources on the land. If the working members of our society are contributing and earning an income they should be entitled the opportunity to become homeowners, irrespective of how much they are earning. So if every working member earns at least the minimum wage he or she could be entitled to be a homeowner. SwapRent (SM) could help them afford the homes of his or her choice and continue to provide the incentives to work harder to improve the potential financial rewards by retaining both the entire legal and a larger part of the economic ownership.

It could be easily understood that in a society that if the less affluent all have permanent homes instead being members of the mobile population there would be much less crimes and conflicts in that society. People will get to treasure and love their homes and neighborhoods since they are the legitimate owners of the properties. SwapRent (SM) will be able to facilitate that and allow them a stable base to continue to pursue other wealth generation opportunities which would most likely be more legitimate than otherwise by being homeless drifters.

The ease of use, simplicity to understand, convenience of expressing a market timing view, reversibility, notional amount flexibility and transparency etc. that a local SwapRent (SM) market offers makes it a much better way to offer the housing affordability. Other than the affordability benefits that a local SwapRent (SM) market provides the other major economic function is to allow property owners to hedge the financial values of the properties they already own and/or the properties they intend to own in the future. That is why high income earning wealthy people would also be able to benefit from the development of a local SwapRent (SM) market in their neighborhoods or cities.

It is very easy to understand that the property owners could use SwapRent (SM) contracts to protect the downside depreciation risks like financial insurance contracts. By switching to economic renting through using Generic SwapRent (SM) they would be acting like conventional renters economically and will not be subject to any downside depreciation risks. They would still be able to enjoy unlimited upside appreciation potential benefits if they simply use the Depreciation Protection or DP SwapRent (SM) instead of the Generic SwapRent (SM) contracts.

As explained above, the current conventional renters can also receive SwapRent (SM) payments and become synthetic “economic landlords” in order to protect themselves from the future upside appreciation risk since they are currently renting only. If property prices go up it would not be good for them in the future. For example, if renters in Southern California had used this SwapRent (SM) instrument 5 or 6 years ago before the prices ran up sharply within the past few years they would not have felt being priced out of the market now when they decide to buy and own properties now. They would still be able to enjoy unlimited downside depreciation benefits when they plan to buy in the future if they simply use the Appreciation Give-up or AG SwapRent (SM) instead of the Generic SwapRent (SM) contracts.

The bottom-line is that the versatility of the SwapRent (SM) contracts will not only help the working poor to afford and hang on to their homes, it will also allow the smart rich to become even richer based on their financial acumen and diligence. Therefore both the Democrats and the Republicans should love the development of this new economic concept of SwapRent (SM)!

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