Monthly Archives: November 2008

11/23/2008 Further leveraging is not the way to stimulate the economy!

To stem foreclosures and keep people in their homes in a socialist mind set is not enough, we need to have a free market based stimulus plan to get people to come back to the real estate market to ensure on-going prosperity. Our country’s and hence the global economic prosperity hinges on the continuing consumption power of the American citizens. Nothing is more effective than to shore up the home value for every American to fix this global economic problem.

While we still have time to do so, the new economic leadership we need now is not just a socialist bailout mentality for people to get to survive but rather a committed mission to help bring back the global economic prosperity. Over the long run, only free market incentives could accomplish that prosperity goal. When this current opportunity is missed and American citizens get into desperation next, the worst form of socialism may most likely take hold of our entire free society at that time. Ask any older Chinese or Russian citizens, they may be able to give you plenty of explanations on how that was done in the past.

While creating housing demand through free market incentive plans is plausible, continuing to be restricted to manipulation of interest rates alone to encourage more leveraging will simply bring us back to where and how the current mortgage troubles started. Therefore, further leveraging is not the way to stimulate the economy, either by homeowners, consumers, banks, the Fed or the US Treasury. It would only lead us into eventual total destruction.

As explained on the home page, playing tricks or keeping artificially low interest rates temporarily to provide relief is a fictitious housing affordability. True housing affordability could only be accomplished through shared appreciation/shared equity economic concepts, just like investing in any other financial assets. To summarize in a simple sentence, true housing affordability simply means “don’t bite more than you could chew”. To allow people who do not have the income capability to use high leverage to get rich quick is exactly what caused our current economic crisis in our economic society.

The problem with the conventional practice of shared appreciation concept in the past is that the shared appreciation component was stuck in the Shared Appreciation Mortgages (SAM) and often managed in a socialist way by using taxpayer’s money by municipalities. They are neither quantifiable nor extractable and there is no easy way to attract free market investment money from private sectors. SwapRent with its embedded mortgages HELM was specifically created so that the shared appreciation components could be quantified, exacted and therefore it would become feasible to create a secondary market of these new shared appreciation contracts. Economic benefits such as pricing transparency, maturity term flexibility, early termination reversibility and capital regeneration, … etc. could therefore be easily achieved.

From a macro-economic perspective of solving the crisis, consumption power via home equity gains would be restored and revitalized through these housing purchase incentive and economic stimulus plans by simply letting the future home equity gains go to those who have the current economic means to buy these future appreciation through SwapRent contracts. Consumption power produced from the home equity gains by these investors will create jobs and increase economic activities again. Those who did not have the means before will have the chance to work to create the income capability. They can save and invest in future home equity gains again similarly through these SwapRent contracts. All these investment activities should be done within their income capability and without any unscrupulous use of high leverage again.

From doing social good’s perspective, all the low income homeowners could get to continue to occupy and enjoy the comfort of their homes through this new “economic renting” concept via the use of SwapRent contracts while these investment activities could go on with or without them because of the separation of legal and economic ownership inherent in the SwapRent concept.

Once these shared appreciation/shared equity concepts through SwapRent contracts have become well accepted practices in future, there won’t be any chances for leverage-created asset bubbles any more since asset growth will become more legitimate and healthier by only letting those who have the money to invest without the use of high leverage. In another word, more rational low leverage investment to foster steady asset growth and create wealth could be accomplished easily through introducing this new SwapRent based reversible appreciation sharing concept.

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