0603 2012 New non-debt financing alternatives for home owners and small businesses as stimulus to create economic activities at grassroots level

I was recently invited to submit a paper of my economic innovation research work by a government agency again. Here below are the gists of what I would like to present. It is a summary of only what FARJHO and SwapRent are about. The third leg of these related innovations, TARELV (http://www.tarelv.com) which is a new alternative currency pegging system based on real estate and land value, although much more interesting, still seems to be a bit ahead of its time and may remain an academic exercise for limited special interest groups at the moment.

So here below is a quick summary of what my current proposals are.

1.) The distinguishing features of FARJHO as a new business method for a new form of home ownership structure are three fold:

First, FARJHO allows home occupiers and property investors to own only one home at a time in order to maintain the sanctity and the freedom of the single family residence ownership. This is in sharp contrast to many community oriented equity sharing methods of Co-ops, Land Trusts, Kibbutz or Commune types of older equity sharing methods.

Second, as a brand new concept, FARJHO only allows individual member level debt financing to eliminate the foreclosure possibility which exists with conventional property level debt financing such as those in a SEM, a SAM or a Shared Ownership type of other existing equity sharing schemes. Home occupiers could still get foreclosed when they lose their monthly income capability under those older arrangements.

Third, FARJHO provides a natural built-in buffer to conventional renting to avoid potential eviction when the tenants temporarily lose their monthly income capability. The equity stake of the renter/co-owner of the FARJHO structure could act as an optional voluntary collateral against missed monthly rent payments and therefore provides property investors with enhanced investment security through less credit risks and at the same time provides the tenants/co-owners with more home occupying stability during the rainy days in their working lives.

All these new features were specifically designed to make the new home ownership structure of FARJHO more than simply an attractive financial investment vehicle for free market based property investors. Among its main goals is to also provide neighborhood stability and social harmony by eliminating the possibility of foreclosures and reducing the likelihood of eviction for home occupiers.

2.) The three features of SwapRent (http://www.swaprent.com) as a new non-debt financing alternatives for home owners and small businesses are:

It allows home owners or any property owners to share a part of the appreciation potential of their properties with other free market based investors through letting these investors share a part of the cash flow responsibilities in a real estate property ownership so that the current properties owners could obtain alternative temporary non-debt based either short term or long term financing that has never been made possible before.

These goals could be accomplished through the new economic owning, renting and own-rent switching concepts and business methods of SwapRent for managing real estate properties.

It allows home owners to separate the investment value from the shelter value of owning a real estate property, i.e. the issue of the management of the financial investment aspect of owning a home away from the issue of the stability of a suitable shelter or a place to live in.

FARJHO and SwapRent could indeed be used either together or separately.

I would like to emphasize the importance of understanding that both FARJHO and the SwapRent contracts could be perfectly used as new non-debt based financing alternatives for both home owners and small businesses to revitalize the national economy at the grassroots level. These new proposed financing alternatives seem to be exactly what our country and many other countries in Western Europe urgently need at the present time.

Just try to think, when home owners and small business property owners who could not get conventional bank loan financing have run out of all other means, including perhaps items to bring to the pawnshops, wouldn’t it be nice for them to have a new way to get paid by letting other people share a part of the equity of the homes or other real estate properties that they own in the form of either shared equity ownership or simply shared appreciation rights rather than a collateralized or mortgaged debt that would need a steady income stream to service the monthly payments and/or a burden to repay at maturity date.

The delivery of these new innovative services could be performed under the Internet based crowdfunding portal sites such as http://www.farjho.com for FARJHO and/or http://www.reidex.com for SwapRent to bypass the Wall Street middlemen and get the economic benefits of these new services delivered directly to mom and pop small business folks on Main Street. More consumer choices is always a good thing under free market capitalism.

While old school economists like Paul Krugman could continue to bang their heads against the wall to convince governments to tax citizens more, issue more debts and print more money to inflate away the debt problems of the US and many Western European countries, they seem to genuinely naively have a blind faith that there will always be a greater fool to continue to be willing to lend more money or to be taxed more no matter how much worse the situation may get. Why can’t these people simply calm down and think outside the box for once?

Outside of debt financing there are many many other ways to finance economic activities. The equity sharing method should not be confined only at the corporate level in the form of either private equity participation or a stock market IPO.

Countries, sovereign entities at higher levels (e.g. using TARELV) and home owners, small businesses at the lower levels (e.g. using FARJHO and SwapRent) should all be seriously educated on how to take advantage of the new equity sharing concepts and methods made possible by these innovations and their current commercial availability beyond being simply academic theories now.

This also brings back my favorite academic side topic. Try to imagine, if a new Greek TARELV Drachma is backed by the total aggregate real estate and land value of Greece, wouldn’t that be a more attractive currency for foreigners to invest in and hold on to? If the Greek government fails to deliver to let the TARELV Drachma exchange back into other currencies later, you’d end up getting to own a Greek Island?

Germans would most probably vote ja ja with their feet and each individually rushes to pump money into Greece for the rescue of their fellow Europeans! Isn’t that how a free market is supposed to work? There just has to be more innovative free market choices of financing alternatives made available to avoid having to keep on beating the dead horse to pile up more and more debts and taxes to solve economic problems. Again, more info on TARELV is available at http://www.tarelv.com.

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06/18/2011 Weekly round-up of TARELV, SwapRent and FARJHO discussions from various Linkedin Groups

Here below is a weekly round-up of some more useful discussions from questions on TARELV, SwapRent and FARJHO.

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On the separation of shelter value vs. investment value capability provided by FARJHO and SwapRent:

Yes, it is all about  providing consumers with more new choices under the free enterprise capitalism principles and helping the less wealthy people without having to turn the country into a socialist welfare state so that we could still be economically competitive on the world stage. Sometimes people do have to think outside the box to look for those innovative ideas to make it happen.

Both FARJHO and SwapRent give consumers the ability to separate the Shelter Value (Use or Usufruct Value) away from the Investment Value (Financial or Economic Value). Having the ability to make investment decisions is a double edged sword and it does cut both ways in terms of winning and losing.

Having these new choices made available to them, home owners could finally decide for the first time on whether they may or may not want to participate in the investment games while enjoying a 100% of Shelter Value at all time through FARJHO or SwapRent so that neighborhood stability and social harmony could be ensured.

They could leave those real estate punting games to people who are more suited or more interested in pursuing under a free market. When the punters lose their shirts the home owners’ on-going occupancy stability would not be affected under either FARJHO or SwapRent arrangements.

Thanks again and I look forward to more inputs and comments.

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On Assignats used in France back in 1790 during the French Revolution:

Thanks for this additional info. Somehow they never taught us about these monetary histories back in my Micro and Macro Econ courses at business schools, let alone the Econ 101 that I took during university days. Or perhaps they did but I simply goofed back then since I was an engineering major.

But the engineering background may just come in handy now to create a new generation of land-based money by applying my research in recent years on property derivatives to back up these new land-based currency concepts.

The land connections of both the French Assignats and the German Rentenmarks seemed to be very simplistic legal claims on the properties. It wasn’t practical to really convert the currency to the title ownership of those underlying properties. Back then they had no real quantitative finance knowledge and/or methodologies to make that kind of currencies realistic.

With the new methodologies and marketplaces of both SwapRent and FARJHO, these land-based currency ideas could finally indeed have a chance to become realistic with a lasting value.

For a simple introduction about SwapRent and FARJHO, please visit http://www.PeoplesAlly.org. Thanks.

06/11/2011 Weekly round-up of TARELV discussions from various Linkedin Groups

Here below is a weekly round-up of some more useful discussions from questions on TARELV that I would like to share with the readers.

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On distancing TARELV from Wall Street’s hands:

….. While I sympathize with your political views (see our own web site at http://www.peoplesally.org) but that is a different subject. TARELV is purely an academic and grassroots intellectual proposal for a fresh start to try to build a financial system under capitalism in the right direction. Our value is to break the intellectual hostage Wall Street has held on Main Street and bring the economic benefits directly to the working class people and let them have their fair shares in the system so that they would not turn our country into a socialist state.

Wall Street will not be able to swindle you again because of TARELV. They don’t own it. In fact, a new type of currency pegged on and backed by real financial asset value may stop the government cronies from printing money irresponsibly to bail out their Wall Street buddies to continue to swindle you. It will serve as a handcuff on the politicians not to steal more money from the future taxpayers to dish out to their cronies today. TARELV is your friend …

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On TARELV being a new exchange rate system between national TARELV currencies:

….. Thanks for the comments. Tarelv is actually intended to be a national currency as an extension of the present free market capitalism. So you will have American Tarelv, Japanese Tarelv, European Tarelv etc. and you can still trade them based on their exchange rate, say long US-T against JN-T in the open market. That is where a JN-T would be worth a lot more vs. a DN-T, Danish Tarelv due to the different state of economic activities in each country.

So Tarelvs represent really a new national exchange rate pegging system rather than a new universal currency on its own. It has individual nationalities.

It will provide an automatic self-healing effect when strong Tarelvs are exchanged into weak Tarelvs to produce goods at a cheaper cost for multi-national corporations. This will help create more economic activities in the country facing economic problems. The reason why people are reluctant to help countries in trouble now is simply due to the fact that few people see there would be economic productivity for them to repay. With no fresh money pumped into the country there would indeed be no productivity. So if the national Tarelv is pegged and backed by the value of a portion of the real estate and land value then the foreigners would feel more secure in investing in that country again. So the capital flow will automatically level the playing fields among countries.

The “total aggregate real estate and land value” is the national asset that is much more fair and equitable, unlike gold, silver or any other commodities that only bless those who were born with them or those were strong enough to rob them. They are limited in nature and therefore unsuitable to serve as widely distributed currencies. That universal scarcity nature could only promote more crimes and oftentimes, more wars.

I never fully understood the fuss or hype about Bitcoin or those digital Linden dollars stuff. To me they are no more than the beads they give you when you are at a Club Med resort facility. Once you are out of the circles they have zero value (I still have some of them at home as souvenir.) but for those party animals at the resorts they mean everything to them then and there in order to get the next beer.

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On TARELV vs. Rentenmarks:

….. Well, to my great relief, the Tarelv idea wasn’t totally off the mark after all, Renten Mark that is.

I am not an economic historian and the Tarelv idea was organically developed solely on the back of my last 10-year’s research work on real estate derivatives and a new form of home ownership structure. Please see my other two discussions on SwapRent and FARJHO posted in your group.

One question I still have is that why the Rentenmark had such a short life span even though it did the job that it was originally created for? Some economic historians could really offer some help here.

The modern derivatives or quantitative finance techniques such as SwapRent and FARJHO may help create a sounder foundation for implementing the real estate money idea. It may give the policy makers and economists more alternatives to consider rather than beating the dead horse between the only two choices of fiat money and commodity money again.

Wouldn’t a new Greek Tarelv currency may help Greece with a chance to attract more fresh foreign capital to revitalize their own domestic economic prosperity again? If they failed, at least the foreigners could be left with a few pieces of Greek Islands to call home to!

In my humble view, fiat money based on Chartalism theory seems to be a total illusionary bubble in the global financial marketplace waiting to burst. It seems that we are not too far away of that awakening point now.

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On TARELV being an exchange rate pegging system vs. simply a new oddity currency:

….. “Convertibility” is the word to distinguish what a currency is vs. what an exchange rate mechanism is that makes a particular currency viable.

I like very much and respect the open mind attitude towards free market competition. The spirit of Tarelv is exactly that, finding the most competitive financial asset to back up the currency claims so that citizens of not just one country but around the globe may have confidence in holding and using them.

That is more and more important these days since in a flat world we are economically getting closer and closer through technologies and improved transportation means. One sovereign entity’s desire to make some Fiat money “legal tender” under Chartalism for its own citizens in one country may no longer serve the purposes anymore if foreigners do not agree. You got to put your own sovereign land on the line in order to gain the confidence of the foreigners to hold your otherwise worthless paper notes or electronic digits.

Otherwise a national currency “without convertibility” could indeed become beads in a Club Med resort, BitCoins for online techies or AnarchoJesse Labor Notes for that small New Hampshire neighborhood, etc.

04/02/2011 Dispelling harmful myths about the need of a weaker currency

No other economic topic is more confusing and has been least properly understood by the public than the exchange rate system. Politicians love to use it for the opportunistic advantage it offers to blame foreigners for their fellow countrymen’s failure to economically compete. Academics love to use it to make a point for a half baked truth.

They may all have a point. The problem is that the points will all have only half of the truth. The politicians’ opponents and the academic’s rivals could all be right at the same time since there are always two sides to an exchange rate’s impact on the economy more like there are always two sides of a coin. More often than not it is completely futile to make an argument on what is better to have, a stronger exchange rate or a weaker exchange rate, for a specific short term purpose.

For short term purposes, when a country’s currency is stronger it is good for the assets and when it is weaker it is good for the country’s liabilities. A weaker exchange rate may help stimulate the domestic economy by creating more foreign demands for its commodities and goods but it will cause a permanent wholesale destruction of the country’s aggregate wealth in the global market place. A stronger currency may serve to slow down its domestic economic activities and hence lower inflationary pressure by reducing foreign demand but it may create permanent wholesale advantage and sudden increased wealth for every one of its citizens.

Over the long run, a country with a stronger currency commands confidence and respect of every human being on earth, could easily afford to develop more leading edge scientific discoveries and engineering monuments, let alone a much stronger military defence force. It also naturally speaks much louder in global politics, attracts top talents to migrate and work for it to further enhance its competitiveness. Therefore the strength of a country’s exchange rate is really a report card of its government’s performance, as fully discussed in my prior blog post on 10/15/2010, “Foreign exchange rate is the competency report card of a government’s ability to manage a country’s economy”.

So next time you read an op-ed commentary, hear a comment by a guest speaker on TV, or study an academic paper arguing for weaker currency, perhaps you would like to find out whether the person has a political agenda trying to spin a story to confuse the public or perhaps he/she is simply a complete moron.

Hoping to gain short term export advantage to create temporary transient job opportunities instead of focusing the collective efforts on increasing longer term productivity or economic competitiveness by promoting diligence, hard working ethics and/or innovations will simply continue the wholesale destruction of our country’s wealth and eventually reduce us from a major league super power to a little league weenie power.

10/15/2010 Foreign exchange rate is the competency report card of a government’s ability to manage a country’s economy

It is quite a amazing how the current Administration of our government has tried and almost accomplished the goal of brainwashing or duping the American public into believing a lower US Dollar value is good for us. They even got many financially illiterate politicians (Congressmen) to sing their tunes with them.

Try to imagine that your kid comes home back from school with a D on his report card, argues with you and tries to brainwash you that an F should be better so that he would be able to compete with other more diligent and industrious kids? Furthermore he complains that the rules need to be changed so that the other kids should not study hard and instead should be playing more like he does? He calls the bad grades on his report card a “manipulation” by those hard working kids. He even labels those industrious kids “Grade Manipulators”.

The simple truth is that a lower exchange rate would produce the immediate wholesale sell-off of a country’s wealth in the global marketplace, not increasing any genuine economic competitiveness. Economic competitiveness is produced through productivity and innovations, not by artificially altering exchange rate so that incompetent politicians could cosmetically buy some more time to hang on to their jobs a bit longer.

Competent governments in managing the country’s economy will be rewarded with a stronger currency and hence increased national wealth. Responsible and hardworking citizens under an incompetent government, on the other hand, will lose their personal wealth instantly in the global marketplace when their national currency is devaluated, no matter how hard they may have worked individually.

There is no quicker way to make the US lose its position as the No. 1 economy of the world and its associated super power status than de-valuating the US dollars. Foreigners with a stronger currency would then be able to buy our treasured assets in a fire sale. In addition, with a weak currency, the US would not be able to compete in the global marketplace to buy commodities such as crude oils, rare earth materials, gold, silver, platinum, food, crops, other raw materials etc. The cost to produce manufactured goods in America will be getting harder and harder as well as more and more costly. It will make the US lose even more economic competitiveness and get our country in a downward spinning vicious cycle. The list of the potential problems and disasters goes on and on …

Perhaps it is time that the parents sit down with their kids for a serious talk?

P.S. I made a keynote speech for ISDA’s Annual General Meeting held in Singapore back in March 2006 regarding the China’s role in the global financial market. In that speech I spoke about the exchange rate issues. The points are still quite valid. Here are the links to the presentation and the speech video.