Everyone is arguing about whether and how to bail out the auto industry. What is so frustrating is that neither the Republicans, the Democrats, nor the Financial Titans are giving even a casual thought to the American People! And the media is standing by with nothing more than cluelessness on their faces.
What do I mean by this? Well, this used to be a country premised on the idea that its wealth was built by millions of individuals each making economically intelligent decisions. The collective of those decisions, without the massive burden of mis-regulation, generated the billions of micro-decisions that forced the most economic path to industry and prosperity. These billions of micro-decisions, not centralized mis-regulations, created the optimum valued automobiles, trains, planes, chemical factories, and computers. Forty years of regulations and sham-de-regulations slowly unwound the great infrastructure created by our fathers.
With recent years of socialist-style education and half-baked regulations, economic risk was concentrated into an obscure area of the financial-insurance industrial complex. Now that all that economic risk collapsed us, at least on paper, everyone wants to throw out our basic form of economic governance -- our principle of individual micro-decisions -- in favor of socialist-style takeover of what remains of the free market.
Even if you do not agree with my interpretation of our recent economic history, it is still worth hearing my thoughts to regain our one global competitive advantage -- to not destroy our ability to individually "vote" as a collective in the economic world.
It seems to me that we have a Social Security Administration that has been completely silent during a crisis that is nothing short than the very heart and essence of what social security is all about. Further, for at least a decade, we have been debating how to finance the future of Social Security. If we are going to bail out any industry in exchange for an equity position, it seems that Social Security should be the one doing it!
If Social Security were given the $700 Billion, or $1 or $2 Trillion, then we can empower each and every citizen to choose which companies to bail out. For example, Ford or GM can be allowed to advertise that the are offering Treasury Shares through the Social Security Administration at some set price. Citizens can log in or phone an automated system to "buy" those shares from their portion.
To protect individuals from bad choices, one half of all the purchases are pooled, so that half of any individual's fund represents the collective decision of all and one half represents their individual choices.
If a company is worthy of the trust of the citizenry, then they will raise the additional capital they need. With time, the success of American business will grow the wealth of their Social Security accounts.
In this way, we don't have to have Congress pick and choose who gets a bailout and who doesn't. With a 10-15% approval rating, why in the world would we want them making such decisions, anyway?! Here, the people can choose who is worthy, whether it is a smaller industry with a plant in their town, or a big automotive corporation. The billions of mico-decisions will determine the best investments for the $700 Billion to $2 Trillion that is currently needed.
This method will also instill a greater dedication to American business by the citizens and will also, over time, guide American businesses to make corporate decisions that are more in line with the welfare of Americans.
Thus, we turn this current financial crisis into a shining opportunity for America. We turn a rank socialist event into one that celebrates capitalism in a way that spreads the wealth for everyone. In a way, this is the time for America to coin a new economic philosophy -- maybe we can call it "social capitalism" -- where we use socialist concepts to make capitalism work for all classes in our society.
One final comment. We have the same factories today that we had in July 2008, before the economic collapse. The same miles of highways, houses, cars, planes. No army or terrorist came in and destroyed what we have. In fact, our energy costs are a small fraction today over that of July 2008. Our economic woes are borne on paper, based on a complex set of rules and regualtions. Our true wealth is just the same today as it was before the crisis. Don't let them make you lose sight of that.
So, maybe WE SHOULD BAILOUT EVERYONE. At least, put those decisions back with the people.
(c) 2008 Knobloch. All rights reserved. Contact for publication permission. http://www.charlesknobloch.blogspot.com/
Tuesday, November 18, 2008
Monday, November 3, 2008
Now is the time for a New Society approach to housing
The entire world economy is reeling right now from a great American social experiment. We tried to significantly expand the proportion of home ownership in the United States. As foreclosures and general fear mount, a common cry is that we gave loans to people who should have never gotten a loan.
There is a lot of wisdom in these common voices. But, it does not address the question of whether it is possible to significantly expand home ownership? Will we always fail, always throw ourselves into a great depression every time we try?
The answer may lie in our recent experiences and even our experiences of the 1920's and 1930's. Perhaps our entire approach to home ownership is wrong.
In fact, if you think about it, our long-established way of buying and selling homes -- and home financing -- is extremely impractical and not very liquid. Every time a family wants to move into a new home -- move for purposes of job or school -- a lot of events must fall into place at just the right time. The family must have a buyer for the present home, and they must have found a home they truly want. They must also be able to finance the transition and they have to get an adequate selling price and affordable buying price. On top of that, most transactions come with a 10% transaction load (6% for the realtor and 4% for closing costs). Under these conditions, it is actually a wonder that we have as many home transactions as we do!
An even closer look further reveals the ridiculous nature of home financing. First, a loan is based on some appraised value of the property. The loan is secured by the home itself. But, payments are based on the income of the individual. Except for independently wealthy individuals, who can guarantee that their income will be consistent every month over a thirty year period? And, when a prudent home owner sees a coming drop in income, that is the very time when the costs to downsize a home skyrocket. The current home financing system is tailored not to the general population, but only to the lucky and the better off.
That's what makes our desire to give home ownership to everyone so interesting. Those who rent, rather than own, are actually making economically wise and prudent decisions. They are financing shelter in a way that matches their expectations of future income. The system itself is designed to limit the proportion of the population who should own homes.
So, we have two basic problems with American home financing. One, it assumes a long-term steady income of the purchaser, for periods up to thirty years. Two, it ties the financing to a particular piece of property, making it difficult for the purchaser to resize. Further, there is a 10% skim built into the system every time a property changes hands.
Elimination of these two (or even three) problems will go a long way towards some Great Society dream of giving everyone a chance at home ownership. Until we decouple home financing from a fixed rate of equity repayment, and decouple financing from the actual piece of property, the American method of home financing will only serve a small portion of the population. It will dis-serve the rest of the population.
Worse yet, until this issue is squarely addressed, any attempts to expand home ownership will put this country, and the world, at repeated risks of great depression.
There is a lot of wisdom in these common voices. But, it does not address the question of whether it is possible to significantly expand home ownership? Will we always fail, always throw ourselves into a great depression every time we try?
The answer may lie in our recent experiences and even our experiences of the 1920's and 1930's. Perhaps our entire approach to home ownership is wrong.
In fact, if you think about it, our long-established way of buying and selling homes -- and home financing -- is extremely impractical and not very liquid. Every time a family wants to move into a new home -- move for purposes of job or school -- a lot of events must fall into place at just the right time. The family must have a buyer for the present home, and they must have found a home they truly want. They must also be able to finance the transition and they have to get an adequate selling price and affordable buying price. On top of that, most transactions come with a 10% transaction load (6% for the realtor and 4% for closing costs). Under these conditions, it is actually a wonder that we have as many home transactions as we do!
An even closer look further reveals the ridiculous nature of home financing. First, a loan is based on some appraised value of the property. The loan is secured by the home itself. But, payments are based on the income of the individual. Except for independently wealthy individuals, who can guarantee that their income will be consistent every month over a thirty year period? And, when a prudent home owner sees a coming drop in income, that is the very time when the costs to downsize a home skyrocket. The current home financing system is tailored not to the general population, but only to the lucky and the better off.
That's what makes our desire to give home ownership to everyone so interesting. Those who rent, rather than own, are actually making economically wise and prudent decisions. They are financing shelter in a way that matches their expectations of future income. The system itself is designed to limit the proportion of the population who should own homes.
So, we have two basic problems with American home financing. One, it assumes a long-term steady income of the purchaser, for periods up to thirty years. Two, it ties the financing to a particular piece of property, making it difficult for the purchaser to resize. Further, there is a 10% skim built into the system every time a property changes hands.
Elimination of these two (or even three) problems will go a long way towards some Great Society dream of giving everyone a chance at home ownership. Until we decouple home financing from a fixed rate of equity repayment, and decouple financing from the actual piece of property, the American method of home financing will only serve a small portion of the population. It will dis-serve the rest of the population.
Worse yet, until this issue is squarely addressed, any attempts to expand home ownership will put this country, and the world, at repeated risks of great depression.
(c) 2008 Knobloch. All rights reserved. Contact for publication permission. http://www.charlesknobloch.blogspot.com/
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