Friday, August 29, 2008

Obama's Tough Decision

The previous squeak went to the Wall Street Journal. This one went to the Washington Post. Again, I encourage plagiarism, rip offs, copying, . . . whatever, as long as the message starts to get out somewhere.

Dear Sir(s):

The editorial on the clay-footed lending giants ("Tough Decision Coming: Barack Obama is inching away from his party's orthodoxy on Fannie Mae and Freddie Mac," Washington Post, 08/28/08, A18) indicates that Senator Obama is at least thinking about a step in the right direction. As last night's speech demonstrates, however, he is still fixated with the idea that ordinary people are incapable of doing anything without the help of Big Government, Big Business, or some Big Combination of the two.

If Obama is serious about "moving in the direction of economic reality," he should look into "Capital Homesteading for Every Citizen," from the book with that title. One application of Capital Homesteading is called the "Homeowners' Equity Corporation" ("HEC"), which would solve the whole Fannie Mae and Freddie Mac disaster.

A HEC is a proposed for-profit stock corporation whose shareholders would be homeowners in danger of foreclosure. HECs — and there should be many, to provide redundancy, lower risk, and ensure competition in a community — would purchase distressed properties at the current market value. HECs would obtain acquisition loans from commercial banks, which in turn would discount the loans at the local Federal Reserve at a rate reflecting transaction costs and a revised risk premium. The homes could then be leased at a realistic market rate to their former owners or new tenants.

The tenant would earn shares in the HEC as lease payments were made sufficient to cover debt service, maintenance, and taxes. When the acquisition loan for a particular property was fully paid, the tenant could exchange his or her HEC shares for title, or continue as a tenant/shareholder at a reduced lease payment, sufficient to cover maintenance and property taxes.

Financing the purchase of properties through the Federal Reserve System and its member banks would cost the taxpayer nothing and be the first step in restoring a currency backed by hard assets instead of government debt. Let the free market decide what happens to Fannie Mae and Freddie Mac. The HEC may require some enabling legislation from Congress to give it powers similar to those currently enjoyed by leveraged ESOPs, but, after that, the State can step aside, and, except for its regulatory role, let people solve their own problems without imposing any more burdens on the taxpayer or running up the deficit now approaching $10 trillion.

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