My peerless leader, Snuffington J Smiff, finds uncle in the land loan biz a perfect horror. Well, consider the following, one and all, including you, squire Allsmiffy:
Okay, so Mr and. Mrs Sprawl need a place to store their household savings.
Well there's precious metal, and there's land, the classic stores of wealth.
We'll skip metal and go straight for land -- specifically, land in the form of a house lot, as that's overwhemingly the chosen path of plebian folks like the Sprawls, particularly here in the land of amber fields and parking structures.
As a store of wealth house lots are a pip, so long as a householder sticks to the Polonian way and remains free and clear of debt, or at least strives to become polonian by paying the mortgage off.
The free and clears come in at about one-third of our 75-million strong fleet of house lots these days.
Now comes a big down market, and these small taters are still free and clear -- even if in real terms they've taken a hit to their stored wealth (gold would have survived).
But the other two thirds face a bigger risk if their lot's market value falls far enough -- since their mortgage's outstanding principal, of course, doesn't adjust to drops in asset market values. Cometh the great panic -- and they're suddenly operating out of a sunken house, wealth-wise -- a tethered submarine, financially speaking: no longer a store of wealth but a mere hideous little debt sump.
What now?
The tale obviously starts and ends with its genie:
Uncle is said genie, a one-wish wonder: the magic market trick called Capitalized Ground Rent, CGR for short -- is CGR a particle or a wave, rent or interest? Both -- capitalized ground rent or amortized lot value, six of one, half-dozen of the other. Ground rent is the market value of a certain number of square feet of ground space in a certain location for a certain period of time. It's ultimately linked to its use value, of course, which itself partakes of the intricacies better left to Clio.
The rent or its interest payment equivalent is a social product, optimally captured by society and not left to households, anymore than it oughta be left to the Duke of Westminster.
Conjecture: the episodic undulations of ground rent are best ridden by the whole people together, with individual variations of guile and fortune playing a minimalized role. So how do we construct a raft for all of us -- how can we float as one, together above the inevitable unforeseeable complexity of 75 million lots all being hit always with these highly variable local value waves?
Answer: Uncle should make each of us an offer we can't refuse -- a mortgage on our lot value with a super-submarket interest rate, no principal payments until sold, fully transferable, etc.
Upshot: Uncle eventually caputures all the lots in America as if he'd nationalized 'em, and and he becomes our landlord.
A few yeoman holdouts? So what? I bet even of the 25 million free-and-clears we'd seduce most.
The point is: once Uncle holds the paper on all the lots, Uncle can control their value. In fact, over time, the Sprawls will only think about what they borrowed on the house itself (as opposed to the lot) as a mortgage. The lot value will look like a land tax -- yup, George time in America, folks!
Whoa up, there, Owen, you're saying -- what about the store of wealth bit?
I lied about that. It was just a teaser to draw in you Scotsmen and monkish acolytes of the abstaining wet-blanket cult.
Forget it! Forget saving! Like hair shirts, it's for suckers. Given my ultraloose Uncle-backed credit systems, Owen kills savings like Macbeth killed sleep.
Comments (11)
I'm still not sure I get it.
Say I'm Joe McSprawl and I owe the bank $300,000 on my McMansion. Now Uncle comes along and offers me a dead-cheap second mortgage for $100,000. (Surely we don't want Uncle buying up all these huge mortgages at their vastly overstated bubble values -- do we?)
So I get $100K at a derisory rate of interest, and of course I take it, and being a Scotsman, I don't spend it on a matched pair of Range Rovers for me and Mrs McSprawl -- I give it to the bank.
Upshot: the bank gets a nice $100,000 of taxpayer dough, and I still owe it $200,000. And I'm still under water unless there's somebody out there able and willing to pay at least $300,000 for my heap of sheetrock.
How am I better off? I guess my total interest payments are somewhat lower, so that's a win as far as it goes. And how are we the people better off? I guess we've captured some of the revenue that used to go to the bank.
Dunno, Owen. I still like my idea better. All you McSprawls, walk away from the white elephant, and rent for cheap from the bank a house that your brother-in-law walked away from.
Posted by MJS | March 4, 2009 6:56 AM
Posted on March 4, 2009 06:56
ahh
father devious
u have not read the fine print here
i had my paw errr hand covering it when
u read err signed
the principal at time of sale is adjusted to current lot market value
your example
uncle offered 100k because that was the market value of the lot at time of sale err purchase one and the same here for these first wave of mortgages
....attaching virgin lots....
note two points if the chap owes 200k on his house not partly on his lot thern by the definition of a 100% lot mortgage
the rest of the old combo mortgage must be house value
surely given the fall in lot values
if by assumption the lot at time of sale was worth 100k
the rest is house eh ??
and houses have a precise replacement cost
okay its detroit and lot house combos are going for even less then house replacement cost
but again the over stocked local condition means lot values are negative
this is not a candidate for a mortgage but for owens self help debt relief plan
called fuckin idiot walk away
trust me this is owen paine in mid season form
the details abound but like a good caper
the whole mechanism is a can't miss
i suggest savoring the end of lot bubbles
in fact the end of literal nest eggs as nest eggs
the house biz will be like selling ...boats
house boats
with all the pure hell debt sump that usually entails
buying second haapiest day of life
selling happiest day of life
Posted by op | March 4, 2009 8:50 AM
Posted on March 4, 2009 08:50
oh ..did i fail to mention the progressive rate structure ???
speaking of mcmansions
the genie has his pound of flesh in mind...
the sweet meats of the sifted few
Posted by op | March 4, 2009 8:53 AM
Posted on March 4, 2009 08:53
oh and
the lot mortgage has to be for 100%
of lot value
no partials
the devil don't time share souls do he ??
nooow do u see
the intricate parts moving among themselves ???
the home owner class sells its lawn its foundation its source of wind fall gains and loses
for uncle's to him cost free paper
but but it
ends up in banks paine
banks as in private greed head
mr potter banks
father we'll get to them in due course
which is likely to be first
hence my nationalization of the depository and payment system
lure there
insurance by uncle
which reminds me to add
AIG is the greeks of wall street's
trojan horse of trojan horses
a gift ??
no no this is wall street greeks
not aegean greeks
its a privately operated toll booth
agent of outside looters
cry in the street stop the insanity
void the swaps !!!!!
Posted by op | March 4, 2009 9:04 AM
Posted on March 4, 2009 09:04
here's the real poser
if your debts don't survive you if your estate is worth less then its obligations
why not borrow till that bitter sweet tomorrow
when ummm u take the final walk away
in the past there was always
"leaving something for my kids " well u can forget that floundering bit of megalomania
outside the top one % mansion set what with medical costs and life spans approaching 115 years
here's obviously where the credit rationing system comes in ...
and oughta come in ...like gang busters
but first uncle sugar needs to bulk up
aunt sour's daughter fanny and
cousin fred
Posted by op | March 4, 2009 9:19 AM
Posted on March 4, 2009 09:19
hmm. the ides of march are the 6-month anniversary of lehman. how many months until say 20% of 20% of the population has been possessed by ancient rebel farmers to agree to a plan that sounds like giving the beltway direct control of who lives in your neighborhood?
Posted by hapa | March 4, 2009 2:59 PM
Posted on March 4, 2009 14:59
hapa
forgive me
but i don't understand your comment
Posted by op | March 4, 2009 6:40 PM
Posted on March 4, 2009 18:40
Well, I'll give it credit for being ingenious.
Posted by Peter Ward | March 4, 2009 10:17 PM
Posted on March 4, 2009 22:17
I think I get where you're going, OP, but I have to say you make it hard. We're not living under Stalin, after all -- just come out and say it!
Home value is basically replacement cost. Some of it was inflated in good times and will drop now, along with lot value.
Lot value is a common good and should be owned by the community, all of us, and rented for a nominal interest. This avoids bubbles caused by speculation and bankers' endless drive for protits.
How then do I save for my retirement? No problem. The state, the people, my neighbors, have already prudently put aside something for that.
Posted by seneca | March 5, 2009 11:44 AM
Posted on March 5, 2009 11:44
sen
you may have mised a few fine points
like this is a way to back door
into a george tax
and out of lot bubbles forever
and one major point
the rent/tax on lots would not be nominal
it would be literally..... rational
Posted by op | March 6, 2009 10:37 PM
Posted on March 6, 2009 22:37
"How then do I save for my retirement? No problem. The state, the people, my neighbors, have already prudently put aside something for that. "
this is either brilliant or sarcastic
which ???
Posted by op | March 6, 2009 10:39 PM
Posted on March 6, 2009 22:39