10/09/2008 A free market incentive plan to melt up vs. a socialist bailout plan to melt down.

A free market incentive plan, not a socialist bailout plan, can more effectively solve our financial crisis.

As Wall Street and Washington have been busy fixing dams and levees fighting floods at the downstream, we should urgently switch their attention back to on how to stop the snow from melting further at the upstream. If the snow melting at the mountain top could be slowed down, the dams and levees we already have may actually not be that inadequate.

What we need now is a strong “incentive plan” for every homeowners and investors in the country to start buying properties again, not just a “bailout plan” for restricted people to prevent foreclosures only. If all homeowners, would-be property investors and even greedy speculators would take advantage of this fair game to utilize the new generous monthly income from the Government’s SwapRent (SM) based shared appreciation/shared equity plan, there would be no more foreclosures and many more new buyers of homes to immediately restore the entire property market to its prior value.

Therefore the SwapRent (SM) plan is not a “bailout” but rather an “incentive” plan to encourage people to start buying properties again. Government should not be a policeman trying to stop speculators to take advantage of this newly created “housing affordability” to buy second, third or even fourth homes as long as they would agree to share the future appreciation of the property with the government. Once we have restored the property market and our national economy back to the pre-crisis level Government could then use interest rate policy and the SwapRent (SM) market rates in each city to manage a slower growth to avoid inadvertently building another over heating bubble at that time. Now the priority is just to get us out of this crisis through this SwapRent (SM) plan first.

American people who are legitimate owners of any properties could use this SwapRent (SM) plan to swap a portion of their future appreciation potential for secured monthly income for household consumption or any other purpose, no question asked. So that our economy will get a major consumption boost to avoid a recession or depression. There are many laid-off people who may want to take advantage of this help to start up new businesses to create jobs. Others may use it to tide their family over to find those new jobs.

If this plan could be executed properly the swift recovery of the entire property market and our national economy will almost be guaranteed since it will be a self-fulfilling prophecy under free market mechanism. The more generous the Government will be to offer these monthly income to the homeowners in return for a portion of the future appreciation of their properties, the more people will take advantage of Government’s generosity since few people would expect the property will appreciate in the near future anyway. Therefore, more participation will translate into less foreclosures, more demand for buying homes including even more speculative buying and the entire property market value will indeed end up appreciating in a major way.

Government will not only benefit handsomely from the increase in value of the $700 billion worth or mortgage securities but also will be able sell the appreciated SwapRent contracts to other domestic and foreign investors to realize a major profit for the taxpayers along the way. The whole turn-around could be realized in one or two years time if managed well.

Through the secondary market of the SwapRent (SM) contracts, homeowners could unwind and have early termination whenever they want. Furthermore, they could establish themselves as the “economic landlord” investors (for a second home in a different city for example) as well to benefit from the real estate price run-up when they have the economic means in the future once the wealth has been recreated by the free market.

Again, the SwapRent (SM) program was a result of a dedicated thorough research based on free market principles with detailed execution plan that someone devoted his own personal time and financial resources over the past 6 years to develop purely based on a strong belief of its economic and social value, not another knee-jerk reaction of some fame seeking economist to dream up some superficial bailout plan on how to spend taxpayers’ money again that often appears in the newspaper op-eds these days.

This could be a very popular rescue plan as it helps all the American people directly to restore our national economy, not favoring any particular interest groups. Politically speaking, this official adoption by the Administration will send a strong signal to American citizens that the Administration respects American people’s diligent efforts to create intellectual properties to promote innovations in order to rebuild our country together under their leadership. It further enhances the future President’s reputation in employing Main Street non-partisan entrepreneurial talents purely based on meritocracy without any Wall Street crony connections or any Washington political contacts.

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