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.

Filed under: Cash Flow Sharing, Crowdfunders Choice, Crowdfunding, Currencies, Economic Viewpoints, Equity Sharing, FARJHO, Federal Government, Housing, InvestorsAlly, Mortgage, PeoplesAlly, REIDeX, SwapRent, TARELV, Alternative financing, Crowdfunding, Economic innovation, Equity Sharing, FARJHO, Housing finance, Non-debt based financing, Paul Krugman, SwapRent, TARELV

1028 2011 Don’t let the 1% left wing opportunists ruin the good cause of the Occupy WS protesters supported by us 99% Main Street capitalists

One thing that has been very hard for many people to figure out is that what the Occupy Wall Street protesters want. The answer could be very simple as nobody really knows what they want and the reason why nobody really knows what they want is that nobody really knows who could be the legitimate voice to represent the entire OWS protesters. You would get a very different answer every time you bump into one of them.

Squeaky wheels either get some oil or they get ear plug treatments. Without knowing exactly where the squeaky sound comes from, it seems most people just put on their ear plugs. I wonder why this could be an advantage for the OWS protestors that some of the OWS protestors have been trying to tout.

Without some specific goals and/or executable methods, the movement could potentially render itself to the exploitation by the extreme opportunists for a short cut ideological change. Somebody may have to come up with a way to organize them soon in order to rid the movement of these potential harmful abuses by the destructive extremists. Otherwise squeaky wheels may soon become flat tires that could paralyze our country’s economy.

Other economic pundits have predicted that this Occupy Wall Street movement might run out of steam before it gets to achieve anything significant. Personally I am not sure about it as most likely these people who made those comments did so right after they returned back from a shopping trip or from a business lunch in an expensive restaurant. While they got their living necessity fulfilled on schedule, the protestors’ situation has not change and would not change in the foreseeable future. It does not seem that the protestors would stop until they get what they need, let alone what they want, when they figure out what it is later. That sounds like a perfect hot bed for the left wing extremists.

The OWS protestors could have started out with a good cause to fight against the inequality from the abuses and abusers in our capitalistic society but if nothing drastic is done to fix the incompetent government leadership in DC and the crony establishments on Wall Street soon to correct the situations, something bad to our country would very likely evolve from here.

What PeoplesAlly Foundation’s efforts aim for is trying to provide the disadvantaged working class people in our capitalistic economic society some additional free market based choices specifically created for them to stand up and unite to fix the faulty and abused system before they get to resort to toggling between the conventional ideological switches.

There could indeed be many other new free market based alternatives brought about from new innovations such as the new equity sharing based home ownership structure of FARJHO, the new peer-to-peer cash flow sharing based housing finance system of SwapRent and the new foreign exchange rate pegging system of TARELV which could bring the economic and political power from the crony hands of Wall Street back to the common people on Main Street. Innovations on our economic policy management systems that is, not the conventional technological gadget inventions that people would normally associate the word “innovation” with.

With these new innovations on economic systems and policy management tools, disadvantaged working class people could finally get to try some new free market alternatives designed for them for the first time in order to fight for and gain equality against the privileged minorities on Wall Street and DC rather than simply giving up on capitalism and resorting to doing the futile historical toggling between capitalism and socialism/communism again.

Filed under: Cash Flow Sharing, Economic Viewpoints, Equity Sharing, FARJHO, Federal Government, Housing, Occupy Wall Street, PeoplesAlly, SwapRent, TARELV, 1%, 1%'ers, 99%, 99%'ers, Capitalism., FARJHO, Left wing extremists, Left wing opportunists, Occupy Wall Street, Occupy WS, OWS, Socialism, SwapRent, TARELV

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 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.

Filed under: Currencies, FARJHO, Housing, SwapRent, TARELV, Alternative currencies, AnarhcoJesse Labor Note, BitCoins, Chartalism, Chartalist, Club Med beads, Commodity money, Economic value, Exchange rate mechanism, Exchange rate pegging system, FARJHO, Fiat money, Financial value, Free enterprise, Free market, Hjalmar Schacht, Housing, housing affordability, Hyperinflation, Investment value, Land money, Land-based money, Linden Dollars, Printing money. Economic policy management, Real estate based money, Real estate money, Renten Mark, Rentenmark, Shelter value, SwapRent, TARELV, Temporary own-rent switching, Use value, Usufruct value, Weimar Republic

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.

Filed under: Currencies, Economic Viewpoints, TARELV, Alternative currencies, AnarhcoJesse Labor Note, BitCoins, Chartalism, Chartalist, Club Med beads, Commodity money, Exchange rate mechanism, Exchange rate pegging system, FARJHO, Fiat money, Hjalmar Schacht, Hyperinflation, Land money, Land-based money, Linden Dollars, Printing money, Real estate based money, Real estate money, Renten Mark, Rentenmark, SwapRent, TARELV, Weimar Republic

06/04/2011 TARELV – Equity based property derivatives vs. fractional interests in mortgage notes as a new form of currency? – Part 1

Is the debt form of a claim on a financial asset better or is an equity form of claims on financial assets better to serve as a new form of currency for a sovereign community?

Before I get to answer that question, I would like to first clarify again that the word “derivative” has been grossly misunderstood and has been misused in the media, especially in recent times after the global financial crises had happened.

Generically speaking, the word means what it means. Anything that is derived from something else is a “derivative”. Therefore “money” is in fact the world’s first “financial derivative”. It helped people save the troubles associated with a bartering system to swap goods for goods, to swap services for services or to swap goods for services and vice versa.

Hence the economic utility of a “financial derivative” could easily be understood. It is simply an alternative form of a claim on an asset that may serve better as a medium to swap between claims on different goods or services.

There are different derivatives such as simple derivatives vs. complex derivatives just as there are different types of people, i.e. thin people vs. fat people or care-free persons vs. deep thinkers, etc. There are good derivatives vs. bad derivatives just like there are good cholesterol vs. bad cholesterol in our human bodies. There are also derivatives based on equity ownerships vs. derivatives based on loose credit claims just as there are glass-and-steel building built on rock solid foundations vs. tall buildings that were hastily erected on quick sand that may be doomed to collapse.

So to carry on the conversation we would first have to let in those who could distinguish between the intellectual academic meaning of financial derivatives to join the conversation and let out those derivatives-bashers in public media who do not care about a knowledge based intellectual pursuits.

The point I wanted to make is not another defense of derivatives but is rather that yes indeed, a currency should in fact be considered a form of a claim and hence a form of “financial derivatives” on certain assets a sovereign community owns. However, that unfortunately has not been the case in our modern world. The paper currencies, regarded as legal tenders and issued by may countries are in fact, very vague on what they are backed by.

The second question is that whether a claim of the equity ownership of financial assets that a country owns is better and safer than a claim on a debt obligation either collateralized on some financial assets or simply on the country’s verbal promise of its ability to pay better and safer.

These will be the subjects that I would like to continue to work on in future blog posts here in the coming months, hopefully with the active participation from many of the SwapRent.com blog readers. I have also set up a new group on Linkedin under the title “TARELV. Please feel free to sign up and leave your comments there as well.

Filed under: Currencies, Economic Viewpoints, TARELV, Alternative currencies, Exchange rate mechanism, Exchange rate pegging system, Real estate based money, TARELV

05/02/2011 The New TARELV backed foreign exchange rate system and SwapRent (SM)

As could be anticipated, SwapRent makes a precise new financial instrument with a robust mathematical model to make the TARELV based new exchange rate system a reality.

With reference to my two earlier blog posts, one on 04/12/2011 A new exchange rate pegging system based on and backed by each country’s total aggregate real estate and land value (TARELV) and the other on 02/20/2011 It is not Keynesian. It is not Monetarist. Perhaps we could call it SwapRentism? Any better suggestions?, the linkage between an external exchange rate for a country and the internal domestic free market based operation for swapping cash for an economic ownership of real estate could be established.

While the domestic money could sit in the bank deposit accounts to earn interests for any defined maturity date, it could also be turned into a claim on economic real estate ownership for any maturity date and earn a market based rent, i.e. the SwapRent rate through an exchange or a marketplace such as REIDeX. (http://www.REIDeX.com)

As a result, this new free market based operation between cash and real estate exposures could offer the collateral security that a foreign entity would need to gain confidence in holding this country’s external debt in the form of its currency, either in paper notes, coins or electronic bank records.

The new uninhibited free market based capital market operation between cash and real estate exposures through SwapRent (SM) contracts could offer the enhanced liquidity to the holders and hence further confidence than those offered by the conventional legal forms of real estate and land ownership. A SwapRent (SM) contract could therefore even become a legal tender like the country’s own treasury securities.

Filed under: Currencies, Economic Viewpoints, TARELV, Alternative currencies, Exchange rate mechanism, Exchange rate pegging system, TARELV

04/12/2011 A new exchange rate pegging system based on and backed by each country’s total aggregate real estate and land value (TARELV)

This is an idea that first propped up in my head when I was a junior FX and gold options trader at Chemical Bank in the late 80’s. Puzzled and bewildered by the vague and imprecise ways that global currencies are valued, the quest for a viable alternative method has been with me throughout my entire career in the banking, risk management, financial services and real estate industries.

While I started the efforts to bring the economic advantages of financial derivatives to the mom and pop home owners after the turn of the millennium, these new exchange rate ideas have become more and more concrete but not at a degree that I could start talking about it without having a fear of being considered eccentric.

Efforts in residential real estate derivatives, institutional commercial property derivatives, SwapRent and then FARJHO have proved to be more acceptable by the masses and practical enough for making a living at the same time than devoting my spare time to creating a new jaw dropping financial instrument for the central banks. Having said that I did not foresee back then that I would be selling the SwapRent related concepts and methods as alternative economic policy management tools to many governments within the past few years either.

Rather than spending time on explaining the various problems of the existing exchange rate systems which are well known to many people already, I thought I should better focus on explaining why a new exchange rate system based on the total aggregate value of a country’s real estate and land could be better. Bear in mind that the proposed method is a suggested valuation methodology that may lead to a more precise and scientific consensus of a fair value of an exchange rate vs. that of any other currencies, the real operation of the exchange rate trading mechanism would of course continue to maintain a free market based operation.

So what are the positive arguments for a new exchange rate system based on a country’s total aggregate real estate value? Here a few starters.

1. First it simply reflects what a currency’s worth is much better with some real substance behind it. Total Aggregate Real Estate and Land Value (TARELV) reflects a country’s wealth better than a GDP number since the real estate value is more a passive investment than a GDP number that has too much volatility due to the human involvement factor. It is the same difference between an investment in a real estate property vs. an investment in a business (securities related). The business activities could go zero like a company stock could go to zero but properties would always maintain their utility value and never become zero.

2. Legally the real estate property value of a country could better serve as a collateral for the country’s currency (a form of debt) just the same way as a person’s house serves as collateral for his/her mortgage. This could inject the necessary confidence into the foreign persons that hold the country’s currency. This would serve better the financial markets better as the world moves from a one super power dominated monopolistic world to a oligopolistic world that has many economic and political powers. To further appreciate this point, one could simply imagine a person wishes to issue a currency or any negotiable instrument, it is much better if this currency is based on his house as the collateral rather than simply based on his words or his bluffing power.

3. Real estates and land are better than gold or any other commodities since real estate and land have real utility value. Gold may go back to become a useless metal when people suddenly start to realize that it is nothing more valuable than a tulip bulb. At most it could become another generic exchange medium like any other precious metals or stones in a barter like system. Its value to back other country’s paper currency from hoarding it does not make any economic sense.

4. The system may be subject to much less opportunities for manipulation by a country’s central bank’s scheming monetary policies or unscrupulous politicians’ wish to artificially depreciate and inflate out of their country’s external debts.

5. This new system would also automatically make the country’s government to direct its national resources to more productive uses to maintain the country’s economic health and steady growth by putting the Main Street economic activities on an even or higher priority with the non-productive financial asset manipulations in stock and bond markets on Wall Street.

6. The fluctuation of the exchange rates based on the real estate and land value would automatically adjust to the economic cycles in a “self-healing” fashion. When the real estate and land value declines and the exchange rate may become weak and hence may make the country’s exports more price competitive and increases its economic activities. It would also attract more foreign capital inflows. When the exchange rate increases vs. other currencies, the reverse would be true. It would become more expensive to export and hence reduced economic activities to prevent inflation from getting out of hand. There would also be more capital outflows based on enhanced investment opportunities in other countries. This would help create more global economic growth harmony since capital will flow to wherever it is cheaper to produce goods due to a temporary relatively weaker economy. This would be very different from the capital flight from a weak economy under the current exchange rate system.

To be continued …..

Filed under: Currencies, Economic Viewpoints, TARELV, Alternative currencies, Exchange rate mechanism, Exchange rate pegging system, Real estate based money, TARELV