Won't help a lot. The bad mortgages will go bust rather soon. A rapid house price increase in the longer term would help only, when the banks would go for a Chris Cook style solution, where they essentially foreclose the homes, but don't sell them, but instead rent them out.
Not quite.
My solution is in fact a transfer of title by the Banks to a quasi REIT and then for the banks to sell off their Units in the affordable rental streams flowing through these REIT's.
The outcome of this "asset-based" solution is far more advantageous to the banks than any conventional "deficit-based"solution involving new credit.
In this model,the properties themselves will never be sold again, remaining in "custody".
However, the "Co-owner" Occupiers may change, and the "Co-owner" Investors may change, particularly as Occupiers may gradually become Investors as well, simply by buying Units....... "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
The key is always to use language which is understood, and not only do I tend to write "financespeak" but it's UK "financespeak".
The proposal also has elements of what I have heard called an "evergreen lease" (not a UK expression).
Sort of an "evergreen lease to buy" "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
However, I think that a few "worked examples" set forth in common language would help, also. My biggest problem has been understanding how your system would work in practice. We have been taught to believe in "marketplace competition." Why should that competition not extend to the very nature of ownership in society? As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
Why shouldn't we unlearn what we've been taught? A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
Why shouldn't we unlearn what we've been taught?
The reason is that there are no returns going to unnecessary "rentiers". This is what the Cooperative movement calls the "Cooperative Advantage".
The competition that I foresee is not for pieces of paper representing IOU's/claims over wealth made by intermediaries, but competition for "Quality" instead.
There is no Profit and no Loss within a partnership framework, merely creation and exchange of "Value" in all its forms (and "Money as Debt" is not one of them).
Such a "cooperative of cooperatives" partnership model would IMHO be what Yunus calls "Not for loss".
Here's an example.
A portfolio of 5,000 25 year mortgage loans @ 6% pa average $200,000 to a total value of $1 billion. Each borrower must currently repay $1303.77 per month or $15,645.24 pa for the life of the loan. A rental is set at an "affordable" level - (say) an average "affordable" rental of $500 per month or $6,000 pa and this rental is then Index - linked. This gives a total Rental Pool of $30m in the first year, rising with inflation. This Pool is "Unitised" into (say) a million "Units" or "millionths". Each Unit consists of one millionth of the economic interest / "ownership" of the pool of properties and carries an income of $30.00 in the first year, rising with inflation thereafter. It is now simply a question of the market price of these Units: at $1,000 per Unit the initial return is 3%. The proceeds of a sale at this price would be $1bn, and this would pay off the debt at 100 cents on the dollar. At $750 per Unit the initial return would be 4% and the proceeds $750m or 75% of the nominal value of the debt. And so on.
A portfolio of 5,000 25 year mortgage loans @ 6% pa average $200,000 to a total value of $1 billion. Each borrower must currently repay $1303.77 per month or $15,645.24 pa for the life of the loan.
A rental is set at an "affordable" level - (say) an average "affordable" rental of $500 per month or $6,000 pa and this rental is then Index - linked. This gives a total Rental Pool of $30m in the first year, rising with inflation.
This Pool is "Unitised" into (say) a million "Units" or "millionths". Each Unit consists of one millionth of the economic interest / "ownership" of the pool of properties and carries an income of $30.00 in the first year, rising with inflation thereafter.
It is now simply a question of the market price of these Units: at $1,000 per Unit the initial return is 3%. The proceeds of a sale at this price would be $1bn, and this would pay off the debt at 100 cents on the dollar.
At $750 per Unit the initial return would be 4% and the proceeds $750m or 75% of the nominal value of the debt.
And so on.
The key point is that the higher the level at which the initial "Capital Rental" return is set, the less likely it is that it will be paid in its entirety, and therefore the less "certain" it is, and the more risky it is.
Risk does not lead to Reward: Reward leads to Risk. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
