On December 27, 2012, Edward J. Pinto writes in the Los Angeles Times that Federal Housing Administration (FHA) policies are disrupting the American dream for the families and neighborhoods they are supposed to help.
Imagine that a federal agency wanted to hurt America’s working-class families on purpose. How would it inflict maximum damage?
It might start by aggressively marketing homeownership to marginal borrowers. It would tell them that bad credit scores aren’t a problem. It would push them into homes they can’t afford, saddle them with loans that barely build equity and provide no incentives for fiscal discipline. And when many of these homes go underwater and into foreclosure, it would leave families in financial ruin.
In short, such an agency would follow the Federal Housing Administration playbook.
The FHA mortgage insurance program is based on the principle that the number of people who receive loans for housing purchases from banks, with the loan monies guaranteed to the bank against failure of the purchaser, will be significantly small compared to the total loans amounts issued and guaranteed by the FHA. Of course, put into perspective, to purchase a home requires a separate, independent source of income to pay the monthly mortgage amount, which over time pays off the initial loan and the home then becomes an equity asset of the homeowner.
The point is that a separate source of income is necessary as the home is consumed as a habitat, not as a rental property or capital asset. The principle of insuring loans is based on the preposition that the majority of loans will be paid back over time, with few defaults covered by the insurance fee attached to each loan.
If we apply this insurance concept to the acquisition of productive capital ownership not only does the same principle apply but the capital assets financed with the loan actually generate their own income stream to pay off the investment. This is the financial mechanism used by wealthy Americans to accumulate capital ownership of FUTURE capital asset formation and benefit from the stock dividend income.
Binary economist Louis Kelso advocated the use of capital insurance to facilitate acquiring private, individual ownership in business corporations facilitated with private capital credit insurance or a government reinsurance agency (ala the Federal Housing Administration concept). Under the plan, the promissory note can be offset to the government’s central Federal Reserve Bank in return for the cash equivalent of the amount of the loan, less an administrative fee. The only cost to the direct lending bank in making a loan to the business corporation would be the administrative fee, or about 2 percent of the loan’s principal and then another 2 percent for capital credit insurance, with an additional quarter of a percent paid to the Federal Reserve Bank to monetize the loan and give the lender the same cash as it would have had if it had actually loaned money to the corporation. The lender’s cash loaned to an Employee Stock Ownership Plan (ESOP) trust or a Capital Homestead Account (CHA) is replenished with the Federal Reserve Bank cash. When the company pays the ESOP trust or CHA enough money to enable the entity to repay the lender, the lender has to retrieve the note and pay back the Federal Reserve Bank. Thus, the loan cost would be essentially not more than 5 percent to allow ownership broadening financial capital to be invested in ownership broadening ESOP trusts and CHAs to create new capitalists. Thus, national capital credit insurance is the key to pledged security.
To implement this approach, the Federal Reserve needs to stop monetizing unproductive debt, including bailouts of banks “too big to fail” and Wall Street derivatives speculators, and begin creating an asset-backed currency that could enable every man, woman and child to establish a Capital Homestead Account or “CHA” (a super-IRA or asset tax-shelter for citizens) at their local bank to acquire a growing dividend-bearing stock portfolio to supplement their incomes from work and all other sources of income.
The CHA would process an equal allocation of productive credit to every citizen exclusively for purchasing full-dividend payout shares in companies needing funds for growing the economy and private sector jobs for local, national and global markets,
The shares would be purchased on credit wholly backed by projected “future savings” in the form of new productive capital assets as well as the future marketable goods and services produced by the newly added technology, renewable energy systems, plant, rentable space and infrastructure added to the economy.
Risk of default on each stock acquisition loan would be covered by private sector capital credit risk insurance and reinsurance, but would not require citizens to reduce their funds for consumption to purchase shares.
Support the Capital Homestead Act at http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm
Sign the Petition at http://signon.org/sign/reform-the-federal-reserve.fb23?source=c.fb&r_by=3904687
Sign the WhiteHouse.gov petition at https://petitions.whitehouse.gov/petition/reform-federal-reserve/PhY3Jswk
