waterfall

The waterfall at the entrance to the northern gardens was in full flight today following torrential rains overnight.  it seemed an apt description of the falling rocket otherwise known as the stock market in free fall.

Looking at the PE’s of companies following last night’s meltdown I can’t believe my eyes.  The current markdowns are beyond all reason.  Then I think back and realise that I also thought the same thing at the silly prices shares were trading at earlier.  Why should I be so surprised?  The same irrational exuberance that flowed freely on the upside is resulting in the monumental meltdown before us today.

Before we all hit the panic button and get out our 1929 scripts to see how this is going to play out, I was given a revelation that maybe there is another way than the crash and burn that has been with us in our capitalist system.  Crash and burn may work for the one off disaster but now that nothing is exempt from the current pain, it is time for a new way.

First of all, let’s address the housing market.

Banks have already written down a good chunk of the value of their current holdings. Rather than turfing everyone out on the street when they cannot pay the going rate, here’s an alternative:

Take the current value of the loan on the books and reclassify it as a housing trust investment.  Rent the property to the individual at a rate they can pay.  Amortise the housing trust investment at the current cost of capital.  Offset the amortisation against the housing trust rental income.  The difference will go to income or loss.  On this basis, people would still be able to live in their homes but equity would not be built up.  If on the other hand they wish to build equity in the process, the income/loss would be applied to a deferred profit or loss account and this would allow some ownership to be built up and accrue to holders of the property over time.  It would be up to the banks to set up the amortisation period.  This doesn’t address the subprime packages of debt sold off by the ton but it does provide a working solution to manage the debt and reduce the current pain.

The result of this plan would be an immediate reduction in the number of For Sale signs up and down the land. Psychologically, this would improve the chances for a housing recovery.

Alternative to Employee Layoffs

With all the panic on the street, the layoffs that will result from this process of crash and burn will be a total disaster for the economy.  Here’s an alternative:

Rather than laying people off, cut cash salaries in half and issue share options for the other half.  This would have the effect of encouraging all employees to improve the share price to increase the value of their options.  It would improve current earnings of the company, thereby automatically improving the share price not to mention employee morale.

With everyone working together to improve the company and the company share price, this would unleash new innovation and creativity at a time when it could be severely strained.

As for the impact of the reduction in earnings, the banks already have a way of dealing with mortgage pain from the above example and this would provide help to employees on lower salaries.

Needless to say, there are variations in between for both of the above measures.  It would allow for progress with a minimum of outside governmental assistance.  It also encourages everyone to work together for the good of everyone.  It is in everyone’s best interest to encourage full employment, it is in everyone’s best interest to encourage home ownership, and it is in everyone’s best interest to encourage equity ownership.

Let’s get off the crash and burn bandwagon and buy America now!

In the middle of this battle for financial confidence, all hands are on deck fighting to preserve capital.  Now that the battle is being waged, rather than spending all our capital trying to eke out a return, it may just be time to dream.

What kind of a world do we want to live in and what will it take to make it happen?  Beyond the mark-downs, beyond the lay-offs, beyond the bursting of this over leveraged bubble, how do we really want to live?

On the BBC web-site today came the following announcement:

Mammals facing extinction threat

By Richard Black Environment correspondent, BBC News website, Barcelona The seas are one of the ecosystems threatened by human activities At least 25% of the world’s mammal species are at risk of extinction, according to the first assessment of their status for a decade.

Whilst we are all impacted by the events taking place around the globe in the financial markets, we could be in an even worse position.  Do we want to create real lasting wealth or do we want to create ilth? 

Rather than strangling business with more regulation and taxation, now is the time to increase rewards to those who create real, lasting value.  Which ever candidate wins the White House, this should be the real focus of the platform – wealth and value creation – in people, in education, in health, in the environment, in art, and in science.  Rather than creating hostile forces that punish companies for the business they are in, create incentives for transforming each and every business.  Rather than relying on government to clean up every mess, let the private sector take the risk and reap the reward. 

The deal between WB and Wells should be allowed to fly and it should be allowed to take place at speed.  Dithering only reduces the value of both institutions.  Together, they will be able to set an example for others to follow.

In fact, this may be the beginning of new co-operation around the globe.  It is clear more than ever before that we are all interconnected.  If we work together, there will be no end to what we can achieve.  Forget the talk about the coming recession.  This is the time to sow the seeds of a new beginning.  Americans cannot live in a world without hope.  They don’t need more talk about reality which is staring them clearly in the face.

As I look out my window, the mountain beckons from across the lake. A mist is rising to meet the clear blue holes poking through the clouds.  Sheep are grazing below in a green field peacefully.  The oak tree stands tall beside the water with its limbs seeking to touch the sky.  Contrary to all the evidence in our financial markets, the sky is not falling.  The earth is full of God’s glory.  Perhaps it’s time we sat back and took stock of the vast wealth that resides in our backyards.  Every journey starts with a single step.  Take off the black hat of doom and breath the air while you still can. 

This is not 1929 and we will not be down for long.  We have a golden opportunity to dream a new dream and each and every person on this planet is part of the story.  Let America start the ball rolling.  And when we dream, let us follow through and help everyone we meet along the way realise their dreams too.