{"id":10,"date":"2008-10-10T12:24:08","date_gmt":"2008-10-10T11:24:08","guid":{"rendered":"http:\/\/0050c0a.netsolhost.com\/thelastword\/?p=10"},"modified":"2013-09-21T12:51:00","modified_gmt":"2013-09-21T11:51:00","slug":"crash-and-burn-is-not-the-only-way","status":"publish","type":"post","link":"https:\/\/0050c0a.netsolhost.com\/thelastword\/archives\/10","title":{"rendered":"Crash and Burn is Not the Only Way"},"content":{"rendered":"

\"The<\/a><\/p>\n

waterfall<\/a><\/p>\n

The waterfall at the entrance to the northern gardens was in full flight today following torrential rains overnight.\u00a0 it seemed an apt description of the falling rocket<\/em> otherwise known as\u00a0the stock market in free fall.<\/p>\n

Looking at the PE’s of companies following last night’s meltdown\u00a0I can’t believe my eyes.\u00a0 The current\u00a0markdowns are beyond all reason.\u00a0 Then I think back and realise that I also thought the same thing at the silly prices shares were trading at earlier.\u00a0 Why should I be so surprised?\u00a0 The same irrational exuberance that flowed freely on the upside is resulting in the monumental meltdown before us today.<\/p>\n

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.\u00a0 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.<\/p>\n

First of all, let’s address the housing market.<\/strong><\/p>\n

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:<\/p>\n

Take the current value of the loan on the books and reclassify it as a housing trust investment.\u00a0 Rent the property to the individual at a rate they can pay.\u00a0 Amortise the housing trust investment at the current cost of capital.\u00a0 Offset the amortisation\u00a0against the housing trust rental income.\u00a0 The difference will go to income or loss.\u00a0 On this basis, people would still be able to live in their homes but equity would not be built up.\u00a0 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\u00a0holders of the property over time.\u00a0 It would be up to the banks to set up the amortisation period. \u00a0This 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.<\/span><\/p>\n

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\u00c2\u00a0improve the chances for a housing recovery.<\/em><\/p>\n

Alternative to<\/strong>\u00c2\u00a0Employee Layoffs<\/strong><\/p>\n

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.\u00a0 Here’s an alternative:<\/p>\n

Rather than laying people off, cut cash salaries in half and issue share options\u00a0for the other half.\u00a0 This would have the effect of encouraging all employees to improve the share price to increase the value of their options.\u00a0 It would improve current earnings of the company, thereby automatically improving the share price\u00a0not to mention\u00a0employee morale. <\/span><\/p>\n

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.<\/em><\/span><\/p>\n

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\u00a0provide help to employees on lower salaries.<\/p>\n

Needless to say, there are variations in between for both of the above measures.\u00a0 It would allow for progress with a minimum of outside governmental assistance.\u00a0 It also encourages everyone to work together for the good of everyone.\u00a0 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.<\/p>\n

Let’s get off the crash and burn bandwagon and\u00a0buy America now!<\/p>\n","protected":false},"excerpt":{"rendered":"

waterfall The waterfall at the entrance to the northern gardens was in full flight today following torrential rains overnight.\u00a0 it seemed an apt description of the falling rocket otherwise known as\u00a0the stock market in free fall. Looking at the PE’s of companies following last night’s meltdown\u00a0I can’t believe my eyes.\u00a0 The current\u00a0markdowns are beyond all […]<\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-10","post","type-post","status-publish","format-standard","hentry","category-hot-topics"],"_links":{"self":[{"href":"https:\/\/0050c0a.netsolhost.com\/thelastword\/wp-json\/wp\/v2\/posts\/10","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/0050c0a.netsolhost.com\/thelastword\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/0050c0a.netsolhost.com\/thelastword\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/0050c0a.netsolhost.com\/thelastword\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"https:\/\/0050c0a.netsolhost.com\/thelastword\/wp-json\/wp\/v2\/comments?post=10"}],"version-history":[{"count":2,"href":"https:\/\/0050c0a.netsolhost.com\/thelastword\/wp-json\/wp\/v2\/posts\/10\/revisions"}],"predecessor-version":[{"id":102,"href":"https:\/\/0050c0a.netsolhost.com\/thelastword\/wp-json\/wp\/v2\/posts\/10\/revisions\/102"}],"wp:attachment":[{"href":"https:\/\/0050c0a.netsolhost.com\/thelastword\/wp-json\/wp\/v2\/media?parent=10"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/0050c0a.netsolhost.com\/thelastword\/wp-json\/wp\/v2\/categories?post=10"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/0050c0a.netsolhost.com\/thelastword\/wp-json\/wp\/v2\/tags?post=10"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}