A Reader Who Knows a Lot More About Economics Than Me Writes

I just thought that I would share with you some good news about how you’ve forced me to more seriously consider the social gospels and reconcile them with my own beliefs about human nature and economic organization.

The poor, around the world, own approximately $9.3 Trillion in real capital. The problem is that this is “dead” capital, ie outside the legal system. Bringing this capital into the legal system and making it live is possibly the easiest way to provide a dignified life for the poor. The issue affects approximately 4 billion people or 2 out of every 3 on the planet. Essentially writing up a few hundred laws and implementing them would add trillions to world economies and create a tremendous lift for the world’s poor.

I choose to think that, at least in part, this is what Pope Francis is going on about people being despoiled as dead capital has no legal protection and people lose their property with the payment of a bribe.

Conventional charity is not equipped to move that much money into the hands of the poor. But the example of Carlos Slim Helu shows that you can make a great deal of money selling to the “bottom of the pyramid” so there’s a natural coalition waiting to be consummated between the business interests who want new markets and the vast poor who want tools to build a dignified life for themselves if they only had the collateral to stake their dream.

Anyway, this has been floating around in my head for years but your banging on about the social gospel really forced me about getting serious and organizing my thoughts. Thank you for that.

Here’s a link you may find of interest. The whole blog is neat.

I’m not competent to comment but those who are should feel free to do so in the comboxes.

  • SteveTirone

    That is an excellent web site!

    • Clare Krishan

      if you are so knowledgeable enough to speculate on the merits, pls do take a pinch of salt to stave off any financial-repression indigestion:
      “Risk – It’s Not Just A Board Game”
      http://www.youtube.com/watch?v=wzzoBVK3fyE
      (my cousin was a Lehman’s man… until he wasn’t).

      • SteveTirone

        Thanks for the link, I shall watch it later.

        For the record, I was a Merrill Lynch man, until I wasn’t. And then an S&P man, and an AIG man. So I am personally somewhat familiar with the concepts involved.

        • Clare Krishan

          stick with it… its a little melodramatic perhaps, culminating in Carl Orff Carmina Burana apocalyptic soundtrack, but consider for a second the dire implications for established fiscal probity if shady dealers’ money laundering our assets out from under us. The Vatican has been forced to look under their own carpets and check for cobwebs… by MoneyVal’s international rules not standards of Catholic Social Teaching — Frances seems to think we’d be better off without the IOR, which while it gets the Holy City off the hook, we the greater number of Catholics who have to live in the real world of mass insolvency of the communities we live in, see sewer-bond bankrupted Birmingham AL and HOAs blighted by repo’s and delinquent owner-members [ http://www.righttoown.org/home/myths-and-misconceptions ] who hit their members with special assessments to cover the moral hazard losses incurred by decades of bubble-mismanagement and vendor malfeasance in professional services such as property operations, banking and legal enforcement services, see my earlier comment posted above) will still have to deal with the issue of too big to fail and too big to prosecute

          “Here is what people forget: after Lehman Brothers goes, the run that occurred was not Ma and Pa. The run that occurred that, for example, broke the buck in the money market mutual funds: that was a massive run of the most sophisticated financial players, where they were taking out hundreds of millions – or even tens of billions, in some cases – of money, in some cases, literally, in microseconds. In other words, bankers no longer trusted other bankers. And when that happens, markets do not simply become inefficient; they actually lock up. And that is what happened thousands of times after Lehman collapsed, because bankers would no longer trust other bankers’ evaluation of the assets.”

          http://www.zerohedge.com/news/2013-07-14/bill-black-banks-have-blood-their-hands

        • http://chicagoboyz.net/ TMLutas

          Would you care to comment on how the poor, whose possessions are already less well secured than the middle and upper classes will likely fare if there’s a crash and what you think they should do to prepare for the storm?

          Frankly, I’m finding the videos and links from Clare a real temptation to make this all about me, me, me. But that’s not Christian and it isn’t what Pope Francis is talking about.

          Can we focus just a bit of attention on the poor and what will happen to them in the face of all this? I too am a fan of zerohedge. I would like to come up with something better for the poor than regression back down to subsistance farming until the rich get their act together. Subsistance farming is, of course, the bottom rung sustainable economic position. You can’t do worse than that and survive long-term.

      • http://chicagoboyz.net/ TMLutas

        Returning to the actual subject of the article, do you think that the poor will be more secure in their unregistered possessions in a world where the rich are desperate to create real assets to offset their paper losses? I think that they will be less secure and that dispossessions will rise across the world wherever the poor are not secure in their possession of the meager assets they have by property registration.

        Funny enough, the poor can’t afford bullion and what they can afford, they are less secure in. So what’s their solution?

        • Clare Krishan

          funny enough in many pastoral societies since ancient times gold and silver or precious stones such as diamonds and rubies and pearls where the form of capital most highly favored as mobile, secure and easily divisible when tendered as collateral as needed, consider this Akha tribeswoman headdress from Myanmar:

          http://sydertravel.files.wordpress.com/2012/10/silver-headdress-of-the-akha-tribe-golden-triangle-burma.jpg?w=199&h=300

          We Westerner’s are the deluded ones who have succumbed to a vast oppressive regulatory capture, where the valuation of our assets is only secure if Government records it in their tax deeds… and we can afford a good lawyer to defend our suit in civic court… ever since Dicken’s Jarndyce vs Jarndyce (based on the true story see here http://www.flickr.com/photos/52219527@N00/4353577576/in/set-72157625899637489/) we should be clued in to how flawed this modus operandi is… human free agency preceeds the State’s organizing precepts, it does not flow from it. Convince yourself otherwise and you’re a victim of the tyranny of relativism: where all our rights are relative to a wordly despot who deigns to grant them us?

          No!

          All is gift from God, including the human institutions he ordains to secure development and flourishing amongst peoples, and we owe him prudent right-judgement in the stewardship of such a great treasure (along with copious amounts of gratitude for the blessings bestowed – in emulation of his providence we ought be joyful givers always, there should not be any poor – their very existence is a kind of IOU chit against us, an outstanding reminder notice of an outstanding obligation not yet settled… thus Jesus’ “the poor will always be with you…” (we are fallen creatures and human distributive justice a most imperfect thing, we need His perfecting grace to effect the kind of heroic sacrifices charity calls us to, narrow legal constructs will not suffice however arfully proposed or astutely defended), Democratic free enterprise capitalism absent Christian values is nothing more than the dog-eat-dog intrigues of classical antiquity. Liberal market economy bereft of scholastic metaphysics of ends and means is doomed to collapse under the weight of rent-seeking behavioural incentives and moral hazard social insurance (a pyramid scheme of public goods promised by unfunded mandates). A currency that is backed by the ‘full faith and credit’ of the US Government is only as valuable as that institution is credible… the only security in such a promise is that of the issuers – who are not even in the Treasury of the Government. They’re a group of private businesses called banks who the Treasury granted the privilege to in the 1900s. They can decide to create money out of thin air in order to buy debt (the “credit” above) from the Treasury whenever their well-heeled business associates feel its timely, nothing rational about it. The well-heeled access the new money first not the poor. Their economic choices on what to spend their consumption dollars on sets the tone for the economy and business prospects… a war in Iraq, for example benefits an aerospace manufacturer who sells his goods to the Armed Forces in need of replacements as their current stock dwindles under fire from the enemy. But munitions don’t yield a return, they’re “dead capital” as soon as they’re been shipped to the battle fronts. Government doesn’t hold any live capital so to speak, all their “assets” are in constant need of a replenished revenue stream to sustain operating costs. This is the “takers” meme that caught so much flack for the Romney campaign, and its accurate, Someone has to be a “giver” to provide actual, real resources as disposable income in order for any Government activity to proceed. Redistribution presumes something being created prior to being distributed. Distributists do not need capital assets to pursue distributive justice, they simply need donors willing to earmark resources for development by others (land leasing rather than land-owning for example as was practised under Roman law http://en.wikipedia.org/wiki/Latifundium as feudal hacienda’s). Concentration of disproportionate power is a constant temptation for fallen humanity, and the only salve a well-formed conscience, evangelised by – and desirous of – Gospel values. With the political balance swinging away from faith-based initiatives in current affairs, a narrow focus on Thomistic scholasticism is a losing proposition for Catholic intellectuals, IMHO the focus needs to be on animating various creative freedoms of subsidiarity, lowering the barrier to entry for new ways of sharing our gifts with those oriented to benefit from them. For example how can we help our impoverished brothers and sisters in war torn Syria ? Unless we fight for religious freedom at home we will not have the precepts needed to advocate for it abroad. Everything global is first local. If we do not demand fiscal discipline of ourselves, we won’t be able to defend fiscal discipline as a standard others must be held accountable to. A virtuous society is only as virtuous as the virtue of its members. There are no short cuts.

          • http://chicagoboyz.net/ TMLutas

            When did the highly mobile precious metals/gems strategy become illegal in a free society? I know about the gold seizures under FDR which may give you a clue as to how I feel about his commitment to liberty. The property registry does not replace the gemstone tucked between your wife’s breasts. It’s an alternative that reduces the scope for robbery by the powerful. Ultimately, you have to lay down and rest. Naturally, people do set down roots, create local reputations, form communities. Lives end up tied to their friends, their communities.

            Every time the powerful decide to run you off your home, you lose both in dignity and in assets. Do you deny this is a blow? Do you deny that property registries are effective tools to reduce such depredations (yes, they can be overcome, with difficulty)? Do you deny both? While there are many other problems in the world (you’ve ably described several of them), this is a problem too. But you seem to disagree, or do I misunderstand you?

            I will resist, this time at least, to hare off on any of the several of the tempting trails you’ve laid down. This neither means that I agree or disagree. It merely means I’m trying to stay focused.

  • Martin Meenagh

    Secure electronic land registration, and the registration of easements, chattels, and what the English call equitable rights, could potentially allow for three developments. Firstly, given modern technology, we could have apps that, with say a fingerprint, allowed for the recording of formal transactions and grants, releasing huge capital potential. But, secondly, they could also allow for mortgage frauds and bullying by corporations on an huge scale unless overseen. Thirdly, they would make possible taxes on land and wealth, rather than income. Not only are income taxes, a distributist might argue, are a chief cause of the over-mighty state, but wealth taxes could be much lower and bring in much more revenue without the equivalent bureaucracy, more equitably.

    One difficulty, I guess, is that a lot of the capital which the author calls dead is probably being adversely occupied; commercial developers, banks or governments might already be fraudulently issuing derivatives or such over their nominal title to it and then just not enforcing it, or acquiescing because it provides a proximate home for their slave labour and therefore lowers prices for tourists and foreign labour-seeking corporations. So another consequence could be financial confusion and inflation.

    Very interesting piece though.

  • Clare Krishan

    can’t endorse, sorry. The author’s incorrect in calling land capital – it is not per se a captial asset worth anything unless there is or has been exploitable resource stream of revenue associated with it – minerals to be mined, an arable yield to be harvested or homes or offices constructed to be rented or the leasehold sold for a fixed term and conditions. Latin Americans like Carlos Slim are expert practioners in the non-Anglosaxon means of creating wealth via an encomienda modus operandi of landholding – where labor belongs to the landholder and moves wither his territorial title takes them (inherited with the property or shared out to heirs) as opposed to the common law precedent of Magna Carta where natural rights of stakeholders to the sustenance of the land they have invested their capital in (their tools, their artisanal skills are “capital” while maintaining the land is an operating expense – battling nature’s entropy to return it to an overrun wasteland.)

    Beware of glossy blogs bearing gifts missing a “return to sender” ID tag. The gullible may rue the day, as many the member of an HOA will attest. He who “owns” capital must have free reign over it. If in anyway encumbered (mortgaged to disproportionate financial interests) then it no meaningful way can one be described as “owner” but only “steward”. In the USA no-one “owns” land: fail to pay your real estate taxes and the State will level liens to dispossess you or your heirs at the latest settled upon your death. True allodial private property is a theory no longer a reality in the developed world, the underdeveloped are not well advised to follow in our footsteps – our currency is based on real-estate and bond bubble that is being blown by the Fed and their client banks to pump monetary media (for they cannot create real wealth: capitalists create wealth, bankers merely transfer other peoples assets into third party control, for a profit). States do something similar with deficit spending, taxing a generation as yet unborn.

    The ideas of the author are out of date, the birth dirth (Western promotion of contraceptive thinking) threatens underdeveloped peoples far more than legal access to markets [ http://catholiceducation.org/articles/population/pc0005.html ] “Lord Bauer, in The Development Frontier, suggests that the lack of people in Africa may be the cause of some of the problems: “…population growth can have favourable external effects. It can facilitate the more effective division of labour and thereby increase real incomes. In fact, in much of Southeast Asia, Africa, and Latin America, sparseness of population inhibits economic advance. It retards the development of transport facilities and communications, and thus inhibits the movement of people and goods and the spread of new ideas and methods. These obstacles to enterprise and economic advance are particularly difficult to overcome.” Bauer isn’t alone in making this observation. A growing number of “authorities believe that Africa is actually underpopulated.”

    • http://chicagoboyz.net/ TMLutas

      it is Francis’ critique about the despoilation of the poor which concerns me. Whether fee simple ownership or allodial rights or some other form of land ownership is better or worse is marginalia for this question.

      If you can name anyone on earth that has allodial rights other than a sovereign nation, I’ll take your point on the necessity of allodial rights more seriously. A dignified christian life does not require allodial ownership unless you are making the corollary point that the vast majority of people in the first world do not have a dignified life in the way that Pope Francis means it.

      As to Carlos Slim, I mentioned him due to his practice of being willing to break up lots of building materials to odd lot sizes sufficiently small for the poor to afford. The poor in Mexico basically banked bricks from this guy. They would get a bit of money and buy a brick or two, continuing on until they had enough bricks so that they would buy 1 bag of cement, and build up part of a wall. They would continue on that way until their windblown tar paper shacks turned into sturdy one room brick houses. Selling to the bottom of the pyramid, directly to the poor was an innovation that Carlos Slim pioneered in Mexico. Whatever his other merits or sins, he deserves credit for this.

      If you are rich enough in the US, you are an accredited investor. You get access to certain economic opportunities that us small fry are not allowed to invest in, even though the people who are offering the opportunity would be more than happy to take our money for shares. As your wealth level drops, fewer and fewer opportunities have minimum levels of money that are affordable for you until you’re down at the level of that poor peasant who invests in bricks, one or two at a time, until they can buy a single bag of cement and raise one wall a level or two. But without title, you can be dispossessed of several years investment in all those bricks and cement and it does happen, as any 3rd world peasant could tell you. This insecurity distorts investment patterns and generally makes life more miserable than it otherwise would be because nobody will invest in services for the long haul. It’s all hit and run and get your cash out as quick as you can.

      As a practical matter, one has to convince those who currently benefit from the status quo that the new dispensation will be even better. Armed with a good story about how they too will benefit, reform becomes more likely to succeed as the landholding rich split with some aiding, others opposing the reform.

      As for the birth dearth, it is both real and irrelevant to this issue. If you have no money to buy what you need to start a business or plant what you can, you’re stuck whether or not you are cheek to jowl with your neighbor or your next neighbor is 20 miles away. You’re still cash poor and unable to produce what you could if you had the money. You must then borrow, but if you have no collateral, interest rates are ruinous. This too happens just as much in an overcrowded and underpopulated country.

      • Clare Krishan

        Americans basically bank their bricks from homegrown government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac – that is if they’ve any cash left after having banked their further educations pen & paper credits with SallieMae student loans. So what? Francis is certainly not intent on spreading a “dignified life” of uniform planned communities a la FHA-mortgage-backed title to reside in a suburban HOA with liberties curtailed, spoofed here,*

        http://www.righttoown.org/home/the-association-movie

        encumbered by a legally-binding corporate fiduciary-duty restrictive Covenant (majority of recent decades’ construction boom VA, TX, AZ, and FL, e.g. Ave Maria Town). Papa Francesco’s all about setting man free from enslavement to worldliness and idolatry. Your “Live Capital” and “Dead Capital” argument rings with all the anthropological clarity of the culture of death, has all that “just enough of me – way too many of you” whiff to it. Starting with Pres. Clinton we’ve been exporting the HOA format of faux democracy to the many new states established from the ruins of the former Soviet Union, replacing communal socialism with private socialism at the disposal of elite seignorage-capitalists (those who live off rent-seeking behaviour protected by sychophantic Statist crony-corporatists). Property land-owning isn’t any kind of nirvana as you imply: Germans rent mostly (I was based there for a 13-yr career stint and rented happily) yet Germans are currently the wealthiest Europeans while the gullible Latin PIGS economies are stagnating in the mire of their own negative equity.

        FIAT currency central banks need to recruit ever increasing subscribers of gullible debtors to create sufficient ledger records in their double-entry bookkeeping accounts to create the credit needed to fund inflationary materialistic merchantilism (note I didn’t say to create wealth, ingenuity of human persons creates subjective value and thus attaches price to sacrificial consumption of goods and services such as housing and health as evidenced by the wide variety of models adopted by region ranging from Trailer-park day labor fee-for-service instore-pharmacy care to Macmansion stock-option-golden-parachuted life-time insured private nursing care (American examples, China has a lesser-developed financialization of service delivery via social insurance, everything’s fee-for-service there). Civic institutions can only reallocate entrepreneurial labor’s finite product by fractional reserving lending via government taxation on otherwise free commercial transactions (or increasingly as the economy shrinks leaving no free enterprise worth levying, resorting to contracting with 3rd-party sovereign capital (selling one’s birthright for a bowl of pottage) deficit spending via floating municiple bonds on IMF loans beholden to entities inimicable to Christian values such as atheistic communism and authochtonous petro-despots).
        ___
        * spoofed but in reality not far off the mark, personal experience informs me (after a quarter-century of costly litigation with our now-deceased developer — incidentally a member of the same RC parish we attend, may he rest in peace and enjoy the merits of Divine Mercy we all seek — and years of forensic analysis and restated financial reports to expose off-book accounting and clear our reserve fund deficits — similar to the shenanigans that went on in our local Archdiocese now coming to light here in Philly). No, capital saves no-one. Capital can only make the space for us to have the leisure to share salvation with those too oppressed to worry about tomorrow and merely want enough food, water and medicines to survive today’s trials. And then only if we use it to make such space, if we abuse it its actually detrimental, interfering in established stable social orders of long standing however imperfect (e.g. native Guarini before Spanish Conquistador capitalist-stakeholders arrived to claim title to their corner of the earthly paradise, it took clerical scholastics back in Spain the good sense to promote our Lady’s message to Juan Diego before anyone worried about the salvation of their souls and approved catechical preparation and reception of Mother Church’s sacraments by order of a Papal Bull).

        • http://chicagoboyz.net/ TMLutas

          Americans have a wealth of choices compared to the third world peasant. This is why the whole micro-credit/Grameen bank stuff is so important. It allows a wider range of choice that allows certain moves to be made so that we can minimize the number of moments when, regretfully, “sucks to be you, you’ll be in my prayers” is all we’ve got left because there is no money/food/whatever to give to make things right materially.

          How to turn a “dead capital” property into “live capital seems to have escaped you. You just register at the local equivalent to the US county clerk as adversely possessed. Getting through that process is just paperwork in an honest system. In a corrupt system, protest and moral suasion may be necessary, perhaps even a discreet bribe to outbid the usual bribers. There is _nothing_ about that process that has anything to do with too much of them and not enough of us. This would be the second time you are distorting things in an uncharitable way.

          Home Owners Associations are voluntary associations that also have nothing to do with this process of transforming dead capital. HOAs can be entered into, or not, just like any other voluntary group. I’m not particularly fond of them but I don’t find them anti-catholic per se. Now, coincidentally, I live in a house that used to be in an HOA area. The HOA died for lack of interest so I know that their existence is not something that is necessarily permanent.

          Not everything that is a bad idea is a sin and I’m just outlining a way for free market oriented types to be faithful Catholics in a way that is true to the direction Pope Francis is taking this Church. That means maximum leeway even to do foolish things that are not sinful.

          I actually agree with you that capital saves no one. But a lack of capital can kill. A lack of capital can determine how many are homeless, how many are hungry and what is their distribution. These are things that we are called on to help fix and the problem is not entirely solved yet. By creating more bidders for capital (via creating legally registered collateral), you increase the penalty for using capital foolishly, nudging people marginally to make better choices.

          All dead capital is the consequences of off books shenanigans. All that is being proposed is that what is off books be brought onto the books and assigned to its proper owners. That this is objectionable to you sufficient to jump to (false) conclusions is still a mystery to me. I don’t understand why you’re doing this. You’re coming off as a propagandist with an unhealthy disregard for the truth and just willing to throw mud of whatever kind is to hand.

          The process of properly registering property to reflect the facts on the ground has nothing to do with the currency system and can equally be accomplished with paper fiat currencies as with a hard gold standard. This is just one more irrelevant objection.

          • Clare Krishan

            Grameen Bank is an islamic pyramid scheme masquerading as a central bank for the purpose of sharia, and regretfully “sucks to be you, you’ll be in my prayers” IS all that they have left – since QEtoinfinity the cats out of the bag re: escalating global food prices (recall the poor soul who self-imolated at the market in protest during the first wave of North Africa’s “democratic” Arab Spring? Microcredit doesn’t cover losses on selling your crops — no fool loans to cover debts (where do you think slavery got started? The indentured’s family labor goes to them pay off in perpetuity if necessary, as generations of as yet unborn American citizens will discover they have been enslaved to past generations’ ill-considered profligacy — it covers buying seed ON CREDIT for next years harvest – rehypothecated on the world futures market, see MFGlobal debacle – from a bigger fiscal institution for price discovery in financialized markets not as accident of a temporary unforeseen crisis but fully intentionally foreseen and planned US fiscal policy of financial repression through “targeted” inflation (ie stealing your accrued wealth from out of your pocket by diluting its purchasing power with ex-nihilo printed paper). We are not the world’s nice guys anymore… the globalized dollar economy is a big part of the problem: we just have more cash to throw around for the disadvantaged, until the time we don’t… these ideas are now quite out of date (I followed de Soto when I was in high school over thirty years ago… land title registry was all the rage back then, but y’see it doesn’t help to hold title if you can’t earn enough to service the debts you incur because your currency units are depreciating ‘cos your government’s in deep hock to the IMF… you’re better off renting, let the big boys handle the risk of losing their shirts).

            Distortion is a fair accusation, but parse your own rhetoric by the same standard and you may find that it won’t hold water in the light of the data I’ve offered you to consider present. The poor of the world are as easily disenfranchised by the collectivized local despot as the collectivized global despot, subsidiarity implies a different means to the end of shared prosperity absent the well-known constraints of collectivization. Sadly this aspect of Catholic Social Teaching has never been integrated into American liberal capitalism theories based on protestant work ethic or labor theory of value, such as the Chicago School, whereas the classical subjective value theory of the Austrian school requires a civic fiscal discipline so demanding most lazy Democrats right or left shy away from because it holds them accountable for the unintended consequences of their Utopian schemes.

            • http://chicagoboyz.net/ TMLutas

              Nobody that I’ve ever heard of says that Grameen bank is a central bank. For what country is it a central bank? My understanding is that 97 percent of shares are held privately, generally by poor women who also form the bulk of its loan portfolio. The government of Bangladesh seems interested in reorganizing the bank and socializing 51% of its shares but government seizing the property of the poor is hardly something that I am advocating, quite the reverse in fact.

              Note, I am not holding up Grameen bank as some saintly institution, just one that has had demonstrably good effect on raising people up from poverty with an innovative business model and largely private means that have been successfully imitated across the world.

              The spike in food prices that played a significant role in the Arab spring is generally laid at the feet of US and EU agricultural policy, specifically “green fuel” mandates such as the ones that have swallowed up so much of our corn crop in the US. This is bad policy but nothing to do with dead capital.

              Microcredit adds a few bottom rungs to allow poorer people to start bootstrapping themselves out of poverty by the power of their own efforts.

              For your information, slavery got started as a more profitable alternative to genocide for war captives. Long before we’d gotten so sophisticated as to institute debt slavery, slavery of captives was already old news.

              Targeted inflation in a fractional banking fiat currency regime vs hard money regime has nothing to do with dead capital. You can have dead capital in either and it is the same problem in both systems. That makes the introduction of the controversy a red herring.

              I happen to like Austrian economics. It’s not too fond of dead capital either as it’s famously in favor of the rule of law and against favoritism for political insiders which is how a lot of dead capital gets formed.

              Rehypothecation without limit is the devil’s playground in finance and the way the UK does it (the only country I actually know about that does unlimited rehypothecation) is a species of fraud. I hate fraud. Now tell me what that has to do with dead capital. You seem to be tossing a whole string of objections that have no actual connection to dead capital but make a handy base for “guilt by association”. Unfortunately for your position, there is no actual association.

              • Clare Krishan

                I take no pleasure in irking you by debating various erudite pros and cons of leveraged financing. I’ve stated my well-founded reservations (for more see Nicholas Nassim Talib on hedging strategies for securing a more antifragile future)

                Allow me to share an applied technology called hugelkultur http://www.youtube.com/watch?v=ykCXfjzfaco
                with perhaps a greater potential to increase prosperity in measurable and meaningful ways for marginal householders raising their material prospects for improved health and prosperity faster than any amount of banking knowhow. Investing in old-fashioned habits of thriftiness will always trump a premature surrender to indentured debt collateralization!

                Thx for engaging in the debate, all the best.

                • Clare Krishan

                  and more (this from CRS)

                  http://www.youtube.com/watch?v=grritAZ7CHI

                  and arborloo: growing sanitation for the future!

                  http://www.youtube.com/watch?v=9NC5IE-1DDw

                  • http://chicagoboyz.net/ TMLutas

                    More trolling.

                    • Clare Krishan

                      I’m not fond of blog-hogging nor being accused of trolling, so I’ll make my final attempt to stake out common ground re: what I think is or is not relevant to an asset class being termed dead or alive brief – the creative potential for adding value comes in the human encounter of the exchange of subjective valuation of what is fit for purpose (live, productive asset) for what is not (dead, toxic asset). Our blog author Mark is a capitalist of wordsmithing – his capital? the keyboard upon which he forges the strings of words together, secured by copyright statutes that designate all profits from the sale of any creative products thereby formed are his. The roof over his head isn’t capital its merely his major fixed expense as is his internet access or phone. His personal craft is his ‘capital” from his 10 digits to his ‘four’ eyes and including his large head that contains the brain that analyses and combines the various threads of coherent thought into profitable prose.

                      He may or may not rent the rooms his keyboard is situated in, they may be “live” or “dead” to him, or only live to his landlord (or mortgage bank). They’re irrelevant to the author’s capital, his exclusive faculties to secure a revenue stream from royalties and stipends from lecturing on themes he develops and proposes their-in. He can use his capital on a plane and train or in a trolley cart, since his capital is unencumbered with terms and conditions for use.

                      n.b. even according to your theory of capital formation based on land, title doesn’t magically protect a landowner from eminent domain or the bulldozers – here’s an odd example from China
                      http://www.dailymail.co.uk/news/article-2363990/Chinese-man-refused-luxury-home-scheme-left-marooned-developers-surround-home-MOAT.html
                      where a real-estate developer isolated a lone hold-out parcel holder by constructing a moat around the part of the contiguous parcel he didn’t own spitefully creating a landlocked enclave with no egress. Bu is he the real villain here? Both “capitalists” pursued by the light of reason responsible ways to secure a profit – the devils is the details: granting such an absurd planning permission (sure to be prone to repeat conflicts)? Subsidiary seen as right to access of the primary land holder obviously isn’t mandated by statutes of the Chinese real estate market, does that surprise you? No bulldozers required to make that erudite point re: relevance. What kind of capital is then the moat: dead or alive?

                    • http://chicagoboyz.net/ TMLutas

                      There is no asset class if it’s not legally registered. It’s just informal, claimed ownership, something the Church but not the state recognizes in a number of countries around the world. There is nothing per se toxic about dead assets. Their valuation is a separate question entirely. Toxic assets are generally categorized as such by a big differential between their value on the books and the value that they would get if they were actually sold (much less). They are toxic to the balance sheet. All toxic assets are live capital. They are registered with the state and have a legal way to defend ownership, though in some cases the liabilities are so high that these assets are effectively abandoned.

                      Dead assets can just be taken, and tragically too often are because they do have value and people want them so they file papers and claim the assets as their own and since the poor can’t afford to defend their claims, they are dispossessed.

                      You can bet that if masked men came in and busted up Mark’s abode, as they do in the PRC with some regularity to get people to give up their long-term places of residence an just stop inconveniencing the powerful who want a development created without the bother of just compensation, Mark would suffer capital destruction and significant financial reverses in arranging for a new place to put his replacement computer to continue to type his jollity.

                      I’ll concede that the fellow that was surrounded by a moat was not treated particularly well. Compared to other cases, he’s actually fortunate for China in that the family hasn’t been beaten by thugs or burned out of their home. It shouldn’t be that way for the people affected in either of our links. When I wrote the original letter to our gracious host it was in the hope that it would spark a serious discussion regarding capitalist solutions to help lift more people out of poverty and to increase the security of the poor to their possessions and increase their ability to meaningfully work and improve their economic position.

                      I’m frankly surprised that so few of the regulars who talk about distributism piped up to discuss an opportunity to increase the welfare of the poor and fulfill the social gospel while in alliance with the capitalists.

                    • Clare Krishan

                      I can grant you your point in theory — perhaps I’m a generation older than you and — so I’m more jaded by my real lived experience to grant it validity in practice, as in “They are registered with the state and have a legal way to defend ownership, though in some cases the liabilities are so high that these assets are effectively abandoned.” consider the time I spent in the 90s fundraising for Habitat for Humanity in Philadelphia, where you couldn’t access any of the numerous vacant plots to redevelop because they were ringfenced into municiple bond issues floated on tax records of liens from the city’s dead-beat private residential owners (- in other words, Wall Street bond investors paid the city for a piece of paper that promised to pay them a dividend every year from the outstanding taxes they would realise from the liens they held on hundreds of property titles bundled together) an asset the originial owner had long since effectively abandoned, leaving the rood to fall in and anything valuable inside the property such as plumbing or copper electric cable to be pilfered and long gone, such that the market-value of the bond collateral asset (the vacant house) was now significantly less than the tax liens secured on it…. totally absurd negative equity situation, but business as usual in Philly twenty years ago when I first moved to the US.

                      Its got a heck of a lot worse in the intervening years, now the city’s in such tight straights they can’t service their own publically-owned housing stock and are reduced to auctioning off
                      http://www.maxspann.com/auctions_property/248/Philly_pha

                      the most dilapidated uninhabitable (non rental-revenue generating) units to the highest bidder for redevelopment (as did the former Soviet Union states in the report linked to above) the liquid cash flow moves “up” the feeding chain to the wealthy and those connected to government not down to the poor, who are left with the actual real costs of maintaining a worthless asset – that’s truely “dead” capital for you, its a dead weight around your neck, but in no shape or form is it “capital” in the proper economic sense of business fundamentals.

                      Put yourself in the shoes of an actual poor person and take a look at what’s on offer as “asset” registered legally at the Office of Deeds down in the caverns of City Hall and ask yourself if you want to risk your already vulnerable livelihood on such an uncertain speculation –

                      Discover asbestos? sorry Licences and Inspections will shut you down. Discover lead paint? total environmental refurbish required according to much more stringent (and expensive) building codes for new construction. Discover woodworm? The bank’s going to short you – ie recall your loan – ‘cos the asset’s now worth less than the funds secured on the title which leaves them exposed to being called short themselves in a fractional reserve banking system (even tho’ you need them to extend you more funds to buy replacement wood timbers). The game is stacked against you, not out of malice aforethought, but because its not proper to impoverishment to pretend to be rich by leveraging collateral debt obligations… that’s basic logic right there. You accrue wealth — not by taking it from someone else at a price deferred into the future — but by postponing consumption of a present asset by sacrificing a present need to hold in abeyance for later use, such that after several such episodes of “saving” you have collected sufficient assets to exchange for the higher priced item that was previously out of reach for lack of means of payment. Convincing a poor person of anything else is a lie and profoundly immoral.

                    • http://chicagoboyz.net/ TMLutas

                      I looked you up, you were graduating university when I was graduating high school, so maybe 4 years separate us. My avatar is an old picture that reminds me of happier days. It’s not a current photo.

                      You bring up a decent point that the term dead capital is something of a marketing term that would get you dinged on an academic paper. The term that would make your econ 101 professor nod in agreement, unregistered, immobile assets is not something one can build a movement around so I understand why they do not use it.

                      I actually have put myself in the shoes of a poor person. I wore them for some time as a child. The ability of my parents to borrow to buy a house ahead of their salary allowed us to escape the Bronx as it was burning in the 1970s. We were poor because the Romanian government took everything outside very strict limits when we left for the US. I was limited to 3 cloth diapers and our bags (all two of them for a family of 4) were searched to ensure that this was obeyed, among other restrictions. 4 cloth diapers would have been stealing from the state and the excess confiscated on the spot. I never did ask whether there would have been supplementary punishment beyond that.

                      Taking on debt is a major aspect of prudential judgment. I happen to agree with you that taking on debt to ape the possessions of the rich in a show of wealth without the substance is no way to go about getting rich. But taking on debt to buy the raw materials or tools needed to produce real goods or services is not in the same category. It is this latter form of debt which the rich have and use traditionally to get a leg up. The middle class now have access to it too. The poor, not so much, and they must forego certain economic opportunities because of it, leaving them poorer. The 3rd world “cell phone lady” who buys the village’s first cell phone and uses that phone as a sort of public pay phone, earning a profit while reducing the cost of living for everybody else, is a classic example of good debt creating real wealth and improved economic conditions.

                • http://chicagoboyz.net/ TMLutas

                  You irk me not because you are right or wrong about your assertions. You irk me because they are irrelevant to the point of dead capital. It’s a particular form of trolling.

                  Hugelkultur on a plot that’s not in the property registry is just one more thing for the bulldozer to knock over at the whim of someone who gets the paperwork filed so they can legally take the land and build what they want on it. As agricultural innovation, it’s fine. On this thread, not really relevant.

        • Clare Krishan

          here’s a report on the lack of enthusiasm for mortgage-backed securitization of traditional municiple life based on twenty-years of programmatic privatization…

          http://intlhc.org/wp-content/uploads/2012/04/HOAs-in-the-Former-Soviet-Union-B.-Lipman.pdf

          the date speaks for itself. Dead capital is usually dead for a reason, its toxic.

          • http://chicagoboyz.net/ TMLutas

            This report is mostly a case of bad leftover habits from the Soviet days. To the extent that it deals with dead capital at all, it’s in public authorities dragging their feet to properly register the land in the cadastre/property register. I hope that you’re not actually in favor of that as most often it’s the case that such delays are solicitations for bribes or the results of bribes.

            I would be in favor of religious intervention to help put these people’s homes on a sustainable footing, naming and shaming the authorities where they are playing games with property registration.


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