Subnat Cap Homesteading

[tbrandt@dbedt.hawaii.gov]

What follows are Norm Kurland's responses to an inquiry from me, Tom Brandt.  


Thomas,

I'm sorry I neglected to answer you earlier.  Below I've attempted to answer
your questions within your email.

tbrandt@dbedt.hawaii.gov wrote:
>
> I've been playing with your ideas, and wanted to run this thought by you to
see if it holds water.  Could a state govt encourage ISOPs via tax breaks for
lenders and for insurance companies willing to ensure the ISOP loans?

Norm responds:  My own sense of political reality is that the tax system is the
worse way to foster broad ownership.  Why?  Because it involves "expenditures"
and "subsidies" that force us reformers in a win-lose conflict with taxpayers
who would rather have the cash in their own hands, than have politicians decide
how to spend their earnings.  It thus limits the rate at which the system can
eventually grow and distribute future ownership opportunities.

I think the payoff is greater in terms of the energies we have to devote to
maximizing the use of ISOPs and achieving the broadest and most equitable
distribution of equity shares and dividend incomes if we are highly focused,
follow the best principles, and promote the most efficient, least coercive and
most inclusive plan for maximizing ISOPs.  We may have to accept less than the
full plan, but at least we will have a blueprint to go back to and follow when
new opportunities arise.  In that regard, I think the strategy presented in
Saving Social Security  (click on) will produce the highest payoff for the
democratization of capital ownership.  I just think that the piecemeal, ad hoc
approach to social change creates its own opposition.  That why I think we have
to think boldly and act boldly.  The leverage, in my view, on State tax policy
and State credit policy is minimal compared to what people at the State level
mobilized their political influence to change Federal tax and Federal Reserve
policy.  Several states acting as a united front with the right plan focused on
addressing a major impending crisis affecting all Americans could change how the
Federal Reserve operates and could get whatever sensible, non-redistributive
Federal tax reforms are necessary to establish ISOPs.  I know this must
frustrate you but I think it's better to turn your
frustration into creative initiatives in concert with your peers and networks to
attack the underlying causes of your frustration, rather than having you get
beaten in an unwinnable struggle with your state's taxpayers.  (I go back to my
original suggestions to you for broadened ownership initiatives at the State
level that promise a win-win scenario.)

>Tom: Could the feasibility of this be further increased if state govts
negotiating volume discounts with lenders willing to make such loans?

Norm responds: I don't think so, because it would be better for lenders to be
able to buy "new money" at a 0.5% Federal Reserve discount fee for ISOPs
("Capital Homestead Accounts") established with qualified lenders, than to
pressure lenders to make "out-of-the-box" loans out of their existing "old
money" pools of savings.  It's better to open up new opportunities (the carrot)
for lenders than to hit them over the head (the stick) to become innovative in
their lending patterns.

>>Tom: Would insurance even be necessary if ISOP rules and regs required the
loans to initially be invested in low-risk or federally-insured investments
until each loan was paid off?

Norm responds: I can't figure out why you would want loans intended for private
sector growth in productive capacity to be invested in "low-risk or
federally-insured investments."  The same dollars can't be invested it two
different investments, one for Capital Homesteading in newly-issued full
dividend payout shares for the ISOP beneficiaries and another for non-ISOP
investments.  Capital credit insurance is a separate issue.  Under Capital
Homesteading the premiums for capital credit insurance to cover the risk of
default on the capital acquisition loans would come out of future profits.  It
would be included in the "risk premium" portion of the interest payments that
would be charged by the lender to Capital Homestead Accounts.  The lenders could
either self-insure or pay a premium to a commercial insurer, backed up by a
reinsurer to further spread the risk of default.

>Tom: All of this assumes the lenders would be able to reduce the interest rate
on the loans to the point where the loans could eventually be paid back even if
the loan proceeds were intially invested as described above.

Norm responds: I don't think lenders have to reduce their normal competitive
"markups" in interest rates over the 0.5% service charge for their cost of
money.  This is possible under the section 13 discount powers of the Federal
Reserve Act, a power that ownership advocates should recommend be restored and
favored over the current current money-creating policies of the Fed.  Current
policy makes the rich richer.  The new policy would make the non-rich richer.

>Tom: After putting this in writing, it sounds like a "too good to be true"
idea.  So that means I must be overlooking something obvious that would make it
infeasible.   If I am, don't feel like you have to sugarcoat your answer.  If
it's a dumb idea, it's a dumb idea!
>
> Thanks!

Norm responds:  I don't think your suggestion is dumb.  I just think there's a
more direct and effective approach for achieving the right goal.

Norm Kurland
Center for Economic and Social Justice