>Condense of Mortgage reform valuation stuff Fir ref ( Notes in progress)

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Original Thought on Repossesions and Property Debt reform.
Valuation in a crashed Market.
Some people say a crash in house prices is necessary as a Valuer that has valued Oil refineries and Gas Terminals in another life I have one comment on that.
There is a way of calculating the base market price on a real asset such as property the logical lower end price or entry price for property is not zero just as the maximum price must be related in some way to income multiples. ( my final year thesis for my degree was the Contractors Principle of Valuation for Taxation of Gas Terminals in Scotland, I had been employed by one of the Seven sisters. )
My very simple contention is that the basic price of a property in a market where there is no longer any activity.In a crashed or stagnant market supply and demand does not provide a Market price of comparable transactions in this situation the economic replacement cost of the property needs to be refrenced. This is a fairly easy thing to calculate there is a thing called Spons an almanac of prices/costs for the contracting world) that gives average building materials and labour costs for building. Today I would say £150 persqft would be a sensible price per square foot for a fairly traditional british house build there are cheaper ways and better ways to build but this is a first principles 101.
The price of any property has a land element generally this is around 1/3rd of the total price any amount of sophisticated analysis will get you a variation around this figure and so on but the humble 1/3rd 1/3rd 1/3rd usually brings home the bacon so I’ll use it here so that then is £150 psft for the land element.
Finally there is the last 1/3rd which is for the unknowns opportunity cost and profit. If we want to take the profit out again the maths to do that is easy but I’ll leave it as a 1/3rd for now.
Right that gives a base cost pers sqft of £450 per sqft.
For a more basic budget build one could argue for £100 per sq ft giving £300 pers sqft .
Anyway if we say take £275 psf which is very low and in all probability below the actual economic replacement cost if you take a 750 sqft 2 bedroom apartment that would be a bottom line economic replacement cost value of £206,250. Regardless of anything people need somewhere to live in the future and an economic value has to be placed on production my question is this what policies going forward an banking system will support the proposition that every family should at least have a 2 bedroom family home and the cost of providing it would be roughly the figure I am suggesting if one factors in the opportunity cost for instance the government has lots of land it could contribute for free but its value still has to be recognised even if not charged for. These are open Market prices and assumptions but provision of housing has to be priced some way and I do plan to get into some analysis of the Affordable so called social housing side fo the equation as I say this is a first principles starting 101.
I am going to develop this hypothesis further but just wanted to get it on paper going forward from this blog, in a melt down of the banking system and complete crash of the UK property market these first principles of economic replacement cost will be necessary to avoid a huge potential scam.
Fantastic.
Philisophical thinking of all stripes is converging on this view point, Naseem Taleb James Mirrlees, Simon Johnson, Michael Perelman,
( Stepping out of babylon)Dr, Paul Craig Roberts , http://www.fooledbyrandomness.com/tenprinciples.pdf,
The Economics of Repossession.
This post is an outline of a critique and policy document I wish to draft on what factors should regulate the actions of financial institutions holding mortgages secured on private homes, several areas of law will be considered as well as the arcane laws of repossession in the event of default. In short a manifeto on property debt reform anticipating a further banking colapse.
The Price of Everything and the Value of Nothing.
There is an old Saying, so goes the title of this blog, I have googled to find it’s origin here’s a text from the context ( I haven’t googled it yet } First a word on Price and a word on Value.
Are Price and Value the same thing and if not which one is worth more, is worth a measure of Price or a measure of Value or is worth another name for a measure. How circular is this argument in the lexicon of Whats in it for me?
Lets introduce another word, Market, the opposite of the word Market is actually Free Market. I found that suprising but as with Talebs Fragility analogy Anti Fragility so it is with Market the free Market is a sort of Anti Market a market where the artificial boundaries of the Market which suggests order are removed and the Anti Market is the one we all feel a Market Price level will be found.
Is there a difference between the Market Price and the Price of something is there an Anti Price, this is the trouble with Concepts or Constructs when you start off down this road. Anyway lets Google the title and see what happens.
( Let Me Google that for You ) http.
Discounting of Mortgage books of banks in the whole sale market, increases real interest paid by mortgage holders
Distressed Assets as Opportunities, Its an industry, 45 cents on the dollar is the cost of your mortgage.
Banks are Banks on the basis that they have 8-10% capital ratios against the debt they issue. On this basis they issue 97% of the money supply through debt .
In practice with off balance sheet debt creation capital ratios are and have been proven to be more or less nominal purely discretionary inversely proportional to the Hubris of any particular institution.
When markets need to adapt, grow, or change, faster than their internal feedback mechanisms can respond, they cannot operate benignly – there is no time for “equilibrium” to develop. That is why most markets are suspended during times of emergency (war-time rationing) and some markets are overridden just to get things done.
Economic replacement cost for industrail stock valuations an unhappy Story, Lets not throw the baby out with the bath water though, Not just Yet.
Replacement cost theory 
In modern times – read post liberalisation in 1991 – the Indian equity markets saw many such themes playing out. The first bull market started with Harshad Mehta’s replacement cost theory which argued that old and depreciated companies ought to be valued on the basis of the cost of replacing them.
Using leverage stock prices were rigged to the sky. ACC in those days recording a high of Rs 10,000 is a case in point. As the liquidity dried up, the artificially rigged up prices came crashing own. Blind followers lost out as few could manage a timely exit.
“For retail investors, it is very difficult to time these themes and it is best left to the fund manager,” says K Ramanathan, chief investment officer ING Mutual Fund. 
I don’t think this is relevant for a number of reasons
 mainly that this is talking about plant and machinery and
 whilst buildings have been described as machines for 
living in they have different rates of obsolescence etc.
Note of interest here is the idea of longer term financing even intergenerational financing after all what are government debt if not intergenerational financing through taxation more democratic to have longer term time frames this of course poses problems for the current system regarding booking large profits over shorter time horizons I argue that this is a systemic disjoint in one of the basic human rights to Shelter.
This is a theme to be developed regarding Price and Value and the Trading of Mortgage Securities and distressed asset sales as opposed to the more egalitarian course of action which would be to Create some sort of Amnesty on Mortgages ( Principal residence only and even up to a Minimum price say £250k in UK figure could be arrived at by discussion.
The idea that Banks have been caught out more than home owners is perverse. The Banks have created commitments for the borrowers to them and actually not given in return what the Borrowers largely believed I.E that their Mortgage is matched by and equal deposit/ saving of another bank customer. At best the banks have 1 tenth of this covered 10% and in many cases it is more like 1 fortieth 1/40 2.5% so on a mortgage of £100,000
the bank only has capital of at most £10k at risk and in all likely hood more probably £4k at risk. Therefore in distressed sales all on going mortgage payments made should be viewed accordingly and and distressed asset sale again viewed similarly.
I,e a mortgage holder with 25k negative equity on a mortgage of 100k still has an asset worth at least 7.5 x the capital reserve the bank allocated against making that loan. I.E the borrower remains in debt for 100k a new debt of 75k is created and and the bank gets all its basic capital back has had the interest in the meantime and will still milk the original borrower through the Bankruptcy process for a further 2 years representing further pure profit.
Other commitment bank have created beyond the reserve ratios based on trading these very profitable rights to receive mortgage payments cause the banks to be insolvent but compound the extent to which the original deceit is leveraged to the cost of the Mortgage Payer who is also the future tax payer for the government debt taken on the Save the banks from their excesses with their derivatives based upon the imaginary debt money they are licensed to create in the first place.
LAST PARA TO BE WORKED UP INTO FULL MATHEMATICAL PROOF.
Re: Mortgages – Grip of Death or Total Scam or Both?
by RogerGLewis » Tue 31st May, 2011 (06:30)

I’m with the grip of death view on this and have been looking into the Legal Concept of Usufruct.http://en.wikipedia.org/wiki/Usufruct
Banks Take a legal Charge over the property a mortgage is secured against. The mathematics of how the Money they Create to allow the transaction to take place is an illusion, certainly the bank is somewhat less exposed than the Householder.
I am working on a Pamphlet/Paper to address the Laws of RePossession, Fixed Charge Receivership.
Here is a blog of my Notes on this they are wide ranging and so far I am thinking out loud, but the transaction from the Banks perspective when there is a repossession is something like this.

This is a theme to be developed regarding Price and Value and the Trading of Mortgage Securities and distressed asset sales as opposed to the more egalitarian course of action which would be to Create some sort of Amnesty on Mortgages ( Principal residence only and even up to a Minimum price say £250k in UK figure could be arrived at by discussion.

The idea that Banks have been caught out more than home owners is perverse. The Banks have created commitments for the borrowers to them and actually not given in return what the Borrowers largely believed I.E that their Mortgage is matched by and equal deposit/ saving of another bank customer. At best the banks have 1 tenth of this covered 10% and in many cases it is more like 1 fortieth 1/40 2.5% so on a mortgage of £100,000
the bank only has capital of at most £10k at risk and in all likely hood more probably £4k at risk. Therefore in distressed sales all on going mortgage payments made should be viewed accordingly and and distressed asset sale again viewed similarly.
I,e a mortgage holder with 25k negative equity on a mortgage of 100k still has an asset worth at least 7.5 x the capital reserve the bank allocated against making that loan. I.E the borrower remains in debt for 100k a new debt of 75k is created and and the bank gets all its basic capital back has had the interest in the meantime and will still milk the original borrower through the Bankruptcy process for a further 2 years representing further pure profit.

Other commitment bank have created beyond the reserve ratios based on trading these very profitable rights to receive mortgage payments cause the banks to be insolvent but compound the extent to which the original deceit is leveraged to the cost of the Mortgage Payer who is also the future tax payer for the government debt taken on the Save the banks from their excesses with their derivatives based upon the imaginary debt money they are licensed to create in the first place.

LAST PARA TO BE WORKED UP INTO FULL MATHEMATICAL PROOF.

The FUll Blog is here.

http://letthemconfectsweeterlies.blogsp … essed.html

There are very few duties that the Banks have created by precedent and they are statutorily licensed to do something basically beyond legal in any other walk of commerce. There is great potential for a great day in Court for a Test Case to challenge the basis and industry of Repossesion and its arcane and bullying laws.

Yep I am definitely a death gripper.

RogerGLewis
said…
Roger Lewis • This is a very interesting Paper on where the Risk now lies and how it is ranked in the “top 10 to big to failers.”

http://pragcap.com/10-banks-which-pose-the-greatest-systemic

Short Answer, the Banks are shakier now than they were in 2006!

An interesting article in the Guardian newspaper on how the banks are planning to chart a course out of their present Bankruptcy by infecting our own Sovereign Economies.

http://www.guardian.co.uk/commentisfree/cifamerica/2011/may/27/economics-useconomy

Rather than letting them Fail slowly taking so many innocent people with them my suggestion is we push them over the edge re build the system with a debt jubilee swap of all on shore liabilities.

As suggested here.

http://golemxiv-credo.blogspot.com/2011/05/how-to-destroy-web-of-debt.html

There is more than one way to Skin this particular Cat we need a Manx/come Austrian approach. Manx Cats have no tails ( the investment Bankers are not required at the Table of National Finance Sovereign Interests must assert their Authority. Enough is Enough!
19 hours ago

Roger Lewis • http://www.economist.com/blogs/freeexchange/2011/04/financial_markets_0?fsrc=scn/li/nw/bl/toobigtofail

Fantastic Presentation on this issue!
18 hours ago

Follow Ricardo
Ricardo Galeno • I agree, Andy.
13 hours ago

Dr. Waleed Ahmad
Stop Following
Dr. Waleed Ahmad Jameel Addas • Safe as long as usury/interest is flushed out from its system and replaced with profit and loss sharing which is a more just financial system that support the real economy in the form of asset and wealth creation. See the principles of Islamic finance for more details.
12 hours ago

James
Stop Following
James Vaughn • Roger, there may be one wisdom in pushing the banks over the edge. It would free up the real estate they now hold and refuse to sell at market prices. If we were to dump the entire inventory of foreclosed homes onto the market it would provide affordable home ownership for millions and clear the ongoing real estate crisis.
7 hours ago• Reply privately• Flag as inappropriate

Roger Lewis • James there is a problem with that ( only regarding the real Estate problem) as the Mortgagees in possession laws in UK and Foreclosure laws in the US do not make any provision for the conflict of interest inherent in the Fractionally reserved based banks ( Low capital exposure ) 4% in all truth ,and the 
honest home owners who would be bankrupted by negative equity in a crash in which their role has been purely incidental and manipulated. ( always protect the innocent, I do not include myself in that category by the way.) 
I am writing a pamphlet seeking reform of the rules of valuation on these matters in the event of wholesale collapse. My view is that the strangulation of the money supply is partly designed to force that collapse in any event my proposals would head the Banks off at the pass so to speak.

This is my basic premise.

The idea that Banks have been caught out more than home owners is perverse. The Banks have created commitments for the borrowers to them and actually not given in return what the Borrowers largely believed i.e that their Mortgage is matched by and equal deposit/ saving of another bank customer. At best the banks have 1 tenth of this covered 10% and in many cases it is more like 1 fortieth 1/40 2.5% so on a mortgage of £100,000
the bank only has capital of at most £10k at risk and in all likely hood more probably £4k at risk. Therefore in distressed sales all on going mortgage payments made should be viewed accordingly and and distressed asset sale again viewed similarly. 
I,e a mortgage holder with 25k negative equity on a mortgage of 100k still has an asset worth at least 7.5 x the capital reserve the bank allocated against making that loan. I.E the borrower remains in debt for 100k a new debt of 75k is created and and the bank gets all its basic capital back has had the interest in the meantime and will still milk the original borrower through the Bankruptcy process for a further 2 years representing further pure profit. 
Here are my original sketches and sources notes etc on my blog. 
http://letthemconfectsweeterlies.blogspot.com/2011/05/further-thoughts-on-distressed.html

One final Link which I think points a finger at the banks and their cynical exploitation of the real economy.

http://www.guardian.co.uk/commentisfree/cifamerica/2011/may/27/economics-useconomy

This post does not do justice to this small aspect of the overall picture and in itself could fill several books.
Destructive Narcisim from Wiki Pedia.

http://en.wikipedia.org/wiki/Narcissism



Characteristic
Self-confidence. An unrealistic sense of superiority (“Grandiose”)
Desire for power, wealth and admiration. Pursues power at all costs, lacks normal inhibitions in its pursuit
Relationships: Concerns limited to expressing socially appropriate response when convenient; devalues and exploits others without remorse
Ability to follow a consistent path: Lacks Values, Easily Bored Often Changes Course
Foundation: Traumatic childhood undercutting true sense of self-esteem and/or learning that he/she doesn’t need to be considerate of others
Conflict of interest and Usufruct.
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