Tuesday, November 23, 2010

The Destruction of our Last Free Market

I work as an accountant. I am not supposed to be innovative. Accountants are trained to follow the rules. Andrew Fastow of Enron or Mark Schwarz of Tyco tried to be innovative. They now reside in jail.

The opposite of accounting is economics. Economists must be innovative. Their job depends on inventing new theories. These new rules give their employers or their clients an advantage in the marketplace.

Over the past 15 years our nation’s top economists have been very innovative in coming up with new theories for our government and Wall Street to improve our nation’s markets. It is not surprising that most of these suggestions have enriched the pockets that employ these economists. It is also not surprising that these forays of crony capitalism have destroyed every free market that the government has attempted to control.

I only bring all this up because of the latest nonsensical plan that is being presented to save our country.

John Burns is one of our nation’s leading housing economists. He sees a new profit center for his clients. So he has come up with a new theory.

Mr. Burn’s scheme involves the government hiring private sector companies to create a huge real estate investment trust. This Wall Street trust will take all of the underwater homes from the banks, Fannie Mae and Freddy Mac and rent them out.

He says that renting out these homes will prevent our nation's house prices from falling any further.

This is economic theory at its finest. There will be huge profits for Wall Street and the banks. There will be monstrous subsidies to be paid by the taxpayer. There will be limitless unintended consequences in the future. But best of all there are fat commissions for the innovative economist that can explain how this nonsensical plan can benefit the country.

So let me recap.

Presently investors that are entering our real estate rental market are not receiving subsidies, implied bailouts or tax breaks. They are not benefiting from the easy money from the Federal Reserve. So rental real estate is the only market that is not subsidized by the taxpayer.

Investors that are entering the rental real estate market are the only investors in this country that are receiving a fair return on their money. Today investors are getting a positive cash flow on their investment. This is in line with the historical return on investment. They are receiving a fair return because the government is not distorting the market.

This is possibly the only market that the government is not distorting.

Investors that are entering the rental real estate market are not using large amounts of debt. Most are purchasing with at least 30% down and some are purchasing with all cash. So these investors will not be a risk to be bailed out by the government.

Looking at the facts one could argue that the rental real estate market is the only free investment market in our country today.

John Burn’s intends to destroy our last free market, for a profit. He is a very smart man has a good chance of achieving his goal.

It is funny how economists preach the religion of free markets as they devise ever more self-serving ways to corrupt the system.

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