I'm shocked - the intellectually bankrupt crackpot idiot award goes to…..
OK - Steve Keen has got a lot of press on this forum, and on mainstream media shows.
I had a read of his blog - this is the ramblings of a extreme left wing socialist, and not an economist. I fear he is using his "position" (for the want of a better word) as a soapbox for his luny left ramblings.
His assertions (I kid you not - he actually writes this on his blog!!):
http://www.debtdeflation.com/blogs/2008/10/11/the-panic-of-2008/
I propose three such reforms, in full knowledge that they have Buckley’s of being implemented now–but hopefully they will be considered more seriously when this crisis reaches its second or third birthday.
These are:
1. To redefine shares so that, as do corporate bonds, they have a defined expiry date at which time the issuing company repurchases them at their issue price;
2. To impose “caveat emptor” on mortgage agreements, so that the lender’s security is limited if poor credit evaluations were done of the borrower’s capacity to meet the payment commitments in the contract (this will be further explained below); and
3. To base house price valuations on a multiple of the imputed yearly rental of a property, rather than its potential resale price.
What utter nonsense!!
On 1.) he does not examine if this should apply only to ASX listed companies or to all entities taking the corporate form. Should the mom & pop milkstore be forced for follow this rule? Or only the "greedy corporates"? And who actually owns the company in this event if every X years all shares are bought back at par (assuming anybody would ever invest in shares until this hairbrained scheme)? And where would the money to buy back all shares actually come from!!! Ummm... clue - it isnt shareholders equity - maybe more debt?? How do shareholders participate in the upside of the company (the whole purpose for equity financing)? Any what would happen to voting rights and corporate control?
He needs to actually do some reading about the history of the corporate form, and its evolution, before spouting this crap.
On 2.) Is this for all lending or only "little people lending to moms and pops"? A more worthy analysis would be a review of the consumer credit code and associated legislation, and incremental proposals for change. And also an analysis of the various legal aspects of unconscionable conduct (which banks have been stung with before). I suspect he actually doesnt know anything about business, law, or politics, however (or economics for that matter).
On 3 - what can I say aside from WOW!!! What a plan. So will this only apply to resi property? What about all assets? Should BHP shares always trade on the same multiples of earnings too? This ignores basic economic theory. The house/share/etc.. with higher rental growth prospects will need to sell for higher multiples of earnings. How will this work - a house in a new estate or premium Toorak property - all on the same multiple? And if the multiples are so low - people will be lining up to buy houses to live in, will miss out, and will need to rent. Rents will then reflect the ownership premium, and nobody will be able to afford to rent.
It actually amazes and disturbs me that a man who was interviewed on so many avenues of mainstream media can be so radically left wing, and so ignorant of pretty much everything.
His D-grade uni should speak with him about his views - I know if I had an economics degree from his uni I'd quietly burn it!!
This guy is the Paris Hilton of economics (and this is insulting Paris!!)
