Monday, November 22, 2010

Summary of Reforms

Our financial institutions were designed to the desires of the central bankers--Not for the needs of the investing public.

Because of this our financial institutions artificially concentrate power in the hands of bankers while undermining the wealth creation process within the community.

The solution to this problem is to redesign financial products around the needs of the investing public.

We need actions. Not just complaints.

In this blog, I've made four very concrete proposals for financial reform. The common thread in these four reforms is that they replace financial tools geared to the needs of banks with tools geared toward the need of the investing public.

The reforms are:

  • The Medical Savings and Loan: This reform replaces insurance with a system of structured savings and supplemental grants to secure medical coverage.
  • Shared Equity Financing: This reform replaces mortgages with direct investment in housing.
  • The Real Time Open Source Exchange is a product that replaces black box stock exchanges with an open source program that executes trades in real time. Executing the trades in real time eliminates naked short selling.
  • The Object Oriented Tax. The object oriented tax is an interesting program that taxes an object between income and spending.

The first two proposals are concrete ideas that could be implemented by small companies.

The OSRTX is more theoretical. It could be implemented by a collection of companies or investors seeking to share ownership in equities. The primary goal of this project is to demonstrate the short selling is the creation of anti-market regulations.

The Object Oriented Tax is a political solution. This program taxes an object between income and consumption. It combines the best of a progressive income tax with a consumption tax. Essentially, everyone will have two accounts: An Investment and Spending Account. The system charges a progressive tax when people transfer money from the investment to the spending account.

With the OOT, people can make their investment decisions without having to calculate the effect of taxes. People would have to pay a progressive tax on what they spend. The system empowers individuals in saving and investing. The system eliminates the capital gains tax, but taxes capital gains spend on consumption at a progressive income tax rate.

Empowering the Investor

Each of these reforms arises from the same thought process which seeks ways to empower the individual in our economic system.

Even if I find no backers for thes programs, I believe a vigorous discussion of the reforms directly address the underlying problems with our current financial structure.

For example, the programs fit well in discussions about the difference between the free market and capitalism.

In the free market, the free mind of the individual is supreme. The theory of capitalism overemphasizes the role of paper money.

Implementing the Reforms

It would be easy for small organizations to implement the first two reforms. I designed the Medical Savings and Loan as a method for reverse engineering an insurance company. A company seeking to reduce the cost of health care benefits could implement the Medical Savings and Loan.

An investment firm could offer SEF-Liens as an alternative to mortgages. (A SEF-Lien is pegged to the local realty market. One would never see a house financially "underwater" because the lien would automatically drop in value if housing prices dropped.

Yes, it is true that businesses implementing either the Medical Savings and Loan or Share Equity Financing will make less profit per client than insurance or mortgages; however, people in need of financial services are likely to choose the products that offer best security.

I believe that, if the programs were implemented, they would be a hit in the market as they provide a better service to the public.


To restore the American experiment, tea party patriots simply must start engaging in a positive discussion of the ways that the free market and limited government can solve the problems created by our over centralized banks.

The structures discussed in this blog could be part of such an effort.

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