October 13, 2013
If you want to get on”or get off”the ladder at the wrong time, suddenly it doesn’t look so smart to be a mortgage slave. By the time you’ve leveled off whatever capital gains you’ve made in the resale of your house against inflation and deductions due to debt-finance fees, plus legal and transactional costs and taxes, your equity doesn’t seem so big after all.
Hearing this well-meant advice to “get on the ladder” at such a tender age, instinctively I recoiled in horror. I was young and I wanted to see the world. What I didn’t want was to take a chit and sit and wait, as the compound effect of time ticked by, enriching me on paper while I paid monthly interest to the bank”slowly diminishing the capital I owed the bank until I was too old to enjoy the gains. In time, yes, the capital would diminish to the point where I’d become sole owner of the property”but only if I remained a perfect borrower. I did the math. Fifteen years later, having paid 6% to 8% interest month on month, year on year, I could realize total ownership and sell the place at a profit. Then I might pay 40% of the gains back to the government, pocketing the rest and conveniently forgetting the £50K interest I’d paid the bank for the pleasure of counting down the days of total ownership, not to mention the lawyers, maintenance, and renovations.
No, I decided, I’d buy the place outright or I wouldn’t buy it at all. I’d go to Hollywood instead. Best decision I ever made. My life was enriched beyond measure, experientially, and instead of one, I got to live in a number of beautiful homes without ever worrying about the stuff that owners worry about. I look back with a touch of pride at the canny decision I made, choosing experience over property, financial freedom over enslavement, and dreams over security.
Am I delusional? Maybe. Yes. Is ignorance bliss? It is. Yet as a Buddhist would view the issue, ownership”total or partial”is an illusion. Ownership creates attachment”an obligation to maintain, a responsibility to protect the asset. Attachment is a problem for Buddhists; it leads to suffering and it’s subject to the often-contradictory whims of desire. It’s also a bore. To each his own. I’m happy I decided against ownership. Instead of securing my place on the property ladder, I took a thousand flights. I went on hundreds and hundreds of trips. I lived the high, nomadic life. That apartment, once £600K, is now valued at £3 million. House prices in the area have shot up 8% in the last three months alone, a London real-estate expert tells me. Yet do I feel regret at the hypothetical loss of £2.4 million in “equity”? You’d think I would. Or should. But I don’t. What’s £2.4 million compared to twenty years of high times? Besides, that’s £2.4M on paper. As described above, the net gain would be considerably smaller, maybe half or under. Is the ladder really so magical? Far smarter would be to put several thousand pounds per annum into a trust, starting at the age of 1 or even 21, and continuing ad infinitum. Thanks to time’s compounding, you’d likely end up with more money, along with greater certainty and freedom. Warren Buffett recommends this route, too.
According to the gospel of Max Keiser, the point lies in the fact that the UK lacks a sovereign wealth fund. This relegates the nation to something much less than a world player in financial (if not political) terms. To cope with this unfortunate reality”highly unfortunate when compared with the boom century of the Empire”the British government has grown to love the Great American Myth, that ownership equals wealth. In fact, ownership means taking on an asset and a liability (the mortgage) at the same time so that government and banks can make good business out of “your asset.” Quotation marks are required because this asset isn’t really yours, is it?
“Property as collateral” represents, in the view of financial warmongers such as Keiser and his growing following, nothing less than a means of control”alongside gold, guns, and religion.
Fifteen big sovereign-wealth funds exist in our world, some so large (see Norway’s, valued at $750 billion) that they are hard to convey. Keiser’s conspiracy theory goes like this. The UK, lacking any sovereign fund”while being a sovereign state”must resort to a murkier schematic to raise and maintain the wealth that a sovereign fund would otherwise provide. The North Sea’s oil is tapped out, one resource upon which we might have built our own fund (as did Norway), and Gordon Brown sold the vast remainder of Britain’s gold reserves at prices between $256 and $296 per ounce in 2002. Ten years later, gold’s value reached highs north of $1,600 per ounce. The treasure chest is empty.
What do we do now? We double down, that’s what. We recreate in the UK the self-fulfilling myth, the scheme that’s key to the American Dream”the goal of home ownership. We create a cultural or social teleology which tells the citizens of the United Kingdom: Go buy a home then borrow against it”so we can keep our island afloat, thanks to good citizens planning on benefiting from playing a double bubble. To its citizens, the state is an enabler of debt dependency. It’s also an assistant to the banks, reinforcing their entitlement to wield “continuous payment authority,” for instance”access to withdraw from our bank accounts with consent”unless we specifically ask them not to wield such access. Many people don’t know you can call up your bank and assert your right to keep your bank’s hands off your accounts, consequently avoiding nasty surprises in the night.
The idea of the home as a piggy bank is dangerous. It’s like stitching yourself up on two sides. Instead of putting your hard-earned or inherited money into a savings account so that it can enjoy the natural and healthy law of compounding over time and in safety, instead we’re encouraged to take on unnecessary debt in the form of a mortgage. We are close to using the term debt as “savings,” only we pay for the privilege of holding our savings, large or small, inside a debt vehicle as opposed to being paid for depositing your savings the traditional way. Isn’t it crazy? You tell me.
Beware attachment, the Buddha said. Think twice about using your equity and creating a relationship with a financial institution that may not be in your best interest. Make your mind up yourself. Follow the trend, and in so doing, boost it, whereupon you may reinforce the myth and bring it to reality, the result being that the ladder is extending at a clip of 8% per quarter. The kingdom in which we live monetizes itself into a fatal endgame that only the big banks can win by virtue of our giving up authority over our “equity” in exchange for a new home or quick cash on a payday loan.
The UK is turning itself into one gigantic isle of prime real estate to match the nations that possess true sovereign-wealth funds. The only way to compete with them is to encourage every man, woman, and child to buy a property themselves and then put it up as collateral”to give the banks half-ownership of our assets as well as paying them for the facilitation. Does this really make financial sense?
Life has taught me to beware of anyone who tells you that (such and such) “makes sense.” Think twice before you work your equity”before you turn your assets into liabilities.
OK. Live well. Live free.