Alternatives to Securitisation of ill-liquid Assets

Kevin Cox
3 min readMay 25

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Alternatives to Securitisation

Assets not easily converted into cash, such as undeveloped land, long-lasting infrastructure like dams and buildings, and nature parks, are considered "stationary" as their value stays with the asset. However, one way to generate value from these assets is to monetize them by creating a product that can be sold in a marketplace. The most common method is a bank loan.

An alternative method of raising funds is to sell prepayments for the asset's output and provide a return with a discount when the prepayment is used. This approach saves the community from the interest costs associated with securitised assets and the expense of operating securitised assets, as the system compensates consumer investors as part of the payment for taxes or services.

The ACT government could start by retiring $100,000,000 in debt by raising money from local taxpayers by selling prepayments for taxes.

The approach saves money by increasing the productivity of capital. The money moves faster, there is less, and money does not generate money.

With the existing debt system, the government has to collect extra tax to pay the interest. With the new system, the government does not collect the tax as the investor is recompensed with a discount.

Assume the $100,000,000 loan pays 3.5% over 40 years. With a standard loan, it repays $4,682,782 each year. In the first year, $3,500,000 is interest, and $1,182,728 comes off the loan. Over the 40 years, the community has repaid $187,309,129. (See below for spreadsheets of the examples)

The alternative is for $100,000,000 to be sold as prepayments for rates and taxes. Each year the buyers of $100,000,000 repay $3,500,000. They also receive all the accumulated discounts on the amount outstanding. The repayment will take 30 years; the total repaid is $100,000,000 or a saving of $87,309,129. The profit from the system goes to taxpayers as tax credits or discounts.

However, the asset purchased still exists, and the government decides to whom the asset goes so it is recycled. It could go to the consumers who paid their taxes, those who paid the least, those on rental assistance or some other group in the community.

It is suggested that the discount rate be increased to 5% or even greater to make it more attractive to residents. The interest goes back to the community that supplied it.

What happened to the $87,309,129?

The $87,309,129 are the interest payments over 40 years. Prepayments are like a loan where consumers receive 100% of the benefits as discounts of $51,765,000.

Stationary assets become monetised when people purchase a loan or buy prepayments. The money has moved. Speeding up the movement with prepayments makes it more valuable because the money is available for further investment by the government every time a prepayment is used. The process has increased the productivity of the financial system and the money does not exit from the ACT community and government.

Prepayments are a form of loan, and the “interest” and savings on the loans can be shared between the investors, consumers, and the government. The government decides on the division in consultation with the investors and consumers.

Regular Bank loans can be restructured as Community Loans which is a good first step for the ACT government. Negotiations with Banks can leave the interest rates the same but speed up repayments so they don’t lose out, while the ACT government could reduce their interest payments from $87,309,129 to $26,304,721. This is a short-term solution to dropping existing interest bills and raising money without going to further securitisation.

To create efficient Community Capital loans, visit Unethical Banking — But Is it Legal?

Regular Loan, Prepayments Loans, Community Loans

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Kevin Cox

Kevin works on empowering individuals within local communities to rid the economy of unearned income by profiting from savings nor increasing prices.