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Money talks

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Philip Whitfield

Philip Whitfield

By Philip Whitfield

Sing along: Money, money, money must be funny in the rich man’s world. Money, money, money: always sunny in the rich man’s world. ABBA’s chart-topper.

Here’s the 64-million-dollar question: Where will the money come from to save Egypt? A clue: The man with the plan worked his wizardry in China, Russia, South Africa, India, the Philippines, Honduras, Tanzania and Thailand.

He’s on Egypt’s case now, meeting with President Al-Sisi three times.

Both keep their cards close to their chest. But Reuters’ Stephen Kalin filed 899 words that dropped into Al-Ahram’s lap at 2.36 pm last Monday. Nifty headline: Reforming Egypt’s black market.

Hernando de Soto told Steve he’s given Sisi a plan “outlining specific changes to the bureaucracy and legal code needed to integrate an estimated 60% of the population into the system by registering and documenting ordinary Egyptians’ assets.”

That’s fuzzy talk for: “Sisi’s got a plan to pay off the government’s mountainous billions of debt.”

Economics is the painful elaboration of the obvious. Economists? Talk is cheap. Supply exceeds demand. How many economists does it take to change a light bulb? None. If the light bulb needed changing the market would have done it already.

De Soto’s plan is to get everyone excited about raising cash on their most valuable asset – their house. Where does the money come from? Foreign banks. They’re charged a fee to borrow from their governments and charge a fee to lend to Egyptian banks who charge a fee to lend to mortgage companies, who charge a fee to lend to homeowners, who pay the lot – over 25 to 30 years.

To get that merry-go-round twirling first you make sure people have clear title to their properties. A clear title gives an owner legal possession. That creates an option to use houses and businesses as collateral for loans. Second, you peel off the bureaucrats’ red tape, releasing enterprise.

The government’s baloney bulldog picked up Reuters’ story – though Al-Ahram’s Hawkeye winced over one of Steve’s sentences: “Sisi, who ousted elected President Mohamed Morsi last year following protests against his rule and won 96% of votes cast in May, has already expended some political capital on tax hikes and subsidy cuts.”

Hawkeye spotted 22 words for the chop: “who ousted elected President Mohamed Morsi last year following protests against his rule and won 96% of votes cast in May.”

“Ousted…” In or out? Who’s right: Reuters or Al-Ahram?

There’s a snag if Egypt takes a dose of De Soto. A home is the most valuable asset most families own. Or think they own. In reality there are hundreds of on-going disputes over who owns what.

Did Nasser have the right to nationalise everything in the 50s? Does the government still own the land? Did a past owner pay off all the debts? Did the current family borrow and pledge the house as collateral? Any other liens? Did Grannie make a will? Lawyers have a way with words.

It’s devastating to discover you have no legal rights to your home.

Egypt’s not alone in the jungle. But it’s nakedly exposed if it takes De Soto’s snake oil. His cure for the economic blues only rubs salt in the wounds. De Soto might be able to pull the wool over some people’s eyes, but I doubt Egyptians will fall at his feet. They’re used to fly-by-nights fooling around with the law to make a few bucks.

The De Soto plan gives owners clear title to their properties. In Egypt that means amending a bunch of law and empowering the bureaucracy to rubber stamp the legal work. At the same time title insurance would be made widely available to guard against negligent registration and malarkey.

Armed with that, homeowners would be able to borrow against their homes and spend the cash as they wish.

So the end result would be a consumer-led boom: more homes, cars and City Stars, girls in new dresses and boys duded-up. Mum gets a hat and hairdo and Dad a new car. All courtesy of the credit cards in their wallets.

Plastic paradise? I think not. Every country that’s tries it ends up bust. Look at Ireland and Spain. Look at South America from whence De Soto hails. Beggared. Peru? On the face of it a dose of De Soto fired up their economy. In reality world demand for copper, gold and silver sent their prices sky-high. The beggared were buggered.

When Sisi says the public must acquiesce (a fancy word for cave in) to get the country moving, is the Peruvian solution in the back of his mind? Klondike Cairo? The big winners in that gold rush were the guys flogging shovels to miners. Most of them ended up homeless, cadging nickels and dimes.

The insurance companies like De Soto’s plan. Why wouldn’t they? Title insurers in the US only pay 5% out of the $20bn premiums they rake in annually. In one year First American Title collected $3.4bn and paid out $41.7mn. That’s 99% profit.

How would the government benefit? According to De Soto logic gobs of taxes.

Dream on. Warren Buffett (worth $60bn): “Risk comes from not knowing what you’re doing.”

Philip Whitfield is a Cairo commentator

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