How Wall Street Has Turned Housing Into a Dangerous Get-Rich-Quick Scheme — Again
Wednesday, November 27, 2013
How Wall Street Has Turned Housing Into a Dangerous Get-Rich-Quick Scheme Again
By Laura Gottesdiener, a journalist and the author of A Dream Foreclosed: Black America and the Fight for a Place to Call Home, published in August by Zuccotti Park Press. She is an editor for Waging Nonviolence and has written for Rolling Stone, Ms., Playboy, the Huffington Post, and other publications. She lived and worked in the Peoples Kitchen during the occupation of Zuccotti Park. Cross posted from TomDispatch
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Over the last year and a half, Wall Street hedge funds and private equity firms have quietly amassed an unprecedented rental empire, snapping up Queen Anne Victorians in Atlanta, brick-faced bungalows in Chicago, Spanish revivals in Phoenix. In total, these deep-pocketed investors have bought more than 200,000 cheap, mostly foreclosed houses in cities hardest hit by the economic meltdown.
Wall Streets foreclosure crisis, which began in late 2007 and forced more than 10 million people from their homes, has created a paradoxical problem. Millions of evicted Americans need a safe place to live, even as millions of vacant, bank-owned houses are blighting neighborhoods and spurring a rise in crime. Lucky for us, Wall Street has devised a solution: Its going to rent these foreclosed houses back to us. In the process, its devised a new form of securitization that could cause this whole plan to blow up again.
Since the buying frenzy began, no company has picked up more houses than the Blackstone Group, the largest private equity firm in the world. Using a subsidiary company, Invitation Homes, Blackstone has grabbed houses at foreclosure auctions, through local brokers, and in bulk purchases directly from banks the same way a regular person might stock up on toilet paper from Costco.
In one move, it bought 1,400 houses in Atlanta in a single day. As of November, Blackstone had spent $7.5 billion to buy 40,000 mostly foreclosed houses across the country. Thats a spending rate of $100 million a week since October 2012. It recently announced plans to take the business international, beginning in foreclosure-ravaged Spain.
Few outside the finance industry have heard of Blackstone. Yet today, its the largest owner of single-family rental homes in the nation and of a whole lot of other things, too. It owns part or all of the Hilton Hotel chain, Southern Cross Healthcare, Houghton Mifflin publishing house, the Weather Channel, Sea World, the arts and crafts chain Michaels, Orangina, and dozens of other companies.
Blackstone manages more than $210 billion in assets, according to its 2012 Securities and Exchange Commission annual filing. Its also a public company with a list of institutional owners that reads like a whos who of companies recently implicated in lawsuits over the mortgage crisis, including Morgan Stanley, Citigroup, Deutsche Bank, UBS, Bank of America, Goldman Sachs, and of course JP Morgan Chase, which just settled a lawsuit with the Department of Justice over its risky and often illegal mortgage practices, agreeing to pay an unprecedented $13 billion fine.
In other words, if Blackstone makes money by capitalizing on the housing crisis, all these other Wall Street banks generally regarded as the main culprits in creating the conditions that led to the foreclosure crisis in the first place make money too.An All-Cash Goliath
In neighborhoods across the country, many residents didnt have to know what Blackstone was to realize that things were going seriously wrong.
Last year, Mark Alston, a real estate broker in Los Angeles, began noticing something strange happening. Home prices were rising. And they were rising fast up 20% between October 2012 and the same month this year. In a normal market, rising home prices would mean increased demand from homebuyers. But here was the unnerving thing: the homeownership rate was dropping, the first sign for Alston that the market was somehow out of whack. The second sign was the buyers themselves.
MUCH MORE OF A LONG but GOOD READ at:
http://www.nakedcapitalism.com/2013/11/how-wall-street-has-turned-housing-into-a-dangerous-get-rich-quick-scheme-again.html
bemildred
(90,061 posts)CRH
(1,553 posts)after putting the treasures of normal consumers on the inside, all the banks and investment houses get to bat at it. When something falls out, they reap the capitalism.
blkmusclmachine
(16,149 posts)SharonAnn
(13,772 posts)Investors buying up foreclosed or short sale properties has been going on for a couple of years. My sister, who's a realtor in Florida, is my news line on housing starts, purchases, sales, behavior.
Bill USA
(6,436 posts)start seething.
I think this securitization of mortgages is perhaps one of the worst ideas anybody ever came up with. It has just allowed these sociopaths to get themselves into a business that should only involve the buyers of property and actual bankers - who make the loans - and hold them - in expectation of making a fair and reasonable return. That is fine. That is a normal business activity. But these MFers of WS are just gamblers. They have no interest or understanding of how their gambling fucks up the lives of real people. I will restrain myself from saying any more about these scumbags.