Brought to you by Trader Joe's Dark Roast as the Tropic of Capricorn takes a direct shot from the sun...
From ZeroHedge: "Blackstone Group appears to be trying to oligopolize the business of renting single-family homes in the U.S.. As Bloomberg reports, after the housing crash left more than 7 million foreclosed homes in its wake, the investment firm has spent more than $7.8 billion purchasing about 41,000 single-family homes for rental conversion. The world's largest private equity firm has quickly become the largest landlord (of rental homes) in the U.S. and in October, Blackstone offered the first-ever "rental-home-backed" security on Wall Street. One has to wonder if this was the plan all along?"
Interesting idea. My older brother predicted The Great Foreclosure many years back. Maybe this, indeed, was the plan all along. Certainly at the time the prediction was made it seemed vaguely paranoid, but I have come to see that paranoia is a perfectly reasonable adaptive attitude in a world dominated by private corporations. To wit, it is not paranoid to think that they do not have your interests at heart, because they don't. If you think they do, even for a moment, you've been watching way too many Jimmy Stewart movies.
Get the American hoi polloi to mortgage their houses to the moon with adjustable rate mortgages, pump the consumer economy with equity loans, then when it all pops, scoop up all the distressed properties for pennies on the dollar and rent them to the people who used to own them. As a wise man once said, you'll never go broke underestimating the intelligence of the American people.
Calling this latest grift a "plan" might be a little too grand. Capitalism simply seeks profit "opportunities." Regarding Blackstone's raptor-like feeding frenzy as part of a conspiracy may be an example of the "ant in the sandbox" fallacy suggested by the polymath Herbert Simon decades ago; to wit, if you examine the path of an ant across a sand box, you will be impressed with the clever, efficient way he traversed the hills and valleys to follow a fairly straight line. When, in fact, all the ant was doing at every stage was making a choice to go left, right, over or down the terrain.
So it is with the Great Foreclosure. The Robber Barons got rich on fraudulent mortgage products, and now they're assembling new fraudulent Rent Backed Securities (RBS - that's even a good logo for Robber Barons) out of the wreckage. What else are they supposed to do? They're here to make money. L'argent, c'est moi.
At least someone is still getting rich in this country, something increasingly difficult for the ordinary member of the Booboisie. Blackstone and other financial predators are helped enormously by the Federal Reserve's policy of "exceptionally low interest rates for the foreseeable future." If you're big enough to borrow for practically nothing; then buy a house in Florida, say, for $100 k; then rent that 2/2 with lanai charmer for $900/month, annual income of $10,800; then even with a 10% management fee, your gross cap rate is around 10% a year. Bet you can't get that on your B of A money market, can you? Now if you're like Blackstone and can do this scam 41, 000 more times, you've got yourself a nice little business going. And you can build on that by bringing in investors on whom to pawn off the whole operation, pay them a nice 6% on their money, pocket 4% for having the brilliance (and corrupt connections) to pull this caper off, and essentially have no skin in the game. And then when the economy finally and completely collapses, maybe from an attack of acute nausea, Blackrock can let someone else hold the bag. Probably us again!
Sweet. It's the modern version of a sharecropper's life on the plantation, in a way, and it's what's left to the middle class now that the economy has been completely hollowed out by our decision to globalize and become an "open economy," as the Plantation Liberal Economists have always urged. As Gail Tverberg notes in her latest insightful post,
Economists, through their wholehearted endorsement of globalization, have pushed industrialized countries into a competitive situation which we are certain to lose. While oil prices tend to push wages down, competition with Asian countries makes the downward push on wages even greater. These lower wages are part of what are pushing us toward collapse.
I wonder to whom Gail could be referring? Well, this isn't a "Science" post so I certainly won't mention any names. Globalization and hyper-specialization of the economy, all guided by ruthless capitalism, are the status quo here on the Plantation, and Plantation Liberals always work within the status quo. If your specialized occupation, like assembling auto generators at a plant in Indiana, went away to a warmer clime where the workers aren't so fussy about "benefits," then you're just going to have to learn to do something else, such as Planning or Tanning, admittedly at a lower rate of compensation.
Maybe more "transfer payments" will help the new tenants to pay their new landlord. We can always print the money to send more cash to the poor to keep them in the houses as tenants which they used to own. And I'm sure Blackstone (probably a description of the company CEO's heart) will be reasonable and charitable lessors. Just get through the credit check, deposit the four months of rent, and pledge your youngest child as a security deposit. And if it doesn't work out, as a free gift to all applicants, a large cardboard box and map to the closest bridge.