Hillary Clinton, as we all know, is raising a ton of money from wealthy campaign contributors on Wall Street and elsewhere in the financial services industry. Among her list of supporters is the Blackstone Group, a company which expanded their bottom lines at the time of the TARP banker bailouts, doing so by “quickly buying up all the foreclosed homes only to turn around rent them right back to the peasants who were evicted.”
So, guess where Hillary is spending part of the day today? You guessed it, at another fundraiser being hosted by the Blackstone Group. And the Blackstone Group — a private equity firm with over $330 billion in assets — has some very deep pockets. I imagine that the luncheon menu will be most upscale, and that the assembled guests will enjoy making business and political chit-chat while a hired string quartet lends itself to the high status ambiance of such a soirée. Blackstone is apparently hedging its bets and predicting a Hillary win in November.
Anyway, a bit more on this company, and how they operate.
Wall Street’s 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: It’s going to rent these foreclosed houses back to us. In the process, it’s 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. That’s 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.
The kicker, of course, is that Blackstone, a publicly traded company, is owned by the same list of financial institutions — Morgan Stanley, Citigroup, Deutsche Bank, UBS, Bank of America, Goldman Sachs, and JP Morgan Chase — which brought about the financial/housing crisis in the first place. These companies are thus making money because Blackstone is making money by renting out foreclosed homes on a large scale.
The net result?
Since spring 2012, just at the time when Blackstone began buying foreclosed homes in bulk, an estimated $88 billion of housing wealth accumulation has gone straight to banks or institutional investors as a result of their residential property holdings, according to an analysis by TomDispatch. And it’s a number that’s likely to just keep growing.
“Institutional investors are siphoning the wealth and the ability for wealth accumulation out of underserved communities,” says Henry Wade, founder of the Arizona Association of Real Estate.
Blackstone is also engaged in the practice of securitizing rentals. What this entails is that Blackstone is now issuing bonds backed by securitized rental payment. Other financial companies are now doing the same thing, so that the practice is becoming more widespread. So now, in communities across the country, not only is being a landlord less of a local small business, but also rental payments on house rentals are being bundled and sold as bonds to investors. The existing mortgages on the underlying houses are offered as collateral as part of this process. And so.
“You kind of just hope they know what they’re doing,” says Dean Baker, an economist with the Center for Economic and Policy Research. “That they have provisions for turnover and vacancies. But have they done that? Have they taken the appropriate care? I certainly wouldn’t count on it.” The cash flow analysis in the documents sent to investors assumes that 95% of these homes will be rented at all times, at an average monthly rent of $1,312. It’s an occupancy rate that real estate professionals describe as ambitious.
There’s one significant way, however, in which this kind of security differs from its mortgage-backed counterpart. When banks repossess mortgaged homes as collateral, there is at least the assumption (often incorrect due to botched or falsified paperwork from the banks) that the homeowner has, indeed, defaulted on her mortgage. In this case, however, if a single home-rental bond blows up, thousands of families could be evicted, whether or not they ever missed a single rental payment.
“We could well end up in that situation where you get a lot of people getting evicted... not because the tenants have fallen
(Meanwhile, we now are living in a society in which massive numbers of people, many stuck in low jobs, are a struggling to pay their rent and are a paycheck or two from being homeless. )
Of course, this is the same company whose’ CEO, Stephen Schwarzman, has been described as “something of a poster boy for Wall Street excess,” and who, infamously, was recently decrying the anger of the peasantry toward the economic elites, stating
I find the whole thing astonishing and what’s remarkable is the amount of anger whether it’s on the Republican side or the Democratic side,” the Wall Street mogul said at the World Economic Forum in Davos. “Bernie Sanders, to me, is almost more stunning than some of what’s going on in the Republican side. How is that happening, why is that happening?”
Will Hillary give him a pat on the shoulder as she talks about how she is standing up to mean old Bernie and his unrealistic, utopian socialist followers? And if so, how much will that be worth in terms of the check amount handed from Scharzman to Hillary and/or to her Superpac.
Oh, and one last thing. This company was also co-founded by a guy named Pete Peterson. One thing that Peterson did in his political career was to serve in the Nixon White House, advising the Nixon administration on economic issues and eventually serving as Secretary of Commerce. Later on, he returned to Washington, at the behest of then President Bill Clinton so as to serve as a member of the Bi-Partisan Commission on Entitlement and Tax Reform, i.e., an early version of the “catfood commission” and one advocating balancing the budget on the backs of the poor, pushing heavily and aggressively toward an austerity politics that too many mainstream, corporately funded Democrats have become complicit with. Pete Peterson has become over time a hedge fund billionaire and his basic political position is a trickle down, austerity for the poor and caviar for the elites sort of positioning. Perhaps both Bill and Hillary will be there today and the reception where they can all shake hands in a very congratulatory way.
AN ADDENDUM: Hillary’s campaign lists appearances on their campaign calendar, but is very generic about the details. They list today’s event as simply a “fundraiser” in New York City without going into too much detail. But it’s listed as one of two fundraisers today, the second being in McLean, Virginia (with two more tomorrow in Chicago). But MSNBNC reported earlier that today’s NYC event was with the Blackstone Group .
