by Bill Bonner: How
gold all bounced around last week.
And as we mentioned
on Friday, Americans continue to turn into "neo-serfs."
Street is running a new profit game," writes Shabnam Bashiri
at Salon.com, "by buying foreclosed houses and renting them
back to their former owners."
business. Even better than it looks. It's why the rich get richer...
and the 1% are way ahead of the other 99%. Writes Bashiri:
it seems a new report comes out praising the ongoing housing recovery.
In Georgia, home prices are up 5% over last year, a year in which
we also had one of the highest foreclosure rates in the country.
Seems a little odd, doesn't it? Don't foreclosures usually drive
down the market?
the housing "recovery," as they're calling it, is fueled
almost entirely by Wall Street private equity firms, hedge funds
and the Fed's unwavering support. After creating a massive bubble
in home prices that eventually burst and caused our economy to
go into a tailspin, these guys have decided to come back for more
and figured out a way to profit off their destruction by
turning foreclosed homes into rentals and securitizing the rental
Group, the biggest player in the new REO [real estate owned] to
rental market, has spent $2.5 billion in the last year purchasing
16,000 homes, a number that amounts to over $100 million per week.
records show that many of the homes Blackstone has acquired in
Fulton County over the last few months were purchased on the courthouse
steps at the monthly foreclosure auction, or through short sales
when a lender agrees to accept less than the amount owed
on a loan. The vast majority of these homes are not empty, but
occupied by homeowners who fell behind during the Great Recession...
the days of calling up your landlord to let them know rent will
be there on the 7th instead of the 1st this month. As more and
more Americans live paycheck to paycheck, and wages continue to
decline or remain stagnant, paying rent a few days late could
lead to a negative credit score, impacting their ability to secure
resources and move up the ladder of the middle class.
to paycheck." That's the way serfs live. In someone else's
house. On someone else's money. Often driving in someone else's
automobile. And sometimes even sitting on someone else's furniture.
Got a health
problem? Oh, yes check into someone else's health system.
Want an evening
out at a restaurant? Put it on a credit card; let someone else pay
don't necessarily live poorly; they live badly. Because they're
not in control of the resources they need to live well. They are
dependent, not independent.
We saw an ad
for a new Smart car. "Just $199 a month," said the ad.
own cars anymore. They just lease them... or not even. A lot of
young people use Zipcar a car-sharing service by which you
"rent" a car using your iPhone. You never go to a rental
agency or see a rental agent. You get a code via iPhone. You use
the code to unlock the car. Easy. Peasy.
people we know don't own anything. They say it's "liberating."
But that is something else. Not owning anything can be a smart financial
strategy. But not owning a house because it was foreclosed... and
not owning a car because you can't afford one... does not sound
You want a
smart financial strategy?
Look at Blackstone.
One of the houses it bought probably much like the others
was bought for $90,000. It has a mortgage on it of $200,000.
The former owners are still living in it. Instead of a mortgage,
they're now paying rent. Now they're serfs.
Do the math.
If they bought the house in 2005, they probably had a 6% mortgage.
Six percent of $200,000 is $12,000. Add in another, say, $3,000
in amortization and charges... and they probably had a monthly payment
of about $1,250.
Now the suits
take over. Thanks to the conniving of other suits at the Fed,
they are able to borrow 30-year money for about 3.5%. Let's add
another $10,000 to their purchase price (closing, taxes, maintenance)
to make the math easier.
them a monthly capital cost of less than $300 per month. And because
these guys have big hearts as well as big wallets, they reduce the
renter's monthly payment to only $1,000.
out ahead. The former homeowners don't have to move. They save money
each month. And Blackstone which may have only about $10,000
of its own money in the deal earns (are you ready for this?)
as much as $6,000, net, per year. That's about a 60% rate of return
on its cash.
But wait. It
gets better. Because Blackstone is not counting on a real bull
market in housing. Nope, the geniuses at Blackstone are making
a big bet on interest rates.
At no extra
cost, they have gotten a free "put option" on the bond
market. That's right: They're short the bond market in a major way.
When bond prices finally fall (perhaps this process has already
begun), Blackstone is going to get another big jackpot.
And this payoff
is practically guaranteed. Blackstone's got its money-printing friends
at the Fed to make sure it happens.
bestselling author and founder of Agora, one of the largest independent
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Bonnerís Diary of a Rogue Economist.
© 2013 Bill Bonner
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