Puerto Rico is broke and in debt to the tune of $73 billion. It needs to be able to declare bankruptcy which can’t do unless the US Congress lets them. There is a bill (pdf) in the works that will do that and provide financial assistance but there are a group of people who don’t …
Tag: hedge funds
Apr 25 2016
Apr 11 2014
Laura Gottesdiener is a a journalist and the author of A Dream Foreclosed: Black America and the Fight for a Place to Call Home, who lived and worked in the People’s Kitchen during the occupation of Zuccotti Park. Last Novemeber she wrote about how hedge funds and private equity firms were building a “rental empire” by buying up foreclosed properties by the thousands, renting them back to working people, and bundling up those properties to sell to Wall Street. If this sounds familiar, it should. It the same scheme that brought down the housing market with subprime mortgages and has the potential to do it again.
You can hardly turn on the television or open a newspaper without hearing about the nation’s impressive, much celebrated housing recovery. Home prices are rising! New construction has started! The crisis is over! Yet beneath the fanfare, a whole new get-rich-quick scheme is brewing.
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 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. [..]
This inundation has some concerned that the private equity giant, perhaps in conjunction with other institutional investors, will exercise undue influence over regional markets, pushing up rental prices because of a lack of competition. The biggest concern among many ordinary Americans, however, should be that, not too many years from now, this whole rental empire and its hot new class of securities might fail, sending the economy into an all-too-familiar tailspin.
“You’re allowing Wall Street to control a significant sector of single-family housing,” said Michael Donley, a resident of Chicago who has been investigating Blackstone’s rapidly expanding presence in his neighborhood. “But is it sustainable?” he wondered. “It could all collapse in 2016, and you’ll be worse off than in 2008.”
In her current article she focuses on how this is now happening in New York City.
How Private Equity Came to New York’s Rental Market — and What That Tells Us About the Future
Things are heating up inside Wall Street’s new rental empire.
Over the last few years, giant private equity firms have bet big on the housing market, buying up more than 200,000 cheap homes across the country. Their plan is to rent the houses back to families — sometimes the very same people who were displaced during the foreclosure crisis — while waiting for the home values to rise. But it wouldn’t be Wall Street not to have a short-term trick up its sleeve, so the private equity firms are partnering with big banks to bundle the mortgages on these rental homes into a new financial product known as “rental-backed securities.” (Remember that toxic “mortgage-backed securities” are widely blamed for crashing the global economy in 2007-2008.)
All this got me thinking: Have private equity firms gambled with rental housing somewhere else before? If so, what happened?
It turns out that the real estate market in my New York City backyard has been a private equity playground for the last decade, and the result, unsurprisingly, has been a disaster for tenants and the market alike.
In the Bronx, Benjamin Warren fears that he and other residents could burn to death in a fire because management has blocked both sides of the passageways between buildings designed to offer ways out of the massive apartment complex. (Warren has called the city and management multiple times to complain, but the routes remain shut.) Nearby, Liza Ash found herself intimidated by nearly a dozen hired men when she and other residents of her building, which had heat or hot water only sporadically this past winter, attempted to organize a tenants’ meeting in the lobby. A little farther south, Khamoni Cooper and her neighbors receive a constant stream of fake eviction notices ordering them to vacate their apartments within five days, even though all of them have paid their rent.
These three tenants — and nearly 1,600 more families in 42 buildings — are living through one of the largest single foreclosures to hit New York City since the financial crisis began seven years ago. But here’s the twist. The owner of these buildings is far from a traditional landlord. It’s actually a conglomerate of private equity firms that bet it would be able to squeeze more money out of these buildings than it ultimately could — and ended up unable to pay back the $133 million mortgage.
The problem is that, when things go bust, the tenants, far more than these private equity owners, end up shouldering the costs.
The Blackstone Group, a private equity firm, is now the largest owner of single-family rental homes in the country. In one day alone, Blackstone bought up 1,400 houses in Atlanta. And as private equity firms gobble up huge swaths of the housing market, they are partnering with big banks to bundle the mortgages on these rental homes into a new financial product known as “rental-backed securities,” reminiscent of the “mortgage-backed securities” that helped cause the last financial crisis. Could this new private equity rental empire help spark the next housing crisis? We are joined by Laura Gottesdiener, author of “A Dream Foreclosed: Black America and the Fight for a Place to Call Home,” who calls this wave of purchases “a land grab.” Gottesdiener’s latest article focuses on New York City’s rental market, a case study in what critics call “predatory equity.” Large firms have used abusive tactics to oust tenants in a bid to hike up rents – and tenants have been resisting. We are also joined by Benjamin Warren, who, along with nearly 1,600 families in 42 buildings, is a victim of one of the largest single foreclosures in the city’s recent history.
Sep 22 2010
in case you missed it …
Wall Street Wizard, Anthony Scaramucci, complained like a baby to the President yesterday:
I represent the Wall Street community. We have felt like a Piñata. […] we certainly feel like we’ve been whacked with a stick.
I bet, The 8 million people who lost their jobs (or homes) are about to …
May 06 2010
Crude Oil Futures: Crude Oil Tops $100 for 2018 on Threat From BP Spill
Margot Habiby, Bloomberg – May 5, 2010
Crude oil futures for delivery in 2018 surged above $100 a barrel this week as the BP oil spill in the Gulf of Mexico led the government to consider a halt in future drilling.
The crude oil futures contract dated furthest into the future jumped after President Barack Obama said no new offshore drilling leases should be issued until a “thorough review” of the April 20 rig explosion. […]
Crude oil futures for delivery in December 2018 rose to $100.38 a barrel May 3 on the New York Mercantile Exchange, the highest settlement since Jan. 20. […]
“You may not pay today, but we will pay tomorrow,” Phil Flynn, vice president of research at PFGBest in Chicago, said in a report.
“That $100 oil equates to pretty close to $4 a gallon gasoline” in the U.S., said Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University in Dallas. “We know when it hit $3 a gallon two years ago drivers started to get concerned, and at $4 a gallon demand evaporated.”
Apr 15 2010
Bill Gross, head of PIMCO, is credited with coining the term “Shadow Banking System”. A few years ago he warned about its reckless behavior and how they could wreck the Economy.
Bill Gross Calls it “Shadow Banking System”
Bill Bonner, The Daily Reckoning Australia — Jan 22, 2008
Banks recognize that not all their loans will be repaid. They operate on margins of safety, with reserves set aside for when things go wrong. But in the worlds of swaps, hedge funds and derivatives…slick operators can invest billions with no margins of safety…and no reserves. The result, Gross says, could be catastrophic.
Turns out this blunt-speaking Mutual Fund Manager — WAS Right!
Jan 10 2010
How low can you go to make billions? By quite literally bleeding the poor and selling their blood to the people who need it to stay alive. Sound like a plot from HBO’s “True Blood”? No. It is the business practice of Cerberus Capital, a Wall St. hedge fund firm. Cerberus recently made $1.8 billion on a mere $82.5 million investment four years ago when they bought a company called Talecris.
Cerberus Capital, one of Wall Street’s most notoriously ruthless leveraged-buyout firms (or “private equity firms” in PC-speak), recently made a $1.8 billion killing on its human plasma investment, a company called Talecris. Talecris was purchased for a mere $82.5 million just four years earlier, meaning Cerberus made 23 times its investment on human plasma.
This was accomplished by the most savage, heartless means possible: by paying peanuts to impoverished human plasma donors, who increasingly come from Mexican border towns to blood-pumping stations set up on the American side, jacking up the price of plasma by restricting supply (a lawsuit filed by the Federal Trade Commission accused Cerberus Plasma Holdings of “operat[ing] as an oligopoly”), and then selling the refined products to the most desperately ill-patients suffering from hemophilia, severe burns, multiple sclerosis and autoimmune deficiencies. The products cost so much-one, IVIG (intravenous immunoglobulin) cost twice the price of gold as of last summer-that American health insurance companies have been dropping or denying their policyholders in increasing numbers, endangering untold numbers of people.
Cerberus is the same hedge fund that drove auto makers Chrysler and GMAC into the ground. It’s Republican “players” are former Treasury Secretary, John Snow, Chairman, former V.P. Dan “potatoe” Quayle, International Chairman, and Founder of Cerberus, billionaire Stephen Feinberg, “a major Republican Party campaign donor with a hardcore fetish for Harleys and big guns”.
H/T to Hecate
Jun 01 2009
Usually they get away with …
Usually they trade their knowledge, for money or power, and no one notices —
But not always:
Insider-Trading Ring Bust May Fuel Hedge-Fund Concern
By David Scheer – March 2, 2007
March 2, (Bloomberg) — The U.S. government’s accusations that Morgan Stanley, UBS AG and Bear Stearns Cos. employees were central figures in an insider-trading ring illustrate why regulators and lawmakers are suspicious of Wall Street’s relationship with hedge funds.
Prosecutors in New York and Washington yesterday brought criminal charges against 13 people, claiming that an executive at UBS and a former compliance lawyer at Morgan Stanley tipped off hedge-fund traders and brokers to new analyst ratings and secret takeover talks. Bear Stearns was home to at least four professionals who traded on information leaked from inside the two firms, according to a complaint filed by the Securities and Exchange Commission.
White Collar Crime, is not any less heinous, because they commit it with a Keyboard, instead of a Handgun. Yet more often than not, in the Wild West of electronic casinos, these criminals can make “a killing”, without having to pull that trigger themselves … without ever having to worry about ever facing their “day in court” …
Oct 30 2008
The first, Top Economic Strategist warns of ‘Catastrophe and Revolution’ by Rob Sewell looks at warnings from a leading strategist of capitalism in the City:
We are facing the worst economic crisis since the 1930s. Despite all the efforts to bail out the banking system, the economic crisis has only just started to bite. How deep or long the crisis will last is difficult to estimate, but given the financial house of cards built up in the last world boom, the capitalist system has entered unprecedented times, in which a depression cannot be ruled out.
Oct 26 2008
“The Icelandic economy is prosperous and flexible” (IMF 4 July 2008)
(There is) “a very real danger…that the Icelandic economy, in the worst case, could be sucked with the banks into the whirlpool and the result could be national bankruptcy.” (Iceland’s Prime Minister Geir Haarde – address to the nation 6 October 2008)
Sep 26 2008
According to this Huffington Post by Tom D’Antoni, the reason Paulson was rushing to put the bailout deal through — and the reason Democrats are supporting the basic need for the bill — is because hedge funds come up for renewal on October 1st.
Without a shoring up of that market, D’Antoni explains, there would have been (and may still be) a run to pull out money from hedge funds that could have (and may still) spur a worldwide collapse:
During the White House meeting, it appears that Sen. John McCain had an agenda. He brought up alternative proposals, surprising and angering Democrats. He did not, according to someone briefed on the meeting, provide specifics. One of the proposals — favored by House Republicans — would relax regulation and temporarily get rid of certain taxes in order to lure private industry into the market for these distressed assets.
The real reason why there is such a [Democratic] clamor for [Paulson’s) bill, and a rush to get it passed is that there may be billions of dollars pulled out of the hedge funds…money that is due on October 1. This may be the famed October surprise, but one that nobody figured was coming. If that money is due and the hedge funds can’t pay, they will collapse.
But Paulson’s [Republican] Wall Street pals are clamoring for help to clean up the mess that their irresponsible lending and greedy practices brought us, with McCain only pouring fuel on the fire he and his GOP deregulatory cronies helped start.
More at this link:
Aug 20 2008
Hedge funds are in the news again. They don’t much like being in the public gaze. We wonder why. Does their speculation cause prices to go up? Do they drive firms into bankruptcy so workers lose their jobs? These are the questions being asked. Let’s see what they get up to.
John Edward’s favorite financial instrument is quite complicated. Mick Brooks looks at hedge funds and how they impact our lives.
Apr 18 2008
He says we need to be told by the Pope that people are precious, that right and wrong matter!
And, it’s just a “tough” patch we’re going through. Bush just said so. here. But worse:
Listen up, you utterly deprived (not-fit-to-be) lying president, because you caused a great deal of the pain and suffering Americans are right now encountering. You have caused a war that was unnecessary that killed hundreds of thousands of people and wounded many more. Millions are refugees because of your war. Talk about precious life? “Sacred” life? You don’t know the meaning of the word.
Famines may occur because you were unwilling to act on climate change because you wanted to help the rich get richer. Don’t tell me the Pope needs to talk to me about right and wrong!!!!!
Don’t you hate being lectured by an idiot?
~~cross-posted at orange~~