Cross-posted from Smirking Chimp
One of the most startling trends to come out of the wreckage of the 2007-2008 financial crisis is the explosion of Wall Street firms buying up and renting out property all across the country.
The housing glut and foreclosure crisis that was, for most Americans, the symbol of the devastation caused by the worst economic downturn of our lifetimes, was, for Wall Street a wonderful business opportunity.
A study from the Center for American Progress estimates that in the five plus years since the crash, "institutional investors [i.e., big banks and hedge funds] have... bought approximately 200,000 single-family homes at bargain prices and converted them into rental homes."
Amazingly, the New York City-based hedge fund The Blackstone Group has focused so much of its resources on the real estate business that is now the single largest landlord in the entire country.
Now, I've known many people over the years who've decided to become landlords. It's a smart financial decision, the kind that middle class people used to do all the time to help them boost their income. Renting out your first or second home is great way to earn some extra money, help pay the mortgage, or even make a living once you retire and no longer take home a paycheck.
But making a few extra bucks isn't why big banks and hedge funds are buying up thousands of houses every year. The real reason why they're so enthusiastic about throwing people out of their homes and flipping those houses into rental properties is that they want to repackage those properties and their rent payments into fancy financial products -- remember derivatives? -- that they can then sell to investors.
In other words, being a landlord is just another way for Blackstone Group and companies like it to make money with money. They don't produce anything at all, they don't add anything to our economy, they don't help any middle-class families, they just make money with money.
And given that that's all they do, it shouldn't be much of a surprise that, they're really, really bad at being landlords.
The activist coalition Housing For All recently surveyed hundreds of tenants living in Blackstone-owned properties in the Los Angeles area and what they found was startling.
Nearly half of the tenants surveyed said they had problems with their plumbing. Almost 40 percent said they had roach or insect infestation. Another 22 percent said they had issues with rodents or termites. A similar number of surveyed tenants said that had problems with heating, mold, and roof leaks.
All in all, not a pretty picture, and a picture made worse by the fact that only one in 10 Blackstone tenants said they had ever met a representative of their landlord in person.
While Blackstone gets rich repackaging homes into fancy financial products, the people who actually live in those homes suffer.
There have always been slumlords, but what we're seeing right now with Wall Street firms like Blackstone buying up home after home, renting them out, and then using rental payments as the basis for derivative securities is something new and totally dangerous.
The financial products Wall Street is creating with its new rental empire are basically a re-hashed version of the mortgage-backed securities that crashed our economy five years ago. There's a new bubble in the works, and if we're not careful, we could see another financial crisis sooner than you might think.
This is a perfect example of why we need to totally rethink the financialization of our economy.