Wall Street buy-to-rent racket getting wobbly. Who could have imagined?


What happens when everyone tries to get out the same door at once? Wall Street never learns, does it?

The real estate market cratered in 2007, taking down the economy with it, primarily due to securitization of toxic slop mortgages and insane amounts of leverage. Wall Street parasites are doing exactly the same thing again, only this time with rental payments not mortgages. Private equity and hedge funds bought tens of thousands of foreclosed homes, rented them out, securitized the rental payments, then used the whole thing to pump up home prices so they could sell at a profit. (I’m guessing providing service to tenants is not at the top of their to-do list, if it ever actually occurs to them at all.)

So, now the hyena wants to cash out and take those tasty profits. However, when everyone tries to sell at once, prices drop. It’s called a bubble. Almost comically, some of these Very Smart People think the best way to combat this is by consolidating, buying other big rental companies, because surely taking on more risk and debt is the best way to lessen it. Right.

Wolf Street (formerly Testosterone Pit) has a detailed article on how this scammy bubble works.

Instead of trying to sell their tens of thousands of homes, Blackstone and American Homes are selling synthetic structured securities that are backed, not by mortgages like the toxic waste that contributed to the financial crisis, but by something even worse: rental payments, based on the flimsy hope that these homes will stay rented out. The already sold $3 billion of this stuff. Wall Street is jubilating. The fees are going to be huge: the market for this type of synthetic concoction is estimated to be $1.5 trillion.

And of course it will all come crashing down again.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.