How Wall Street Sabotaged the Democratic Party From Inside: How That Affected the Housing Crisis Part 3
“I sort of hope that happens because then people like me would go in and buy.”
-Donald Trump speaking of the possible housing market collapse of 2008.
This post is the third and a series that describes how Wall Street controls Washington with methods that remain completely unchecked and undermine economic equality to the detriment of the Democratic Party. This post depends on the first and the second, here and here.
Trump is correct on one point. The senior people in the civil service can completely subvert the wishes of the president and Congress. There are many moderates in these positions that might be alarmed at Trump’s radical changes and resist implementing them. So, he is replacing anyone that he even mildly suspects might not have cult level loyalty to him.
But within Trump’s ‘deep state’, there is a Wall Street deep state that controls every government department that could make or implement regulations affecting the Street. And they have ensured, and will ensure, that Wall Street gets its way and that economic inequality continues. This is an unrecognized root of the subversion of the Democratic Party.
As economist Thomas Piketty found, the prime cause of economic inequality is executive pay especially in the financial sector. So, even when Trump’s policies bring on the next great recession and voters turn once again to the Democrats, Wall Street will continue to defeat any policies that could reduce economic inequality because that is tied to executive pay.
That is why, as we saw in the aftermath of the ’08 crisis, despite a severe economic downturn and total incompetence on their part, bankers got their full bonuses. How the bankers did that and their ability to do so again remains untouched is explained here.
However, the elite that control the Democratic Party seem blind to this cancer within the party. Only the bottom 90% are affected by the decisions and policies that create economic inequality, so only those can reform it and bring it back to its time when the economy was more fairly shared with the 90%.
This is not ancient history, because the consequences of the ’08 crisis decisions are felt today in the housing market.
The Rise of the Corporate Landlord
Real estate investment firm Yardi Matrix noted the rise in corporate interest in single-family homes in a 2022 article:
“Institutions have committed more than $60 billion to buying single-family homes over the past year, according to various corporate announcements and news articles”.
And, it agrees with a prediction of even greater corporate grabs of new single-family rentals (SFRs) in the future. These are built to rent homes that do not have features such as a walk-in closet.
“Recent research by MetLife Investment Management (MIM) estimated that institutions own some 700,000 single-family rentals in 2022, about 5 percent of the 14 million SFRs nationally. MIM forecasts that by 2030, institutions will increase SFR holdings to 7.6 million homes, more than 40 percent of all SFRs.”
Because would be homeowners can no longer afford houses and are becoming renters, and because the number of existing homes for sale cannot satisfy their need, corporate buyers are increasing buying in the build to rent market.
“Institutional portfolio growth is currently focused on build-to-rent (BTR) projects or acquiring portfolios from smaller owners. BTRs are on track to deliver far more units in 2022 than in any previous year. More than 25,000 units are under construction and nearly 4,300 were already delivered in the first half of 2022, meaning the industry will easily surpass 2021’s record-high 7,705 deliveries.”
The Increse in Corporate Landlordship traces to Wall Street’s Control of Washington
As explained in the first two posts of the series, Treasury Secretary Timothy Geithner undermined the HAMP program. The predatory rich, mostly bankers, got to scoop up the homes at fire sale prices and taste the profitability in single family rentals. Geiser got his reward upon leaving government. He was appointed president of the private equity bank, Warburg Pincus.
• About 10 million people lost their homes in the ’08 crisis. (St Louis Fed, Dec 02, 2016)
• Where did all these homes go?
It doesn’t take a financial genius to see that if all these mortgages continued to fail, they would have to be sold in bulk at fire sale prices — and there are valuable houses to be seized. A person with the means could scoop them up en masse, evict the homeowners and become an immense corporate landlord. The American dream of owning your own home would be smashed for many and the disillusioned would look for a savior.
Of course, that’s exactly what happened.
Journalist Aaron Glantz captured the picture in the title to his book: Homewreckers: How a Gang of Wall Street Kingpins, Hedge Fund Magnates, Crooked Banks, and Vulture Capitalists Suckered Millions Out of Their Homes and Demolished the American Dream.
“You have 8 million homes[1] that were lost during the foreclosure crisis and they didn’t just disappear,” Glantz said. “When you look at the people who bought these homes, you’re not necessarily talking about mom and pop landlords here. Oftentimes, you’re talking about major speculative interests from Wall Street”. [Emphasis added}. (KERA News, Jan 23, 2020).
Market Crash Millionaires
In response to the stock markets plunge due to his tariffs, Trump repeated his view of a stock market crash as an opportunity as in the lead quote above. This time he extended it for the foreign super-rich to buy assets from Americans at bargain prices. He tweeted on true social
“TO THE MANY INVESTORS COMING INTO THE UNITED STATES AND INVESTING MASSIVE AMOUNTS OF MONEY, MY POLICIES WILL NEVER CHANGE. THIS IS A GREAT TIME TO GET RICH, RICHER THAN EVER BEFORE!!!”
Trump’s idea of downturns in the economy as opportunity for the rich is correct, as Glantz documents, ‘people like’ Trump did swoop in and pick up the houses cheap. Yet this is hardly a new phenomenon. Millionaires have been able to make money on the backs of the misery of American citizens for decades. This is why Trump and Musk don’t care if their radical changes in the economy produce a failure. They are financially secure and will profit, win or lose.
The term market crash millionaires was coined after the Great Depression. One example: John Paul Getty skipped his parents’ 50th wedding anniversary on Black Tuesday to buy up stocks especially in small oil companies, as a result becoming one of the richest men in the world. (History, Ap 28, 2021)
We had another more recent example. During the covid crash of 2020, the Institute for Policy Studies documents:
• U.S. billionaires saw their net worth surge 62 percent by $1.8 trillion.
• The world’s 2,365 billionaires saw their wealth increase by a full 54%.
Affordable Housing for Corporate Landlords
The ’08 Crisis made foreclosed housing very affordable. But the affordability was given to corporate landlords not homeowners. Glanzer notes.
“Public records showed that, on average, the company paid $139,000 per home — meaning that if families had bought these houses with traditional thirty-year mortgages, they would have ended up paying about $600 a month, not counting taxes and insurance” (WBUR News Oct 17, 2019).
These developments had sweeping implications. In America, the average homeowner boasts a net worth that is a hundred times greater than that of a renter: $200,000 for homeowners compared with $2,000 for renters (Federal Reserve Bullitin Sep 2020, №5)
For most citizens, only housing has the chance to retain, or even increase, in value and pass on to their chidren. Think of other assets, a car depreciates yearly.
From Foreclosure King to Secretary of the Treasury
Many of the “people like me” that Trump predicted would swoop in to buy up houses were associates of Trump. Glanzer notes that those who scooped up the cheap homes included: Trump cabinet members Steve Mnuchin and Wilbur Ross, Trump pal and confidant Tom Barrack, and billionaire Republican cash cow Steve Schwarzman. (Glanzer, Homewreckers)
One of those several foresightful entrepreneurs was Steve Mnuchin. He founded a company called One West to buy colossal private mortgage lender Indy Mac at the expected fire sale value. Ignoring that the banks created this sludge pile of mortgages by undermining HAMP through their mortgage servicers, the Wall Street Journal praised Mnuchin for stepping up to take on this mess and saving further harm to the economy when no one else would.
With an efficiency that would’ve impressed Henry Ford, Mnuchin set up an assembly-line procedure to evict homeowners. In the five years following Mnuchin’s acquisition of OneWest, the bank foreclosed on 36,000 homes in California, leading local activists to begin calling Mnuchin “the foreclosure king.” (New Yorker, July 13, 2020).
Mnuchin was not the only shrewd entrepreneur. In March 2021, Business Insider reported that before the 2008 crisis, corporate landlords owned 20% of rental properties, post ’08 crisis, that leapt to 50%.
Mnuchin and his elite colleagues were able to buy these mortgages at a serious discount. That discount could have been given as a reduction of principal to the homeowners that would have allowed many to afford the monthly payments and keep their homes. But it was given to the already super rich investors.
As it was explained in The Big Short, the homeowners could pay the mortgages at the teaser rates of about 3%. The defaults started when the higher rates of 7% kicked in. The federal reserve bank lowered the interest rate to below 2% for all new loans post 2008. The government could’ve modified the existing 7% mortgages back to 3% with no need for a bail out.
All this came about because Wall Street had their men in the right place at the right time. And yet there is no politician promoting policies that would prevent this from happening again.
As economist Greg Daneke so insightfully put it, America has become the land of the free and home of the homeless.
Acknowledgement: Image of US Capital Building by Jackelberry on pixabay.
[1] Actually 10 million according to the St Louis Fed. https://www.stlouisfed.org/on-the-economy/2016/december/end-sight-us-foreclosure-crisis
