Published CommPro.biz 2014.04.24

Another Wall Street Scam

Do you remember way back in the 1990s and early 2000s, when the monster banks came up with new investment deals that bundled mortgages together, stamped AAA by compliant rating agencies and sold to the suckers, remember? Then remember what happened next? It turned out that the bundles were really a bunch of crappy AAA. The banks had tricked unsophisticated wannabe home buyers into signing mortgages they couldn’t afford.

We’re sure you remember what happened next; the world economy collapsed. In America we bailed out the monster banks to avoid a depression. But, we neglected to put conditions on the bailouts. So the big banks went right back to gambling with our money instead of helping small businesses where the jobs are created. The fat-cat banks and their bonus hungry executives are fine, while folks who lost their jobs and the rest of us are still suffering.

Nothing like that could happen these days because we’ve made it so hard to get a mortgage that even people who can afford to buy a home have a tough time. The monster banks are doing great with the interest free bucks the Fed has been feeding them, but the number of high-stakes gambling deals –oops when banks gamble the law of the land calls it “investing”– is so limited. They got into commodities, speculating on nearly everything we use. Who cares if they were raising the prices we pay at the pump or the grocery check out? But there wasn’t enough quick and easy money. They are working their way out of that game.

What now to roll the dice on? Enter the private equity folks. Guess what they’ve been doing? They’ve been buying up hundreds of thousands of those homes that ended up on the market dirt cheap after the crash. They are renting them, often to the same people who lost them to foreclosure. But the hefty rents they are collecting are not enough, and too many of the houses are empty. What to do?

So they got together with their buddies in the monster banks and came up with a new investment vehicle, Rental Backed Securities (RBS). Same as the mortgage deals but this time rental deals. Just how long will it be before the empty houses they can’t rent fill up with people who can’t afford them? However, the package of homes in the RBS will look good; every home rented.

After the RBS packages have been sold to the suckers, how long will it be before the renters fall behind in their rent and the whole house of cards collapses? If this sounds familiar, it is.  It’s the whole 2007-2008 nightmare all over again. The crappy toxic investment packages collapse, we have to bailout the banks again, they come out great and we suffer. Congress? Not a chance they are too deep in campaign contributions from the banks. We’ll be out in the cold, again.