Redistribution of Wealth, Foreclosure Style

Michael Stephens | March 21, 2012

Matthew Goldstein and Jennifer Ablan report on the latest US investment craze:  buying up large bundles of foreclosed homes from Fannie Mae and renting them out to take advantage of the hot rental market.  Randall Wray is among the critics quoted in the article who contend that, as Goldstein and Ablan put it, “the federal government is fostering a transfer of wealth of sorts by selling big pools of foreclosed homes to big fund investors and high-net-worth individuals. There’s also concern that some of the players who helped create the housing crisis will now benefit by buying foreclosed homes at a steep discount.”

Wall Street benefited from the ballooning indebtedness of American households on the way up, and now on the way down they’re taking advantage of the flipside of that indebtedness, as families’ assets are seized, transferred, and rented out … likely to some of the same people who just lost their homes.  That feedback loop is galling enough.  But as Wray has pointed out, it’s also a cycle that’s been greased by foreclosure fraud.

Felix Salmon is surprised at the continued success of the financial industry in pushing legislation (in this case, he’s talking about the proposed “JOBS Act,” a key provision of which involves a nice dose of financial deregulation):  “a bill which was essentially drafted by a small group of bankers and financiers has managed to get itself widespread bipartisan support, even as it rolls back decades of investor protections.”

At this point, it’s very difficult to imagine what could possibly change these dynamics.  Clearly, triggering a global economic collapse hasn’t made a dent in the sway the industry holds.  There was a lot of enthusiasm surrounding the Occupy movements, but it’s hard to see it amounting to a countervailing political force (even if it intended to be one, which isn’t clear).  Dodd-Frank, for all its faults (and they are legion:  see this new Levy Institute working paper by Bernard Shull, and Chapter 1 of this analysis) appears to be the only game in town.  If it’s able to shrink the sector a little that may change the political economy—but only at the margins.  And that’s likely the best case scenario.

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