In the wake of the housing crash, wide swathes of the desert Southwest, Florida, Atlanta, parts of California, and other places were littered with relatively new homes which were empty. The pre-seeded lawn turf often hadn’t even taken root before the foreclosures began.
Each vacant home represented a personal economic disaster for someone. Families moved in with grandparents. Pets were left in shelters which were filled far beyond capacity. It was only a couple of years ago. For many the memory is still very fresh.
But at about the same time parts of Tuscon started to be reclaimed by tumbleweeds a few hedge funds (and banks) figured that there was yield to be made from renting the homes which were now unused back to the people who could no longer afford to own them. If the homes could be pooled along with the rents, perhaps the investments could even be sold as derivatives.
Market solution right?
It’s time for the former head of America’s central bank to make bank.
I’d encourage everyone to read the attached article because it is a lovely example of the infatuation some people have with their masters. Actually that’s not fair. The guy makes plenty of good points from the progressive perspective. All the ones one would expect. We wouldn’t have any roads without government. (We would.) We’d all die from salmonella poisoning without the government. (We wouldn’t) Society would devolve into a scene from Mad Max where kids with mohawks marauded through the mall with chainsaws. (It wouldn’t.) All the ones one would expect.
Well, it seems that the good g-men at the SEC, the folks who pursue insider trading, might be moving on insider information themselves. I am shocked! Shocked!
I have to admit, I once bought a new car. I was in my mid-20s. I had no children. I still didn’t know the fun of a mortgage. The car was blisteringly fast and I like cars which go fast. So I bought one fresh and new. I shouldn’t have.
The big banks, which in 2008 nearly went belly-up because they were overleveraged and needed a taxpayer funded bailout in order to survive a reversal in the economic tide, are even bigger today. They pose more risk than they did 5 years ago. Because they have been designated as “too big to fail” the megabanks now enjoy an implicit subsidy courtesy of you and me. Their borrowing costs are lower because we backstop them. Because of the backstop and lower costs bankers are incentivized to take on more risk. Sooner or later this will create major instability as the market mechanism has been distorted and will seek to correct for this distortion.
Dave Camp in the House and David Vitter in the Senate are looking to address the implicit subsidy granted to banks designated as too big to fail. These banks are able to borrow at lower than true market rates because they are backed by the US taxpayer. Their smaller competitors who do not have this taxpayer financed guarantee must borrow at higher rates and so are at even more of a disadvantage versus the big guys. Over time this means that capital will increasingly move from small banks to large. (This is just one of the problems with Dodd-Frank.)
The bankers truly, deeply fear Bitcoin. Again, I say this not as an advocate. I prefer the old gold and silver. But I love, I mean love that Bitcoin is tying the establishment in knots. It is super fun to watch. Read, please read, the attached article as the author waxes on and on about how only white males like Bitcoin anyway so it should be taken down.
We wrote a couple of weeks ago that Bitcoin was under all out assault. The cryptocurrency was being attacked (and it continues) on all fronts, legally, through DOS attacks, in the media, by Jamie Dimon who surprise surprise said that the government would just regulate the alternative currency out of existence and “that would be the end of them.” Of course JPMorgan, Dimon’s company, has been trying to get its own rival “alternative” currency off of the ground.
In January Bloomberg reported that Tim Geithner called the CEO of Standard and Poor’s after the company downgraded US debt to explain that the move would have “ramifications” for the company. Now S&P finds itself embroiled in a lawsuit driven by the Justice Department which S&P says is punishment for the downgrade.