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Monday, March 4, 2024

Wall Street to Working-Class Homebuyers: Fuggeddaboutdit!

Housing squeeze accelerated by investment companies buying up properties

LES LEOPOLD in Common Dreams

EDITOR’S NOTE: According to a WPRI Target 12 investigation, you need an annual income of $175,680 to affordably purchase a median-priced home in Charlestown. Charlestown’s median price is $550,000.  – Will Collette

Purchasing a home is usually the only pathway for the working class to accumulate a bit of wealth. Today, working-class home-buying is increasingly out of reach. Housing rent inflation also remains stubbornly high, further squeezing working people, as well as causing the Federal Reserve to fret about why inflation isn’t falling faster.

While economists hunt for technical explanations, they ignore the ways in which Wall Street has come to dominate the housing market to the detriment of working people. The real story is about how our two major political parties have sold out to financialized capitalism.

In 2008 Wall Street crashed the housing market, by profiting wildly from unregulated artificial mortgage-backed bonds. When that house of cards collapsed, they were bailed out with our tax dollars. 

Then, Wall Street rushed in to buy up housing assets on the cheap, turning them into rentals and profiting yet again from the very mess it had created. And now the working class is being squeezed out of the homeowner market and paying more and more for rentals.

It wasn’t always this way. Following the crash of 1929, caused by massive financial malfeasance, the New Deal ushered in a strong regulatory regime to control the inherent greed of the banking and securities businesses. For 25 years after those stiff regulations went into effect, the standard of living for the working class steadily increased and there were no Wall Street implosions.

Those regulations held until the Reagan and Clinton administrations removed many of the guard rails intended to constrain the ability of financiers to manipulate and threaten our economy. Financial recklessness and greed once again were given free rein. By 2008, Wall Street had thoroughly crashed the economy, leading to six million jobs lost in a matter of months.

I gave the crash a good look in my book, The Looting of America. The machinations of Wall Street in the early part of this century involving the housing market were beyond belief. 

Freed from all serious oversight, large banks and financial firms believed they had engineered a financial miracle – taking all the risk out of high-risk mortgages. They created artificial investment products that the trusted credit rating agencies assured us were as good as gold. Rated AAA, they said.

Sub-prime mortgage-backed securities, built repeatedly upon the same risky mortgages, promised big safe profits, and sold like hot cakes. When those risky mortgages inevitably failed, so did the supposedly safe securities, and the whole system crumbled.

Incredibly, at the same time, some of the richest Wall Streeters created financial products designed to fail, so that they could bet against them. They made billions!

This is the type of garbage that led to the 1929 crash and the Great Depression. In 2008 it was called the Great Recession. Economic devastation, fueled by unregulated banks and securities firms, happened again.

Bailouts for Wall Street, Pitchforks for Main Street

The damage done was so great that the government used taxpayer money to bail out the financial bandits, fearing that if they didn’t the whole economy would collapse into another Great Depression. None of the financial criminals went to jail. Very few suffered serious financial harm. 

But with the collapse of the housing market millions of homeowners were left with underwater mortgages. The only bailout for them was bankruptcy and ruination.

The country was angry, and this disaster created the perfect opportunity to reregulate Wall Street so that it served the American people, not the other way around.

President Obama, in 2009, understood the public fury aimed at the high salaries that the financial titans had the gall to award themselves even as they were accepting taxpayer support. The CEOs argued that they still needed to pay top dollar for executives during the bailout because, “We’re competing for talent on an international market.”

Obama warned, “Be careful how you make those statements, gentlemen. The public isn’t buying it.” Then he made a telling concession: “My administration is the only thing between you and the pitchforks.”

Obama never channeled the popular anger to bring Wall Street to heel. Instead, that fury energized the Tea Party, which turned the attacks away from Wall Street and towards the government itself. That was the fury Trump rode to power.

Meanwhile, the banks grew larger, richer, and more concentrated than ever. Today the top five banks own more banking assets they had before the 2008 crash. More worrisome yet is that hedge funds and private equity companies, which are far less regulated than banks, now hold more than $25 trillion in assets, making them larger than all of commercial banking.

What to do with all that money? Go after the housing market again!

Due to Wall Street’s financial implosion and the mortgage crisis, housing prices collapsed after the 2008 crash. Big money institutions rushed in and bought up as much housing as possible. No regulator, no political party, no movement stopped them from exploiting the crisis Wall Street itself had created.

Smack in the middle of the financial crisis in New York City, private equity companies had the chutzpah to buy thousands of apartment buildings, hoping to jack up stabilized rents as soon as tenants moved out.

To move things along, these new owners applied a bit of pressure. “Tenants have been sued repeatedly for unpaid rent that has already been received by the landlords; they have been sent false notices of rent bills, lease terminations and non-renewals; and they have been accused of illegal sublets,” reported Gretchen Morgenson in the New York Times.

Now, after 15 years of Wall Street housing purchases, regular home buyers are getting squeezed out of the market. About 20 percent of all home purchases in the third quarter of 2022 went to corporations that owned more than 100 properties, with half of the Wall Street buyers owning more than 1,000. If you need a mortgage to buy a home you are likely to lose out to the big boys.

“They are, by definition, cash buyers. They don’t have mortgages; they don’t have contingencies; they’ve got briefcases full of cash, ready to go,” reports CoreLogic data.

In the Bradfield Farms subdivision in Charlotte, North Carolina, in 2021-22, fifty percent of the homes were bought by investors with cash and turned into rentals, according to an investigation by the New York Times. And we wonder why it’s so hard for young working people to purchase a home.

There ought to be a law.

After fifteen years of abuse, politicians are finally taking notice. Two Democratic legislators from North Carolina, Jeff Jackson and Alma Adams, recently introduced the American Neighborhoods Protection Act, which would require a corporate owner of more than 75 single-family homes to pay an annual $10,000 fee per home into a trust fund to help family buyers with down-payments. But, in the divided Congress, this bill isn’t going anywhere.

Why wasn’t it presented, one wonders, when the Democrats were in full control? Maybe because if it was pushed forward, Democrats would have to choose between placating Wall Street or defending working-class homebuyers. Hmm, which way do you think they would go?

But we shouldn’t just be angry at the politicians who have coddled Wall Street for 40 years in exchange for campaign contributions (and lucrative financial jobs after leaving public office). We need to look at ourselves and our collective organizations.

In 2008, Wall Street was on its knees begging for support. The financial barons were at their weakest point since the Great Depression. To extract serious financial reforms, we needed a mass movement that united labor unions with the many community and environmental groups around the country. It didn’t happen.

It is time to wake up to what Wall Street is doing to us. Not only did it crash the economy in 2008. Not only does it now control more and more of the housing market, but it is also destroying the lives of working people through mass layoffs. 

As Wall Street gorges itself on stock buybacks, (another result of deregulation in 1982), 30 million of us have lost our jobs in mass layoffs, jobs often sacrificed as corporations pay for those buybacks Wall Street demanded. (Please see Wall Street’s War on Workers for more about this.)

Building a movement to stop Wall Street’s insatiable greed starts with labor unions, like the United Auto Workers, that have shown the willingness to take on corporate power, not only to protect their own members, but also to enhance the working class as a whole.

A new movement could be built around leaders like UAW president Shawn Fain, who recently said: “Billionaires, in my opinion, don’t have a right to exist.”

That the anger and energy of indignation is still out there, waiting to coalesce and aim at taming Wall Street’s insatiable greed. We should join with Fain and other progressives to mobilize and harness it now.

Sooner would be much better than waiting for the next crash.

LES LEOPOLD is the executive director of the Labor Institute and author of the new book, “Wall Street’s War on Workers: How Mass Layoffs and Greed Are Destroying the Working Class and What to Do About It." (2024). Read more of his work on his substack here.