Wall Street Invented an Investment That's Even Worse Than the One That Caused the 2008 Crash
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Wall Street Invented an Investment That's Even Worse Than the One That Caused the 2008 Crash
Why do we continue to let banksters run the world?
There is the real economy — where actual human beings buy and sell things to the tune of $100 trillion per year — and there is the psychotic world of derivatives, the economic digital asylum where parasitic sociopaths gamble other people’s money on trading algorithms to the tune of $1+ quadrillion per year.
Most of these wealth-robbing investment schemes are horrible for widest-spread longest-term human wellbeing, but very rarely are they so bad that they crash the global economy.
I’m sure ya’ll have seen The Big Short:
Banksters loaned mortgage money to borrowers who had no money, to buy overpriced houses.
Banksters bundled all the hyper-risky mortgages into a new financial product, bribed the rating agencies to declare them “super safe” investments, and sold the toxic bundles to pension plans.
When all the broke borrowers started missing mortgage payments on their overpriced houses, it crushed investors, shattered the global real estate market, sparked a multi-year recession, and left six million families without a home.
Mortgage-backed securities bundled in CDOs. Those were the ticking time bombs that blew up the lives of millions of people, many of which will never be put back together.
Well, these same evil banksters are back with another security that not only adds zero wealth to humanity and steals more of it than ever, but their next scam investment is unbelievably toxic that, if left to live, will eventually cause a market crash far larger than 2008.
Housing matters
We cover real estate all the time on Surviving Tomorrow, because human shelter is kind of a big deal. We believe it’s a core component in widest-spread longest-term wellbeing.
So we are righteously furious that parasite land-lorders and institutional vulture capitalists are even allowed to rent-trap tenant-serfs by monopolizing housing and squeezing usury out of them.
Unfortunately, the weaponizers of corporations — which are, by definition, anti-human institutions tasked with maximizing private profit at the public’s expense — do not care about human wellbeing whatsoever.
That’s why they’ve invented a new type of security:
Rent-backed securities.
Rent-back securities
These horrible investment products are absolutely awful.
Basically, the instrument bundles together rental payments from rent-trapped tenant-serfs along with mortgages on the rental units as collateral.
Once bundled, the seller markets them as a super-safe investment and sells them to the highest sucker/bidder.
Who created this predator product?
Rent-back securities were invented by Blackstone, a vampirical private equity firm that bought up so many single-family homes after the 2008 crash that even the United Nations publicly condemned their anti-human behavior.
Founded by a Lehman Brothers CEO/US Secretary of Commerce and friend of Donald Trump who called Barack Obama’s attempt to tax him “like when Hitler invaded Poland”, Blackstone is the leading institutional buyer of single-family homes in America.
The anti-social people on Blackstone’s $280 billion real estate team don’t actually buy houses personally — they buy entire multi-billion-dollar rent-seeking companies that outbid families for local properties to then rent back to them for jacked rates.
Blackstone knows they are the poster child from the extraction industry, and have even set up a truth-washing website where they pretend like they’re the good guys, insisting they own “less than 1% of the single-family rental stock in the U.S. and every market across the U.K. and Europe where we operate.”
(Which is not at all comforting to the tens of millions of families that are now permanent rent-serfs thanks to Blackstone and thousands of institutional land-lorders like them.)
They’ve even managed to convince people like Martin Luther King’s Junior’s son to join their cause to rent-trap the nation, which is ironic, considering rent-trapping disproportionally keeps blacks out of homeownership.
Rent-backed securities are hot
Blackstone started by bundling 3,207 single-family homes into a $479 million bond.
Wall Street went wild.
In fact, the investment drummed up six times more investor demand than Blackstone could accept.
Within months, dozens of other real estate speculators started offering rent-backed securities for sale.
Now it’s a deca-billion-dollar industry.
Why did Blackstone create rent-backed securities?
To answer this question, we need to look back at why banksters created mortgage-backed securities:
Usurers were tired of having their capital locked up in slow-paying mortgages.
Banksters wanted liquidity, something they could trade like cash.
They wanted to sell off their mortgages at a quick profit so they could get more people into debt so they could start the whole process all over again.
It also gave banksters the ability to take garbage mortgages off their balance sheet and push the risk onto other investors.
We can only assume that private equity firms like Blackstone are packing up their worst-performing leases for the exact same reasons.
When rent-backed securities go global for the same reason that mortgage-backed securities did, it’s only a matter of time before we witness similar or worse outcomes.
Rent-backed securities will inevitably destroy lives
If RBSs follow the same trajectory as MBSs, here’s what’s going to happen:
Private equity firms will bundle their highest-risk leases.
They will bribe the rating agencies to say the bundles are AAA-grade investments. (They will even argue that RBSs are twice as safe as MBSs, since they include not only an overpriced house as collateral, but a hefty monthly income.)
They will sell these bundles of $#itty leases to pension funds and the general public.
They will use the quick profits to buy up more houses, pushing house prices even higher.
They will jack the rents on all their monopolized properties, crushing families with massive rental payments.
Once they’ve swallowed up a few thousand rentals, they’ll sell them as a bundle and start all over again, until every house on earth is a rental and everyone is a rent-slave.
This anti-human investment is part of the reason why house prices and rental prices will continue to soar for the rest of our lives.
Why doesn’t America destroy rent-backed securities?
I’m certainly no right-wing (or left-wing) extremist, but this is Obama’s fault.
Yes, Republicans caused the housing and banking crisis, but Barack had the perfect opportunity to fix it after the 2008 crash.
He should have locked up tens of thousands of bankers and hedge fund managers, but instead, he bailed them out and hired them to run the Fed.
It is the biggest presidential failure in modern history.
Instead of sealing his legacy as the greatest reformer and social equalizer since Abraham Lincoln, he’ll go down as yet another right-wing corporatist Democrat.
America needs an anti-party leader who cares about human beings more than corporate profits.
How to end rent-backed securities
Capitalism is all about incentives.
What do you think will happen if parasitical gamblers are rewarded for increasing rent prices?
Nothing good.
But banksters and vulture capitalists will never stop until they are stopped.
Luckily, there are several ways to destroy the rent-seeking industry:
Nationalize the banks
For a few thousand dollars per citizen — printed out of thin air like everything else in America these days — a democracy could buy all the banks so that they no longer create private profits for the rich. Not only could these new public banks be far less predatorial in the loans they make, but they could be directly owned by the people, with everyone getting a share of the profits in the form of a universal basic income.Ban interest and rent-seeking
A second option is to simply outlaw usury and rent-seeking. Even Adam Smith said rent-seeking was a drag on the productive economy, so we could make it a federal crime to milk the commons for unearned profits.Tax for-profit banks out of existence
If we wanted to continue to play it safe and not do the morally right thing of outlawing usury and rent-seeking, we could tax them out of existence by charging a 100% tax on all unearned extraction profits. This would leave us with an entirely not-for-profit banking system where states, cities, charities, foundations, co-ops, not-for-profits, and for-benefits do the utilitarian work of banking at cost.
There are plenty of other ways to eliminate economic exploitation from society, but you get the idea.
Rent-backed securities are a cause of rising house prices, rising rent prices, rising wealth for the rich, rising poverty for the poor, and rising risk of a major collapse when the system proves itself to be entirely unsustainable.
Rent-back securities should obviously be illegal, but that wouldn’t be good for all the lazy hyper-elites who would rather rent-rob the contributor class instead of working a single day in their lives.
I hope their private profits are worth all our future suffering.
Jared A. Brock is an award-winning biographer, PBS documentarian, and the cell-free founder of the popular futurist blog Surviving Tomorrow, where he provides thoughtful people with contrarian perspectives on the corporatist anti-culture. His writing has appeared in Esquire, The Guardian, Smithsonian, and TIME Magazine, and he has traveled to more than forty countries including North Korea. Join 24,000+ people who follow him on Medium, Twitter, and Substack.