[Marxism] [SUSPICIOUS MESSAGE] Two Histories of Financiers Profiting From Real Estate While Homeowners Go Belly Up

Louis Proyect lnp3 at panix.com
Thu Nov 7 07:28:21 MST 2019


NY Times, Nov. 7, 2019
Two Histories of Financiers Profiting From Real Estate While Homeowners 
Go Belly Up
By Jennifer Szalai

Homewreckers
How a Gang of Wall Street Kingpins, Hedge Fund Magnates, Crooked Banks, 
and Vulture Capitalists Suckered Millions Out of Their Homes and 
Demolished the American Dream
By Aaron Glantz
Illustrated. 398 pages. Custom House. $27.99.

Race for Profit
How Banks and the Real Estate Industry Undermined Black Homeownership
By Keeanga-Yamahtta Taylor
349 pages. The University of North Carolina Press. $30.

Aaron Glantz knows that he’s living the dream — the good guy who does 
well in the morality play of American real estate.

A journalist and a third-generation San Franciscan, Glantz has been able 
to live affordably in the outrageously expensive city of his birth by 
dint of a savvy investment in a foreclosed home 10 years ago, after the 
housing market went bust. You don’t even have to feel too sorry for the 
tenants he evicted from the house, which included the previous owner who 
was foreclosed on; they turned out to be grifters, having spent years 
flipping that house and others between themselves, defaulting on the 
mortgages and then selling to one another to reap the windfall of 
inflated prices. Glantz and his wife, then pregnant with their first 
child, received an $8,000 check as part of the Obama administration’s 
stimulus package; they used the money to remodel their new home, 
effectively putting people to work while building their nest egg.

It’s a simple tale with a happy ending, but in “Homewreckers,” his new 
book about the aftermath of the 2008 financial crisis, Glantz skillfully 
tells a bigger story about American housing that’s tortuous, confounding 
and ultimately enraging.

Along with “Race for Profit: How Banks and the Real Estate Industry 
Undermined Black Homeownership,” by Keeanga-Yamahtta Taylor, 
“Homewreckers” shows what happens when private speculators get buoyed by 
government largess while non-tycoons are largely left to fend for 
themselves.

Taylor and Glantz focus on different eras, decades apart, but in a way 
that’s the point: When it comes to doling out public money to private 
business with the hope that it will inevitably trickle down, the 
American government is like the Bill Murray character in the first half 
of “Groundhog Day”: making the same mistakes over and over again, 
without ever seeming to learn.

“Race for Profit,” which was longlisted for this year’s National Book 
Award, covers the few years in the late ’60s and early ’70s, when the 
Fair Housing Act of 1968 nominally ended the government’s longstanding 
practice of redlining. Ever since its inception during the Great 
Depression, the Federal Housing Administration had insured mortgage 
loans made by private lenders for purchases in white neighborhoods; 
purchases in or even near black neighborhoods were generally ineligible. 
The benefits of homeownership swelled the ranks of the postwar middle 
class, transforming the economy while entrenching residential segregation.

President Lyndon Johnson promised to change these exclusionary practices 
and extend opportunities for homeownership. Taylor says that the 
pressure was coming from all directions. Cities like Detroit and Los 
Angeles erupted in violent unrest, sparked in part by the explosive mix 
of high prices and inferior housing imposed on black people, who, 
confined by racism, redlining and restrictive covenants, couldn’t move.

Even the real estate industry, which had long predicated “value” on how 
white a neighborhood was, realized that white suburban home buyers were 
becoming a saturated market. Much of the existing housing stock in the 
cities was considered cheap or even worthless; the enterprising investor 
could buy it and flip it for enormous profit, as long as he could find a 
buyer.

Taylor’s book meticulously documents what happened next, as the federal 
government partnered with a real estate industry enthusiastic about 
exploiting a new market but refusing to bear most of the risk. She 
details bungling mismanagement, gross corruption, distorted incentives, 
civil rights regulations that went unheeded and unenforced — what Taylor 
calls a system of “predatory inclusion” that was distinct yet not 
entirely free from the racist system of exclusion that preceded it.

A number of the home buyers who later brought these abuses to light were 
poor black women, whose experiences resembled something out of a horror 
movie — pressed by aggressive lenders into buying a house that, 
unbeknown to them, had been previously condemned and slated for 
demolition, disguised with a paint job and a “windshield inspection”; 
only later did they learn that something was terribly amiss when rain 
started seeping through the walls and raw sewage filled the basement. 
Taylor says that mortgage bankers valued these women as customers not 
despite their poverty but because of it. If they fell behind on payments 
and defaulted on the mortgage, so much the better. The mortgage lender, 
whose losses were backstopped by the government, had already made money 
on commissions and fees; the house could be put into foreclosure and 
flipped again.

Glantz mentions some of this history, but there’s also an overwhelming 
sensation of déjà vu that hovers over the more recent story he tells. In 
“Homewreckers,” he explains how a cadre of billionaires — a number of 
them living in the same Park Avenue apartment building in New York City 
— figured out a way to take advantage of another government program in 
order to profit from people’s misfortune.

After the housing bubble burst, the government was desperate to get 
lending banks off its books, and so it offered a sweet deal to 
prospective buyers of the banks: Those private investors could keep the 
gains on any loans held by the bank, but if the loans lost money, the 
government would bear most of the cost.

It was like a mutant version of the subprime bubble that led to the 
financial crisis: Rather than renegotiate the loans, the new owners of 
these lending banks found there was more money to be made in foreclosing 
on the properties and becoming “a class of landlord that had never been 
seen before,” charging rent and fees to tenants — not infrequently the 
previous owners who were foreclosed on — while hoarding the equity for 
themselves.

Corporate landlords are partial to shell companies with boring, 
antiseptic names, like ColFin AI-CA5 LLC, which Glantz traces back to 
Colony Financial, owned by the billionaire Thomas J. Barrack Jr., a 
stalwart supporter of President Trump’s. Another shell company, by the 
name of SPMK IV NY LLC, was traced to the Fox News personality Sean 
Hannity. Corporate landlords, Glantz says, are also more likely to buy 
properties in neighborhoods with large concentrations of 
African-American and Latino residents, who end up paying “higher and 
higher rents that ultimately transfer wealth from their communities to 
investors far away.”

What often does trickle down to ordinary people is the risk — the risk 
of enormous liens placed on their homes by financial entities that use 
bundles of properties as collateral; the risk inherent in becoming just 
another part of someone else’s newfangled mortgage-backed security. It 
all sounds terrifyingly familiar — and now the person in the highest 
office is Donald Trump, who has surrounded himself with the figures in 
Glantz’s book.

These billionaires haven’t just settled on a way to make money from 
people’s misery; they’ve benefited politically, too. Steven Mnuchin, 
Trump’s treasury secretary, is one of the main characters in 
“Homewreckers,” heading an investment group that bought the remains of 
IndyMac bank out of the rubble of the financial crisis and started 
foreclosing on people’s homes. Glantz finds a woman who lost her home to 
Mnuchin’s bank and voted for Trump before realizing that Mnuchin would 
be part of his cabinet.

“We voted for Trump because we’re fed up — like most of America — with 
the politics as it is,” she tells Glantz. The anger is more than 
understandable, but the misplaced faith is truly mystifying. Even a 
mortgage-backed security might be less opaque than this.

Follow Jennifer Szalai on Twitter: @jenszalai.





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