This Time It's Different

Even when it isn't:

Blackstone is already tapping investors for a major new source of funds for its single-family home empire. In October, the company held a presentation at the Waldorf Astoria hotel in New York to sell $479 million of bonds. To meet the interest payments on the debt, Blackstone will collect monthly payments from 3,207 homes . . . According to deal documents, the firm bought the properties for $444.7 million and after renovations and other costs spent a total of $542.8 million. Those homes are already valued at $638.8 million, 18 percent higher than their outlay.

The bonds Blackstone is selling equal 75 percent of the properties’ current value, allowing the firm to recoup its initial investment and repay part of the bank credit line.

Investors can buy six versions of the debt with different interest rates depending on the level of risk and the priority the bonds are repaid.

Moody’s Investors Service gave the largest portion of the bond its Aaa rating, signaling it considers the debt as creditworthy as the U.S. government. The blessing opened up the investment to insurance companies, pension and mutual funds with trillions of dollars to invest.

Assuming we haven't destroyed the planet by the end of the century---and that's an open question!---our great-grandchildren will surely be asking how we could have allowed the looting to continue unchecked when we knew what its ultimate outcome would be. We've already seen millions of homeowners turned into renters, and it is only a matter of time before those millions of renters are turned into transients. Volcker rules may be nice as window dressing, but the fact remains that five years after the Great Crash, our oversized financial sector that generates little wealth beyond rent extraction is still an oversized rent-extraction machine. Now, literally!

---Baron V