Ritholtz: Why foreclosure fraud is so dangerous to property rights

**Winehole23** · 03-23-2019

Saving community banks, a myth:

Let’s start with the notion that “community banks” were also aided in the bailout. There were, indeed, a few smaller banks that participated in the TARP, and in fact, they tended to be in the program longer than the super-sized banks, mainly because they were unable to repay money as quickly.

However, only a section of community banks get into the program. The Treasury Department invested in 707 banks, or about 10 percent of the industry. But 100 percent of the biggest banks were bailed out. As Bernanke told the Financial Crisis Inquiry Commission, of the nation’s 13 largest banks, “12 were at the risk of failure within a week or two” of the initial bailout period, in late September and October of 2008. Every single one of those banks took huge bailout payments.

As Gretchen Morgenson pointed out when information about Fed bailout programs first became public, just six banks — JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley — were the recipients of 63 percent of the Fed’s average daily borrowing, representing about a half-trillion dollars at peak periods just for those firms.

**Winehole23** · 03-23-2019

Those Fed dollars were doled out through an alphabet soup of different programs (the TAF, the TALF, the TSLF, the TOP, the PDCF, the Maiden Lanes, etc.) and were used to execute major restructurings of the economy. The Fed put up $30 billion to help Chase buy the hulk of Bear Stearns, helping further by buying up $29 billion in bad assets from the dying investment bank.

Citigroup was borrowing $100 billion from the Fed at its peak, Morgan Stanley $107 billion. Fed money was used to broker Bank of America’s absorption of Merrill Lynch and help Wells Fargo buy up Wachovia, in addition to other mergers. At the end of all the rearranging, the 12 largest banks in the country — which had all contributed massively to the crisis and had maybe a week to live when the crash happened, as Bernanke testified — suddenly controlled 70 percent of all bank assets in the United States.

This matters in relation to Kessler’s piece because it had a profound effect on the market. The financial community now knew the government would never let the biggest banks fail, and now those banks had lower borrowing costs than small community banks, for whom the same could not be said. This turned into a so-called “implicit guarantee” that Bloomberg said was worth $83 billion a year by 2013.

The point is, the bailout plan not only didn’t really help community banks, it massively accelerated their disenfranchisement, by placing them in a separate economic class from those deemed Too Big to Fail

**Winehole23** · 03-23-2019

Kessler spends half his time quibbling over the size of the TARP, which was really a minor appetizer on the bailout menu. The bailout was not just the government handing bags of money to companies (although it did that, too). It was an array of programs designed to help the companies who screwed up the worst avoid losses, secure new revenue streams and emerge from the crash not just unscathed, but more powerful than before.

**Winehole23** · 03-23-2019

Market intervention, not counted:

Did Kessler count interventions like the 2008 ban on short-selling of 799 financial stocks, which protected just those companies from (legitimate) market pressures?

**Winehole23** · 03-23-2019

Emergency bank charters to non-banks:

Did he count the emergency bank charters handed out to Goldman and Morgan Stanley late on the Sunday night of September 21st, 2008? The two investment banks were not commercial banks, but they obtained late-night permission to call themselves Bank Holding Companies, so they would have lifesaving access to borrowing at the Fed’s discount window and could open their doors the following morning.

**Winehole23** · 03-23-2019

The Federal Reserve paid interest on bank reserves:

There were so many other interventions. The Post likely forgot that on October 6th, 2008, the Fed for the first time in its history began paying interest on required reserve balances, a perk that one banker described as “paying banks to be banks.”

**Winehole23** · 03-23-2019

It didn't work as deigned, or did it?

This was a particularly obnoxious gift to Wall Street since the whole concept of the bailouts was supposed to be unfreezing the economy and spurring lending. But banks were so strapped for safe income sources they began filling reserve balances at the Fed, hoarding cash in search of those interest payments. In 2012, for instance, banks were only required to keep about $100 billion in reserve, but according to the San Francisco Fed, reserves averaged $1.5 trillion over the first six months of that year. That was $1.4 trillion taken out of the economy.

**Winehole23** · 03-23-2019

The Fed lowered examination standards so banks would pass stress tests:

How about the government’s continual efforts to look the other way or lower standards so bailout recipients who should have failed mandated “stress tests” would be allowed to pass?

Several banks got the Fed to drop estimates of capital shortfalls by $20 billion or more after intense lobbying. Citigroup passed one of its early tests when regulators were persuaded to cut billions of an expected hole on its balance sheet based on “pending transactions.” Again, how do you price that kind of aid?

**Winehole23** · 03-23-2019

Charters not revoked, penalties made tax deductible:

How about non-prosecuting a company crime? Crafting settlements so automatic penalties for certain offenses like the revocation of bank charters don’t kick in? Then there was the too-common practice of letting offenders like HSBC make at least part of regulatory settlements related to crisis-era offenses tax-deductible. This forced all of us to pay for hundreds of millions of dollars’ worth of these settlements.

**Winehole23** · 03-23-2019

Bernanke called these figures wildly inaccurate without citing any support:

The Special Inspector General’s office for the TARP program, meanwhile, issued reports for the bailout. This oversight panel led by Bailout authorand former SIGTARP chief Neil Barofsky put the gross outlay — including the TARP, and other Treasury and Fed expenditures — at $4.6 trillion. The net outlay they place at $3.3 trillion. Why are these numbers less reliable than the rest?

**Winehole23** · 08-03-2020

relevant again with the upcoming wave of evictions/foreclosures

**Winehole23** · 12-02-2020

Non-bank market makers are still the weak link, 12 years after the Great Recession.

This paper studies liquidity risk at the six largest U.S. banks. The starting point is the stress tests performed under the Liquidity Coverage Ratio (LCR) regulation, which compare a bank’s liquid assets to its loss of cash in a stress scenario that regulators say is based on the 2008 financial crisis. These tests find that all of the large banks could endure a liquidity crisis for 30 days without running out of cash. This paper argues, however, that some of the assumptions in the LCR stress scenario are not pessimistic enough to capture what could happen in a crisis like 2008. The paper then proposes changes in the dubious assumptions and performs revised stress tests. For 2019 Q4, the revised tests suggest it is unlikely that any of the six banks would survive a liquidity crisis for 30 days. This negative finding is most clear-cut for Goldman Sachs and Morgan Stanley.

https://www.nber.org/papers/w28124

**Winehole23** · 12-21-2020

Steal 35 bucks from a bank, go to jail. Bank steals 35 bucks from you, slap on the wrist in private.

**Winehole23** · 12-29-2020

After 2008 Blackstone and Berkshire Hathaway became commercial real-estate giants; the current downturn will offer another opportunity for private equity to gorge itself on distressed property.

Back in 2008, Blackstone emerged as one of the biggest beneficiaries of the subprime crisis, becoming a trailblazer in financializing rents. As that crisis went global, so too did Blackstone’s property empire. By the time the dust had settled, it was the biggest commercial real estate company on the planet, according to Fortune magazine. .

Now, Blackstone wants to repeat the feat, albeit using a somewhat different playbook. At the Goldman Sachs Financial Services Conference, held on December 9, Blackstone’s CEO, Stephen Schwarzman, gave a few hints about how it plans to do just that. Asked if he thought large firms such as Blackstone would once more gain more market share during this crisis, he responded:

I think something similar will happen. You always have winners and losers. Blackstone was a huge winner coming out of the global financial crisis. And I think something similar is going to happen.

During the last crisis, Blackstone pioneered the buy-to-rent scheme by snapping up, for cents on the dollar, huge batches of foreclosed homes from struggling and bailed-out banks and then turning them into rental properties. In short order, Blackstone’s subsidiary Invitation Homes became the largest owner of single-family rental homes in the United States. It also took the meaning of “absentee landlord” to a whole new level, as accusations of ill repair and poor maintenance quickly mounted. Tenants also complained about excessive rent increases and fees.

The USG backstopped private equity's derivative plays:

Once the model was up and running in the U.S., it was quickly exported to cities in Canada (Toronto) and Europe (Berlin, Madrid, Barcelona, Dublin, Stockholm…). Since going public in 2007, Blackstone has multiplied eightfold the equity capital it devotes to real estate, to $163 billion. As Scharzman himself put it, the company’s strategy in post-crisis Europe essentially involved “waiting to see how beaten up people’s psyches get, and where they’re willing to sell assets … You want to wait until there’s really blood in the streets.”

As Blackstone’s property empire grew and grew, it managed to convince regulators in the U.S. to allow it to transform part of that empire into rent-backed structured securities. It paid Moody’s, Kroll, and Morningstar lucrative fees to rate a large chunk of those securities AAA. And when the securities began to sour just a few years later after a Blackstone securitization saw a big drop in rental income, Blackstone managed to convince the Obama administration to bail it out by providing explicit government guarantees for the higher-rated tranches.

CARES ACT and the Federal Reserve came to the rescue when the hit the fan this year:

In April markets were crashing. Then, little by little, the trillions of dollars that had been conjured up by the Federal Reserve and other large central banks began to feed through to the financial markets, which in turn began to re-levitate, creating an even more bifurcated economy. As mom-and-pop businesses hit the wall in droves and millions of people lost their jobs, the Fed bailed out shareholders whose stocks were plunging and rescued investors of high-risk assets that were in the process of imploding, such as highly leveraged mortgage REITs. The bigger the investor, the more money they got.

Private equity firms such as Blackstone were close to the front of the queue. Despite having on hand an estimated $1.7 trillion of so-called “dry powder” — uninvested but committed capital — private equity firms were big beneficiaries of the emergency loan programs launched in the CARES act. Many of the firms they owned ended up receiving millions of dollars in low-interest PPP loans from the Small Business Administration (SBA). In the UK, private equity groups won a similar concession in September allowing UK companies they own to access emergency state-backed loan schemes.

PE firms such as Blackstone also benefited in a more subtle way from the Federal Reserve’s pledge to buy up to $700 billion of corporate paper, including junk bonds and bond ETFs. In the end the Fed had only bought $13 billion in corporate bonds and bond ETFs as of early December, but its jawboning spurred one of the largest junk bond buying binges in history. And PE firms were among the biggest beneficiaries. The second quarter saw one of the highest-ever levels of junk-bond issuance by private equity-backed companies, at more than $31bn.

https://www.nakedcapitalism.com/2020...er-crisis.html

**Winehole23** · 07-16-2021

**boutons_deux** · 07-16-2021

Originally Posted by Winehole23

America as rentier society. Ain't Capitalism great?

No, Blackstone Didn’t “Buy 17,000 Houses” out from under Desperate Homebuyers.

And BlackRock Didn’t “Buy a Whole Neighborhood.”

But Built-to-Rent is a Huge Change

https://wolfstreet.com/2021/06/22/no...o-rent-is-a-h/

**Ef-man** · 07-16-2021

Originally Posted by boutons_deux

America as rentier society. Ain't Capitalism great?

No, Blackstone Didn’t “Buy 17,000 Houses” out from under Desperate Homebuyers.

And BlackRock Didn’t “Buy a Whole Neighborhood.”

But Built-to-Rent is a Huge Change

https://wolfstreet.com/2021/06/22/no...o-rent-is-a-h/

So much for the American dream of home ownership.

People will be forced to stay with parents like qchrisy and derptacular.