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Monday, December 30, 2013

The Blackstone Group is poised to re-create recession-causing housing crisis

The Blackstone Group
Blackstone spent $7 billion to buy 40,000 homes
By John Monts

When the housing crisis hit the United States it was the first wave that led to what's being called the Great Recession. It happened because Wall Street investment companies started buying up mortgages. They started with mortgages held by people with good credit but greed led to people buying up any kind of mortgage, including risky ones. 

This led to banks giving out home loans to anyone, including some toxic loans and then selling the mortgages off for a tidy profit. When people started defaulting though, the whole system collapsed and led to the recession. Hundreds of thousands of people lost their homes, property values plummeted, and everyone was dazed wondering how that had happened. Well, it's happening again.

The Blackstone Group starts the ball rolling

The Blackstone Group sounds like the name of a villainous organization in a video game. If reports are to be believed, this company has been buying up record amounts of foreclosed homes all over the country, often out-bidding families (particularly ethnic minorities) for these houses. Banks and real estate agents are only too glad to turn them over, often for cash, to this corporation. With that much real estate in the hands of a very concentrated force, there are some pretty bad predictions about what might happen.

Is all of this legal?

Apparently so. Despite talk about more government oversight being put in place to rein in corporations, particularly after the bail out of so many big banks and investment houses, nothing seems to have been done to stop phase two of the evil plan to hoard more wealth and crash the economy again.

The way this play seems to be going is 1% by the numbers. The company has spent more than seven billion dollars to acquire over 40,000 homes. It's been using its financial muscle to push smaller buyers aside, and to acquire huge amounts of real estate at unprecedented rates. It's doing a lot of this buying in cash, and it seems to be intending to turn the properties around and rent them to the people who were victimized by the housing crisis in the first place. It is, thus far, all completely legal.

Market manipulation and legal consequences

Blackstone and other big corporations are buying at rock bottom prices, almost single-handedly increasing property values. Sales are going up, but those sales are to a very small, very select group. That group is then going to use the artificially increased value to rent at higher prices to people who have no other choice but to pay it in order to live somewhere.

No one is saying that Wall Street set up a one-two punch by deliberately crashing the economy and then buying up the nearly-worthless property in order to corner the real estate market. Even if it didn't deliberately set it up though, that's what's happening in cities all across the United States. There is, thus far, no legal action being taken against these companies, and there are no laws being drafted to stop these abusive practices. People are noticing though, especially because of how shady buying homes with briefcases of cash looks.

About the author: This post was provided by John Monts, professional writer for Rue & Ziffra, PA. John is currently a student at UC Davis, studying Political Science and Economics.

Image license: US-PD