Thursday, October 18, 2012

Another Transfer of Wealth is Occurring in America

Majia here: Another transfer of wealth is occurring as properties formerly held by individuals are transferred to wealthy investment entities representing the Wall Street interests.

Federal efforts to help distressed borrowers are sabotaged as states use foreclosure suit funds to plug budget deficits, rather than help the distressed borrowers.

Wall Street already has a plan for their latest asset seizure - rent backed securities.

Here are the articles from which I derive my analysis.

"States Shift Foreclosure - Suit Funds" The Wall Street  Journal Nick Timaros October 18, 2012 p. A7

[Excerpted] "When states received $2.5 billion from big banks in a mortgage-foreclosure settlement earlier this year, the expectation was that most of it would be used to help distressed home owners. But so far, less than half of the money has been designated for that cause--with much of the rest going to help state budget gaps, says a report..."

Majia here: Apparently, my state, Arizona, has decided to spend almost half of its foreclosure funds on state budgetary allocations.

I can speak from my personal experience with students and neighbors in Arizona. The recession is not over in Arizona, a state whose economy is highly dependent upon construction.

Many people were employed as independent contractors so the unemployment figures do not reflect the true scale of those without stable income, since independent contractors do not collect unemployment.

Wages are low in the state and the demand on food banks and other social services has been high during the depression.

Economic recovery is often touted in the Arizona Republic on the basis of rising home sales.

However, I argue that rising sales of foreclosed and distressed properties do not signal broad recovery in the real economy.

Many foreclosed properties are being bought by investors: "Investors have spent billions of dollars in recent months snapping up foreclosed homes, betting they will profit from the rental income the properties produce" and Citigroup, among other Wall Street Banks, have been making large loans to LLCs, like Waypoint Real Estate Group, to purchase foreclosed properties.

Source: Neuman, J. (2012, Sep. 17). Boost for Foreclosure Markets. The Wall Street Journal, p. C3

Furthermore, the WSJ reports in a separate article that Freddie Mac plans to provide loans to investors with loans to purchase foreclosures and then rent them. This article states that banks do not want Freddie to provide these proposed low interest loans because, they say, Freddie would then be competing with the banks.

Source: Neumann, J. & Timaros, N. (2012, October 3). Freddie's Foreclosure Plan Hits Roadblock. The WSJ, p. C1.

Majia here: I've written previously about new plans by investors to create a new class of securities: rent-backed securities:

Majia here: Let us put together all of these stories:

States like Arizona are not dedicating foreclosure funds to helping distressed borrowers suffering from the deflating state economy and bubble-priced home mortgages.

Consequently, foreclosed properties are being purchased by investment companies, many of which are funded by Wall Street banks.

Homes that were previously occupied by owners are being turned into rentals and now offer an opportunity for yet another form of speculation by Wall Street players: rent-backed securities.

Implication: There is a massive transference of wealth that is occurring from individuals to the wealthiest private institutions in America. 

Efforts by the federal government to assist individual borrowers are instead going to state budgets, where the money is sorely needed, but then becomes unavailable for homeowners.

Political interests are no doubt driving these decisions at the level of the states and I suspect that Arizona will soon be further cutting corporate taxes and giveaways as it has found another way of stopping budget shortfalls.


  1. You pretty much nailed it again. Transfer of wealth.

    The real question is...why this level of greed? Why push past the limit? Contractors do this all the time...they get greedy, but why are the powers that be desperate to get yet another yacht to waterski behind when the stock in pitchforks companies is ready to rally?

    That is the question of our times, IMHO

  2. Arrogance and conceit. Ancient vices that have been encouraged and amplified by our societal structures that consolidate wealth and power opportunities...

  3. Again, Majia, I find it difficult to read your blog because it is white on black. Please reverse it if you can. I would read it more often.

  4. I'm sorry it is hard to read.

    Black on white is hard for me to read.

    There must be a contrast that works well for most people?



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