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Big Capital is Moving into Single-family Housing Investments

Dave Ransom  |  Issue: February | March 2013
Photo: Brett Jelinik
CHICAGO—Protesters demand no repossesion of their homes.

A quiet coup at Fannie Mae and Freddie Mac

Don’t look now, but one or another of the richest men in the U.S. may be your landlord, if not now then soon.

Some of the oligarchy’s biggest bankers and hedge-fund operators have carried out a quiet coup at Fannie Mae and Freddie Mac, the government agencies that hold almost half the nation’s mortgages and some 200,000 foreclosed homes.

In a pilot program late last fall, the federal government sold more than 2,400 of the agencies’ homes in Arizona, California, Florida, Illinois, and Nevada to a small number of hedge funds.

The Santa Monica (Calif.) hedge fund Colony Capital bought nearly a thousand of those houses—most of them in Los Angeles and Riverside counties in California—all in one day.

The hedge-fund speculators who are buying up hundreds and thousands of houses in foreclosures and short sales are right when they say that this is ”the new face of real estate.”

It is part of the 1 percent’s not-so-gradual dispossession of what once was the “middle class”—working people with good jobs, decent benefits, hope for their children, and a house.

More than that, it is part of the 1 percent’s replacement of flesh-and-blood workers with high-tech computerization and robots.

Before the crash, most speculators in residential real estate were small investors, many of them local real estate agents. They spent many evening hours and a lot of pencil lead figuring out where to buy a few rental houses, how much to pay for them, and how much to charge the tenants they rented to.

Like home-owners themselves, a great many of these small investors lost their houses and what money they had put into them when the housing market crashed.

Now all the figuring they did the hard way has been computerized and done with very little labor at all—at least for the banks and hedge funds.

They alone command the capital needed to pay for developing the million-dollar computer programs that crunch the data on thousands of foreclosures and short sales, and they can field a horde of underlings to buy them.

What’s happening in Atlanta is a good example. The Southern city’s suburbs are one of the places where homeowners have been hit hardest by the economic crisis and where foreclosures are highest.

On one recent day, California-based Colony Capital dispatched 52 buyers to seven suburban Atlanta courthouses, where they spent $9 million in foreclosure auctions. They confided to the Wall Street Journal that they were getting some homes 25 percent cheaper than expected.

Colony’s main competitor in Atlanta bidding has been the Blackstone Group, a multi-billion dollar hedge fund with a global reach and a major owner of commercial real estate in the U.S. and Europe.

Blackstone’s founder, billionaire Peter G. Peterson. was Nixon’s secretary of commerce and the chairman of the investment bank Lehman Brothers.

Peterson took over as chairman of the oligarchy’s key think-tank, the Council on Foreign Relations, when David Rockefeller retired. And he was chairman of the board of the Federal Reserve Bank of New York when Treasury Secretary Timothy Geithner was president.

Colony CEO Tom Barrack’s rap sheet reads pretty much the same. He is one of the 400 richest people in the U.S., member of the Reagan administration, advisor to Saudi princes, trustee at USC, owner of Michael Jackson’s Neverland Ranch.

And these are the guys who everyday buyers are now bidding against on the courthouse steps—and who soon may become the landlords of many thousands, if not millions, of American families.

The 1 percent personified.

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