Recommended Reading: Wall Street and Elm Street

Foreclosure StreetWe’re all happy to see housing prices increase in Nevada, especially in the hard hit Las Vegas metropolitan area.  Before putting on the party hats and dancing to the old ’45s there’s a reason for the increase which might initiate a few nagging doubts in the back of the cranium.  Read: “Behind the Rise in House Prices,” from the NYT to see how Wall Street is cashing in on the chaos it helped to create.

The story has been around for a while, but few in what passes for  national news have picked up on it.  Forbes Magazine does have the presence of mind to ask if we’re looking at the beginning of the next bubble.   The Wall Street Journal published a piece on this subject on March 25th, regarding investors as landlords.  The downside of this new lure for investors is that regular buyers are finding themselves out of luck in this new market.

In the “real” economy buyers and sellers exchange bids and enter into transactions, in contrast to the financialist economy in which investors pour cash into what they hope will be profitable investments.  Wall Street can securitize the rental revenues, hedge its investments in real estate with derivatives, and engage in all manner of market manipulation to secure revenues.

The only “real” pieces of this ever burgeoning pie are  the houses the investment firms bought up on the cheap after their last adventure in Derivatives Land went south.   Beware, that what we may be looking at in terms of the housing market is a very stale cake iced over with a lovely gloss of investment house cash.   Or, given the stagnant level of wages and salaries in this country, pretty much what we were looking at a few years back, when people were encouraged to take out exotic mortgages for properties they really couldn’t afford at the time.  The difference now may only be that the excess inventory in housing is now being siphoned off by the investment firms.

What we’d all really rather not see is a repeat of (1) debt financed consumption, supported by (2)  inflated asset prices, while (3) large banks and lending institutions are attracted to asset based securitized mortgages (too often subprime) because Treasury bond yields remain low.  We’ve seen this movie before, and Katherine Rushton explains in the Telegraph, why we don’t want to see it again.

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