U.S. single-family home sales data, a cornerstone for the argument that the United States in the throes of an economic recovery, reveal a disturbing trend that demonstrates unassailably the skewing of wealth toward the top 1percent at the expense of the 99 per cent. (Okay maybe not the 99 percent, but certainly the lower 60 percent). That trend is the growing ownership of single family dwellings and residential apartment complexes by financial institutions for rental income.
In other words, the Fed’s commitment to buying $40 billion per month of agency mortgage-backed securities (meaning securities issued by government-run Fannie Mae, Ginnie Mae and/or Freddie Mac) has not improved Americans’ ability to afford mortgages through lower rates (they are rising) nor have they created jobs on any sort of relevant scale. Instead, all it has done is disincentivize mortgage lenders from lending, as the profit to risk ratio is diminished with lower rates, and increase the prices of housing by encouraging demand by institutions who can profit by being landlords.
These are the very same institutions who are bailed out if the economy turns south. So I’ve said it before and I’ll evidently repeat myself, Quantitative Easing is nothing less than the transfer of wealth from ordinary citizens to the elite one percent through the financial institutions of which they are the major shareholders.
The Fed’s commitment to purchasing Mortgage-Backed Securities fuels institutional demand for single family homes by institutional investors.
The Fed is backstopping the top layer of the U.S. financial food chain pro-actively. Instead of bailing it out after a crisis, it is bailing it out now. By doing so, the Tier 1 capital of banks is bolstered, facilitating a supply of credit, which after the financial crisis, only the upper percentile of the economy can access.
“The housing market is tilting in favor of deep-pocket institutional investors, especially in cities that were hard-hit with foreclosures,” said RealtyTrac’s Daren Blomquist “These guys will pay as much as they need to get a property and that’s squeezing out families looking for a home to live in.”
Stock Market Records
The record highs being achieved on a weekly basis by the three major U.S. exchanges is another symptom of QE bloat. Consider that every dollar the government spends on long-dated U.S. treasurys is potentially $16 into the economy if a 16:1, or 6 percent Tier 1 capital ratio is observed. (In accordance with Basel II guidelines).
So as a client of top bank who holds as part of its Tier 1 capital U.S Treasurys purchased from a primary dealer such as Morgan Stanley can lend its institutional clients – say hedge funds, for example – $16 for every dollar it spends on Treasurys. A hedge fund whose strategy involves purchasing blue chip stocks will then be able to borrow funds at a very low rate commensurate with its credit rating and the securities and other assets it provides as collateral and security for its loans.
Thus, money is fabricated from thin air, pumped into the stock market and into the U.S. Treasury, and the result – exponentially increasing wealth for the financial class for no greater effort than borrowing – drives up the prices of assets that deliver a return on investment. So houses are worth more to institutions who rent them to families than most families can afford to pay. Stocks fly upward on self-sustaining demand.
To put it simply, The rich get richer, while the poor get poorer.
