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Some Of Your Taxpayer Assets Will Be Sold Off To 'Vulture Funds,' In Case You Were Interested

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FANNIE
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Hey, everybody! Time now to check what's going on with that giant portfolio of foreclosed-upon homes that we, as taxpayers, own. Did you forget that we owned a giant portfolio of foreclosed-upon homes? Because we do. Anyway, the good news is that we may not have this portfolio for much longer. The bad news is that we'll be relieved of it in one of the worst deals possible.

At any rate, Ken Layne points us to some recent news on that front:

The largest transfer of wealth from the public to private sector is about to begin. The federal government will be bulk-selling the massive portfolio of foreclosed homes now owned by HUD, Fannie Mae and Freddie Mac to private investors -- vulture funds.

These homes, which are now the property of the U.S. government, the U.S. taxpayer, U.S. citizens collectively, are going to be sold to private investor conglomerates at extraordinarily large discounts to real value.

You and I will not be allowed to participate. These investors will come from the private-equity and hedge-fund community, Goldman Sachs and its derivatives, as well as foreign sovereign wealth funds that can bring a billion dollars or more to each transaction.

In the process, these investors will instantaneously become the largest improved real estate owners and landlords in the world. The U.S. taxpayer will get pennies on the dollar for these homes and then be allowed to rent them back at market rates.

See, what's happening is that the Treasury Department, acting in concert with some other federal agencies, has submitted a "Request For Information" about this big pile of sad homes we "won" in the financial inferno of 2008. As the article notes, the point of an RFI is to stage a private sector consultation about the best way forward. However, the private sector interests here have already come up with the plan -- the federal government just has to go through these motions to make whatever comes next technically legal, while hoping that taxpayers don't loudly object. If there's no massive protest, the federal government will proceed to make a bargain-basement offer for this housing portfolio.

Back to the article:

The way to keep taxpayers from pushing back is to structure the RFI so that the real intention, the bulk sales, is masked by feel-good goals, such as stabilizing neighborhoods and increasing the supply of rental properties.

As intended, the mass media are playing their part in classic style. Every major newspaper in the U.S. has run articles discussing the plan as a rental conversion, allowing readers to assume that Fannie, Freddie and HUD will be renting the properties directly to families who need housing. And although there is an allowance for these kinds of rentals, it is a minor political facade to the obvious true goal of bulk-sale privatization of these homes.

In fact, here's Jared Bernstein, attempting to sell this deal, on these pages! The short version of his argument is: "Fehhhh, I have a hunch that taxpayers might not get screwed, maybe."

I've heard two arguments against the idea. One is that it's a bad deal for taxpayers -- I mean, we're the "investors" behind these properties right now -- who will get stung by firesale prices. Eh -- maybe, but from what I'm picking up, that's happening anyway. The return on these sales is already lousy. I'd just as soon try something that could help carve out a real bottom on home prices.

Just a tip, when the guy you've asked to assess whether you're about to get screwed in some sort of deal involving actual money says, "Eh -- maybe," don't make that deal!

At any rate, that's all very interesting, because from what I'm picking up, we could sell from this portfolio any old time we wanted to. It's just that it may take a long time to get individual retail buyers to draw the portfolio down. People are choosy, and these properties aren't ideal. Still, did anyone think about offering retail investors the bargain-basement prices they are offering Goldman Sachs and sovereign wealth funds? Because maybe somebody out there is interested in paying pennies on the dollar to be their own landlord.

Speaking of!

Second, investors buying foreclosed properties in bulk make lousy landlords. It's a valid concern, but there's a policy wrinkle in the FHFA/admin's plan that should help: the proposal -- the RFI noted above -- should include requirements regarding property management and the Feds should reject proposals that aren't convincing in that regard.

Given that this deal involves taking distressed assets currently owned by taxpayers and selling these clients clean assets back for a song, what if I tell you that I don't trust the federal government when it says it will make sure Lloyd Blankfein is a good and just landlord? Is there any evidence in the world that suggests that the Obama administration and our lawmakers in Congress are prepared to erect a rigorous regulatory environment to govern the aftermath of these sales? (One piece of evidence against this is the presence of that word, "should," in the above paragraph.)

Anyway, not to be difficult, but if you're not personally angling to secure a bunch of Wall Street money to secure your reelection bid, this is essentially a massive fleecing!

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