THE BLOG
10/05/2012 02:09 pm ET Updated Dec 05, 2012

Land Grab by Big Banks and Big Investors Is Deal Made in Hell

Take news about rising bank profits (see here) and combine it with reports about land grabs by private equity firms (here and here), and you've got a deal made in hell.

You can bet working schmucks like you and me won't be invited to the closing party.

Bloomberg News reports that the country's six biggest banks (BoA, Wells Fargo, Goldman Sachs, JP Morgan, Citigroup, Morgan Stanley) have got money to burn with soaring profits that almost match pre-recession levels. Meanwhile, the WSJ tells us about private investors who are looking for money to finance the "greatest land grab you've ever seen" resulting from the mortgage crisis.

The "too big to fail" banks recently reported a combined $63 billion in profits, more than they earned in any calendar year since the 2006 peak of phony profits made on the roofs of phony home prices. Instead of thanking the federal government for saving them -- and the rest of us -- from ruin, bankers are whining about regulations designed to stop them from destroying our economy again and, you guessed it, smaller bonuses.

Wearing the weight of the world on his shoulders, one investment banker lamented to Bloomberg reporter Max Abelson about this beast of regulatory burden the big bankers must bear: "The challenge they face is how to adjust to this new capital regime, and the new regulatory regime, and to earn an adequate return on equity. None of them have yet broken the code."

The code? That means they haven't figured out how to get around the regulations and do what they want.

One of the things the big banks want to do is lend money to investors who want to buy up what one real estate magnate called "the biggest land grab you've ever seen" from among the millions of foreclosed properties that now dot neighborhoods across the country as a result of the recession -- a recession brought on by the mortgage crisis that -- in case you forgot -- the banks helped cause in the first place.

The banks, WSJ's Jeannette Neuman and Nick Timiraos report, don't want the government-controlled Freddie Mac making the loans to private investors. They want to make the loans, even though they aren't so interested these days in making loans to regular people who would like to buy a home. See this other WSJ story. (Even people with credit scores of 734 and down payments of almost 20% can't get loans.)

So, who are these investors, these wannabe landlords? They are private equity firms, like the Blackstone Group that has already acquired 6,500 foreclosed properties in eight cities since January 2012. Other firms include Colony Capital, Oaktree Capital, GTIS Partners and Och-Ziff Capital Management.

Now I don't know Och or Ziff and, as far as I know, they may be nice people. Great landlords? I'm not so sure.

I'm also concerned -- and hope you are, too -- about the impact the ownership and the financing of these properties has, long term, on providing affordable housing to moderate-income families, including middle class families in high-cost markets.

Is buying up foreclosed properties a bad thing? Absolutely not. Turning these foreclosure properties into rentals will help stabilize the housing market, which in turn helps the economy. But, loaning money to working families with solid credit and some cash on the table also would help the economy.

Why don't we give that a shot?

Are we turning into a country where only the very rich can own a home, and everybody else must rent until they strike gold?

Why are we encouraging yet another real estate scheme that ultimately benefits only the wealthy?

Why aren't we helping more nonprofits buy foreclosed properties to ensure moderate income families can afford the rent?

And, why are we allowing the very banks that brought us the Great Recession to continue to benefit from their enormous financial miscalculations that some people have called criminal, while at the same time they refuse to help homeowners under water through no fault of their own?

Aren't these the banks that two Presidents and two Treasury Secretaries asked to do something for their country and, instead, they took taxpayer funds and sat on them while the economy tanked, pushing people out of jobs and then out of their homes?

I'm all for free enterprise, but if we've learned anything, it's that enterprise isn't free if allowed to pillage the marketplace without controls.

Selling foreclosed properties at fire sale prices so bankers and investors benefit is like giving back the lunch money to the bully who stole it in the first place.

It just seems wrong.

Regulators -- if you are really are with us this time -- don't get played again. The devil is always in the details.