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Why Is The Rent So Damn High?

Wall Street has a new scheme to keep rents high and money flowing into the pockets of wealthy investors.

People in communities across California have been asking why their rents are so high when interest rates are at an all-time low after the recession. How can it be that homes snapped up by investors at bargain-basement foreclosure rates are being rented for premium prices in communities hit hardest by the recession?

The answer lies in the offices of bankers and Wall Street. Welcome to the latest scheme: Rental-backed securities.

When Representative Mark Takano (D-CA) began to hear that rents were rising in the communities he represents, he looked into it more carefully, and he found the hand of Wall Street and banks like Wells Fargo behind it.

Takano released his report today, analyzing the cause of rising rents in Riverside County. Rep. Takano determined that rents are partially rising because purchasing a home has become much more difficult for non-investors, who must finance the home and are subjected to tighter credit markets. Investors are more attractive to sellers because they are able to pay with cash.

But here's the kicker. In the letter accompanying his report, Takano noted this:

Private equity firms and real estate investment trusts, including The Blackstone Group, have purchased nearly 200,000 homes across the United States in communities hit hardest by the mortgage crisis, such as Riverside, Phoenix, Tampa, Sacramento, Atlanta, Los Angeles and Las Vegas. Homes in these communities were the easiest to purchase at fire-sale prices.

Lest we forget, homes were easier to purchase at fire-sale prices because bankers and Wall Street blew up the economy and with it, a lot of people's hopes and dreams for owning their own home.

In November, Bloomberg cheerfully reported on this new security, including speculation by analysts that there would be a "relative flood of new deals in the next year or so."

As Takano notes, what we have here is another scheme to privatize profit and socialize risk. Adding insult to injury, Blackstone Group's profits on this deal are earned on the backs of the very same people who lost everything five years ago when the housing market crashed.

The only silver lining in this story is Rep. Takano, who actually cares about what it means to be an elected official and to take seriously the charge to represent the people in his district. Takano is calling for hearings before this market blows up in everyone's faces. This is what it looks like when representatives do their job for the people instead of carrying water for Wall Street.

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