Saturday, May 03, 2014

Oh I Think I Get It Now...

Recall: my generation grew up in a world where deals chased money.  Since, oh, say, 1980, we've lived in a world where money chased deals.  Like, for example, Continental Illinois, which shoveled all its (our) cash down an array of ratholes.  Like Henry Kravis and the mother of all LBOs  (on which, it seems, he in the end also lost money).  Like Robert Campeau (boy, does anybody remember him?) who was somehow able to finance "The Biggest, Looniest Deal Ever," (and wound back in his mother's spare bedroom).  

Like the mortgage brokers.  Well no, wait.  Go back a bit in time.  Remember the early mortgage brokers from, say, the 80s?  Here was a guy who found a prospect who could use a loan.  He'd check the credit, he'd set some terms. Then he'd go looking for an investor who could put some money into the deal.   The investor would get his deal with his note.  Some of these brokers were crooks and a fair number of them wound up in bankruptcy.  For others, it was a living--a tough one, but a living.  But that's the thing: they were constrained by the amount of capital they could lay their  hands on.  Always looking for new money.  

Always, that is, until they were "discovered" by Wall Street and its pent-up sluice of cash.  These were the guys who transmogrified the loan brokering business--who found that anybody with a pulse and a laptop could be a broker; who ginned up Alt-A-minus, the sub-640 FICO and the whole cafeteria full of devices designed to get the borrower in through the window and the product out the door.  

You may remember: it all worked find until it didn't work any more and we are still picking up the pieces.  We've sloshed whole barge loads of money into the banks on the premise that if we All Believe in Fairies then Tinkerbell will Get Well Again.

Now this: here's Wolfgang Richter explaining how the new housing "bubble" is driven not by prospective homeowners but by Wall Street investors with more money than they know what to do with.  And  here is Sam Zell buying trailer parks.

There is a common theme here, yes?  I mean, in both cases, the trick is to capture the income stream of the poor schlepps who keep the fat cats juiced and comfy, yes?  In the old days you did it with mortgage payments.  Now you do it with rents.  Haveta live somewhere, they say, although "somewhere" can also include a corrugated refrigerator box under the expressway.  Meanwhile, folks, let's party.  Looks like the money will continue to flow.

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