The Hidden Death of the Ownership Society (February 6, 2013)
The foundation of the neofeudal economy is this: the right of ownership still exists in name, but the actual ownership of political and financial power is concentrated in the hands of a few.
The core of American liberty is widespread private ownership of property. The Founding Fathers were quite clear on the necessity of protecting private ownership from encroachment by a covertly created monarchical Empire or a financial Aristocracy.
Private ownership protected liberty and the distribution of wealth by enabling widespread ownership of "the means of production" (land, tools, intellectual property, enterprises) and home ownership.
Thus the correlation between prosperity, widespread ownership of small businesses and homes and a relatively modest disparity of private wealth. When ownership of property becomes concentrated into a rentier class (i.e. a financial Aristocracy) that is protected by a Monocrat Central State, income disparity shoots up and prosperity is concentrated in the hands of the political and financial Elites.
In other words, the Founding Fathers understood that financial servitude precluded political liberty. Liberty in a neofeudal economy was ultimately liberty in name only.
While outright slavery was outlawed, the chains of serfdom were (and are) entirely legal. If you doubt this, please try erasing your student loans in bankruptcy court.
There are a number of complex dynamics in play in the Death of the Ownership Society. I will try to cover them as simply and directly as possible.
1. If a homeowner's real-world equity is effectively zero, then what do they actually own? They own a mortgage, i.e. a promise to pay a debt. As long as they are current on payments, this acts more as a claim on future ownership, i.e. full ownership when the mortgage is paid off, or a long-term lease.
If their equity is 10% of the mortgage, there is no way to extract this equity short of selling the home, and the transactions fees will consume most of the 10%.
What the lender owns is A) a claim on the underlying property and B) the homeowner's income stream, much of which flows to the lender via mortgage payments.
Is this arrangement "widespread ownership" or is it cloaked neofeudalism? In credit bubbles, homeowners appear to benefit as their ownership claim is leveraged by the lender's capital into astounding profits. But alas, credit bubbles never last, and when they pop then the extra debt taken on to play the speculative leverage game remains to be paid.
2. If the mortgage is sliced and diced into tranches and securitized, i.e. bundled into pools of mortgages sold to investors, what happens to the notion of ownership?
Longtime correspondent Jim S. provides the answer: securitization creates a new class of "non-property" that is fraudulent and thus criminal. Jim explains:
The original crime at the front of the securitization process is creating "non-property." The loss of the legal paper trail of title transfers, note transfers, country property transfer registrations in the rapid performance of mortgage securitizations is further sidestepped by focusing attention on the foreclosure procedural irregularities at the end of the process. The creation of "non-property" at the front of the process necessarily creates the additional requirement of additional fraud at the end of the process: foreclosures.
Thank you, Jim, for the clear explanation.
It is clear that Securitization Is Illegal.
3. Economist John Maynard Keynes' concept of a "comprehensive socialisation of investment" has been reduced by the Neo-Keynesian cargo cult to a cartoonish campaign of the Central State to borrow trillions of dollars to prop up its most corrupt and inefficient crony-capitalist cartels and the rentier-class--the financial Aristocracy. Here is Keynes:
I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the means of securing an approximation to full employment. But beyond this no obvious case is made out for a system of State-Socialism which would embrace most of the economic life of the community.
In this context, we can understand the original purpose of the Federal Housing Administration (FHA) and the other housing-mortgage agencies of Fannie Mae and Freddie Mac as a "somewhat comprehensive socialisation of investment" in housing: a Federal agency underwrote and guaranteed mortgages to individual households to enable widespread ownership of homes. It was not conceived as a "system of State-Socialism," that is, a means for the State to acquire ownership of the nation's housing stock.
Not coincidentally, the rental housing market was dominated by individual investors (Mom and Pop proprietors) in the era before mortgage securitization and the concentration of power in "too big to fail" investment and commercial banks.
Institutional ownership of rental housing was concentrated in the 50+ unit housing sector, less than 1% of the nation's 15 million rental properties. In the 5- to 49-unit sector, individual owners still owned three-fourths of all properties.
The ownership of rental properties was widely dispersed among individual investors.
4. Now we find the Federal mortgage agencies are colluding with private capital to transfer ownership of the Federally guaranteed/owned portion of the nation's housing stock to concentrations of private capital, i.e. the financial Aristocracy.
The details of this wholesale transfer of what amounts to public property to the financial Aristocracy are chilling: in effect, private capital puts a few bucks down and Fannie Mae loans them the rest at zero interest. It also gives them roughly 30% of the rental income for managing the properties, and after the dust of robo-signing has settled, the properties will be transferred to the financial Aristocracy.
What happened to the agency's mission to broaden home ownership? It has been subverted to serve the interests of concentrated private capital.
Michael Olenick: How Fannie Enriches Private Equity Investors at Taxpayer and Homeowner Expense (Naked Capitalism, highly recommended)
Structured Sales Transactions (i.e. the bundling and transfer of Fannie Mae owned properties to private capital)
Thanks to the collusion of the Federal Reserve and the Federal mortgage agencies, private capital is gorging on vast blocks of homes:
5. There are effectively two sets of laws in the U.S.: one for the Central State/financial Aristocracy and one for the serfs. From Why Inequality Matters: The Housing Crisis, The Justice System & Capitalism:
One of the central characteristics of highly unequal societies is that two sets of laws develop: One set for the rich and powerful and one set for everyone else. The more unequal societies become, the more easily they accept the unacceptable, and with each unrebuked violation, the powerful actors at the top of the society gain an ever greater sense of entitlement and an ever greater sense that the laws that govern everyone else don’t apply to them. As a result, their behavior becomes increasingly egregious.
In other words, neofeudal serfdom.
The new road to serfdom runs not through Marxist ownership by the State but the transfer of the nation's assets and wealth by the State to concentrated private capital.
6. The next iteration of this transfer is now clear: blocks of rental homes will be bundled and securitized by Wall Street and sold to investors worldwide. Haven't we seen this before? Only now it's all OK because the creation of "non-property" rentier income streams is now legal, and the Federal government and the Federal Reserve have begun to transfer publicly owned or guaranteed properties to their pals in private capital on a wholesale basis.
“It’s hard to find a private-equity firm on the planet that doesn’t have a strategy in this space,” Gary Beasley, chief executive officer at Waypoint Homes, said last week at the American Securitization Forum’s annual conference in Las Vegas. The Oakland, California-based company has bought homes in California, Arizona, Illinois and Georgia.
The foundation of the neofeudal economy is this: the right of ownership still
exists in name, but the actual ownership of political and financial power is
concentrated in the hands of a few. "Ownership" of a heavily mortgaged home is
a simulacrum of ownership when the "owner's" income is diverted to a rentier
RIP: Our Expansionist Central State (23 Minutes, 25 Slides) CHS with Gordon T. Long:
Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:
1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
5. Technological, financial and demographic changes in our economy
Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).
We are not powerless. Not accepting responsibility and being powerless are two sides of
the same coin: once we accept responsibility, we become powerful.
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