Today’s Sacramento Bee headlines a story about the icon of the Wall Street “Meltdown,” Blackstone, buying foreclosed houses across the USA, but particularly in California, to incorporate into a huge rental operation.  It now owns 40,000 such homes.  More importantly, Blackstone has leveraged all of these properties by bundling them into bonds to sell to investors.  Blackstone intends to use the funds obtained from sale of the bonds to buy more units for its rental empire. 

Those who follow this blog will recall that I wrote extensively about the “eminence grise” role played by Blackstone in the “Great Financial Meltdown of 2008″ and the ensuing “Great Recession of 2009.”  Blackstone was one of the major forces promoting mortgage backed securities, the so-called “toxic” securities, and a leading source of valuations for these investments that sold in private transactions and not on a public exchange.  In spite of its leading role in promoting and selling these investments it was an early, if not the first, company to dismiss them as “junk” and thus drive their values down to the point that the whole financial structure was shaken to the core and, if not for brilliant work done by Hank Paulson, Ben Bernanke and Tim Geithner, would have collapsed.

I accused Blackstone of having orchestrated the whole debacle in order to push values on choice assets to fire sale prices, e.g. it bought a top financial concern in London for peanuts.  It also bought up other investment houses for pennies on the dollar. 

Staying close to its vulture like practices it is buying up foreclosed properties to use as rental units.  Not a bad idea since we need more rental units now that home ownership is no longer the “right” of all Americans.  I am happy to see this use of assets that had been vacant.

However, bundling these into bonds to sell to investors and use the profits to buy more such homes is identical to the massive leveraging that occurred from 2000 to 2007 using mortgage based securities.  The difference is that the value of mortgage backed securities ran the risk of people paying on their loans, while Blackstone’s rental empire runs the risk of people paying their rents on time.  In fact, not a real difference in action, but in manner.

Question, if mortgage backed securities led to the “Great Recession” what will this new variation on the same theme do?