Smart people sat down in New York City about eight years ago. Not sitting in one room, rather sitting at different companies. The companies were famous firms. Goldman Sachs and Blackstone were two of the biggest. Their job was to figure out how and where the firms could make the most money.
After the upset of the Great Recession of 2008, the dust settled. These firms had a lot of money. They were looking to invest it. They wanted to get the best return on their investment.
The housing markets had fallen apart in Ireland and Spain. They fell apart for the same reasons the market fell apart in America. Banks made loans to homeowners who could not repay them. When the housing bubble collapsed, banks failed, and thousands of homeowners lost their homes.
As they say, it is an ill wind that blows no good. Hedge funds and private equity firms in New York have billions and billions of dollars to manage. The money comes from pension funds and investors. They have to put it to work.
These firms bought housing and housing debt in Spain and Ireland. Their challenge: convert the housing and housing debt into profit. One way is to get the highest return on the property. Some firms only wanted to buy properties without tenants. Companies evicted some tenants from their homes. They forced others out by raising the rent to where people could not pay it.
There is a second goal. After making deals and with income flowing, it is to pay little or no taxes on the profits. Donald Trump is a big real estate mogul. He deducted about $917 million from his income in one year. He used tax deductions available to just a few. The New York firms bought debt and property in Ireland and Spain. They use accounting tricks to reduce their taxes.
There is outrage in both Ireland and Spain. Both governments are doing what they can to protect owners and renters. Today the housing market is recovering. Home prices are up. That means tenants are finding it harder to find affordable places to live.
This is global capitalism at work. In the end, people need places to live. How they will afford it is not clear at the moment. The road ahead will be bumpy.
Source: The New York Tim
es December 10, 2016