Why is so much wealth in the hands of the few?
The Homeowners Whose Loss Was Paulson’s $1 Billion in Gain
| The real estate cycle -- actually, the land-price cycle -- brings out the worst in us. Getting comfy from rents for land is OK, it’s just something we all must do together. We trim, blend, and append three 2010 articles from: (1) ProPublica (recent Pulitzer winners), Apr 22, on Goldman Sachs by Marian Wang; (2) CNNMoney.com, Apr 23, on home sales by Chavon Sutton; and (3) CoExist, on solutions by Pippa Bartolotti. |
by Marian Wang, by Chavon Sutton, and by Pippa Bartolotti
- The Homeowners Whose Loss Was Paulson’s $1 Billion in Gain
The Wall Street Journal found the borrowers whose home mortgages were the underlying collateral in Goldman Sachs’ Abacus 2007-AC1 CDO deal. That’s the CDO that is now the subject of the SEC’s civil-fraud charges against Goldman Sachs.
Finding these homeowners could not have been an easy process. But the Journal found the 500,000 mortgages that ultimately hedge fund manager John Paulson bet against, expecting most of those specific homeowners would not be able to pay them, resulting in losses significant enough to yield big profits through his credit default swap. Paulson won $1 billion off his bet.
Paulson makes no apologies for its bets, or the fact that it made a profit while others lost their homes. From the Journal:
“There’s no question we made money in these transactions,” said a Paulson spokesman in a statement. “However, all our dealings were through arms-length transactions with experienced counterparties who had opposing views based on all available information at the time. We were straightforward in our dislike of these securities but the vast majority of people in the market thought we were dead wrong and openly and aggressively purchased the securities we were selling.”
Goldman Sachs, which allowed Paulson to help select the CDO portfolio, maintains that it “did not structure a portfolio that was designed to lose money,” and argues that it “lost more than $90 million” on this particular Abacus CDO. However, Goldman Sachs sought buyers in order to offload its stake in the investment almost from the start.
JJS: Just as a few enriched themselves as the last cycle ended, now the next one begins, creating opportunity for fortune or justice or both?
- New-home sales rise fastest in 47 years
As buyers snatched up properties ahead of the tax credit's expiration, new-home sales rose 26.9% to a seasonally adjusted annual rate of 411,000 last month. The gain snapped a four-month streak of declines.
The March sales were the strongest since last July, and the percentage gain was the biggest on a month-over-month basis since a 31% gain in March 1963.
Not new but existing home sales soared nearly 7% in March, as new homebuyers raced to buy up properties before a tax credit expires on April 30.
The Census Bureau estimated that 228,000 new homes hit the market in March. At the current sales rate, it would take 6.7 months to sell through that inventory, down sharply from an estimated 9.2 months of inventory in February.
Although new-home sales in March exceeded analyst expectations, sales are still trending near record lows, and prices are just turning around. The average price of a new home was $258,600, according to the Census Bureau. That was virtually flat compared to a year earlier, and 12% below average prices in 2008.
JJS: Eventho’ the recent recession -- not over but ongoing for millions of families -- was the bust of a booming real estate cycle (actually, land-price cycle), the press and most people cheer on the beginning of the next cycle, ignoring that once again it must end in misery for millions. That is, unless we finally end the speculation and begin the partitioning of the socially-generated values of sites and resources, and of pollution and privileges.
- Why is so much wealth in the hands of the few?
People know that there is a small but fantastically rich elite who hold themselves above the law, who pay little or no taxes, and who for generations have lived quite literally off the fat of the land, stolen land. Financially, the world is living on drafts upon the future. Economically, it is living on the products of the past.
We need to design our descent down the energy curve economically, spiritually, and practically. Post peak oil brings with it the opportunity for a vastly reduced CO2 environment. With every building being transformed into a power plant, transportation free of pollution, and more refined and humane eating habits, we have the opportunity -- born of necessity (as opposed to compassion) -- to transform the way we live.
Land is the one finite resource where the value is rigged entirely towards the possessor at the expense of the community surrounding it. A tax shift away from goods and services and towards the value of land would create greater wealth for communities without dispossessing the owners. It would also be the single most effective means of reducing inequality.
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Jeffery J. Smith runs the Forum on Geonomics.
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Also see: Following Wall St. advice proves costly
The data point to a recovery leaving some behind
Next Bubble Threatens the American Economy |
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