(Last) Weekly Roundup: The Last Act Of The Locusts Edition

Brood X is buzzing in my backyard. Their thousandfold screeching can be heard over everything short of a cranked guitar amp, they pitter-patter my office window like horizontal, substantial rain. Already their bodies litter my driveway, their mysteriously separated wings on the hood and roof of cars that haven't moved in weeks. I confront them alive outdoors, the size of my thumb and yellow-eyed.

Thankfully, cicadas are not locusts, despite what some people think. There are no more locusts swarming in America. They were bad for commerce, while cicadas are little more than a hassle. Some people are actually excited about these fat flying bugs, you know. How To Snack On Brood X! Lot of discussion in the media about the pleasures of eating a cicada, their nutty, chicken-like taste. The notion that "they want us to eat bugs", like the notion that COVID-19 escaped from a lab or the agitation regarding secret pedophile islands, is one of those right-wing tropes that perpetually embarrass our society by being more or less true. Could you eat locusts, if they returned? I'm sure you could. I'm sure I wouldn't.

Ah, but who needs the Biblical insects when we have the modern equivalent of the locust swarm, namely the aging investor class?

One out of four new homes in Houston is sold to an investor, not to an individual or a family. It will only get worse from here. Let me break this process down to you in a way that will annoy my more financially-savvy readers but will, I hope, make sense to everyone who reads it.

Traditionally, the housing market has been largely inhabited by individual owners, who buy and sell their homes according to what other, fundamentally similar, sellers and buyers will accept. The law of supply and demand works reasonably well, although the economic upheaval attendant to our national decision to stop making tangible items and enter a Shoe Event Horizon of selling online porno advertising to each other has, as you might expect, lowered home prices in most of America while drastically raising them in California and the East Coast. Buyers of new homes are typically competing against other people in the same financial situation: if you are looking for a $300,000 home, then you're generally bidding against people who earn between $100k and $200k a year.

America was supposed to be a nation of homeowners, which is why the federal government is so deeply involved in the issuance, guarantee, and regulation of residential mortgages. Home ownership is the keystone of most Americans' net worth. If you play the game the way it was meant to be played, you arrive at retirement age with a paid-off home that can be sold to pay your health expenses or given to children who will in turn look after you.

The modern world works a bit differently. You're no longer bidding against other people just like you. Instead, you're bidding against investment firms that have access to a literally endless stream of cash. They can borrow it at essentially zero cost. As Yarvin explains, inflation is an engine to steal from the poor and give to the rich. These firms are on the receiving end of all the inflation, all the free money, all the stolen money. So that house that caught your eye might be worth $280,000 to you, and $300,000 to a family that has a little bit more income, but to an investment firm it's worth... well, gosh, it's worth whatever they want to pay, because they can borrow the money for free, knowing that eventually inflation will make whatever price they paid look silly. My father sweated over the purchase of a $90,000 house when I was a pre-teen. It's a $644,000 home now. In central Ohio. Not in Van Nuys or Brooklyn or Austin.

Just wait long enough, and your mortgage payment will be a joke. This is no comfort at all if you're a real live person trying to make ends meet right now -- but for an investment firm, it's license to outbid you at will. In the long run, the perspective most pension funds have (this is not a coincidental mention), it doesn't matter if you paid $90k, $180k, or $270k. You're still "making money". Let's return to our scenario. So the house sells for $400k to the investment firm, instead of to you. Now, where are you going to live?

You need to live in a certain place, because you're one of the suckers who still shows up for work in 2021 rather than monetizing a grievance of some sort, but there's no home inventory, because all the homes get sold to investment firms as soon as they are listed. So you... rent the house on which you were just outbid, from one of those same firms. When you do that, you balance their books and encourage them to buy other homes. They do that, turning more owners into renters as they do so, which accelerates the process.

It's a wicked business model, isn't? The Fed gives the Investors (capitalized in a nod to Bruce Sterling) free money to outbid home buyers, corner the home market, and force those private buyers to rent from them on their own, highly profitable terms, at which point they borrow more money and buy more homes.

Probably one of the top five blatant transfers of wealth from the middle class to the one-percenters in human history, and it's happening right in front of us. If you think the government will stop it, then you should inquire as to the possibilities of having the government look after you while you're at it, because you're clearly too naive to be allowed outside without supervision.

I should emphasize that the federal government is also basically committed to the success of this rapacious policy, because it is rapidly becoming a favorite strategy of the "too big to fail" crowd. Blackrock has nine trillion dollars under management. If their home-rental division catches a cold, you think Aunt Kamala will let them hit the bricks at terminal velocity, the way you'd be allowed to personally fail, go bankrupt, and commit suicide? Of course not.

So there we have it. The battle lines are drawn. On one side we have you. On the other side we have Blackrock and the federal government. Ask Malcolm X (or Randy Weaver) how that scenario plays out.

Obviously this is a disaster for normal Americans, who will spend their peak earning years building equity for Blackrock instead of on their own behalf. But it's worse than that. Every statistic I could find suggests that the owner/renter ratio of a given neighborhood is directly correlated to crime rate, neighborhood cohesion, quality of life, you name it. It's more complicated than "poor people rent, and also trash their homes." Even well-off people who rent feel less connected to their neighbors and their neighborhood than they would if they owned. They behave differently, vote differently. Why worry about the quality of the local schools when you can always rent in the better district next door?

The notion of pension funds getting involved in this strategy is particularly noisome to me, because it represents the increasingly common locust-like strategy of stealing from the future in order to support the present. The vast majority of pension funds are concerned with the welfare of people who are older than Gen X. So they outbid young people, putting them on the back foot for the rest of their lives. Along the way they siphon off the profits to take care of the old.

I don't want this piece to degenerate into a "Boomer rant", but you have to appreciate the tenacity of that generation, at least as expressed by certain of its members. They benefited hugely from historically unprecedented growth in home and investment values, but it's still not enough to fund the stereotypical lifestyle of post-retirement Carnival Cruising nine months a year while their grandchildren wear thrift-shop clothing. So their pension funds dip their beaks in the well of residential housing, thus ensuring that their party will continue to the end while the next generation gets nothing.

What's the solution? Why, it's a simple one: rent control. While it's far from a perfect strategy -- look at how it gets abused in New York -- it would, if enforced correctly, massively disincentivize the practice of gobbling up residential real estate. Fix it at something easy for people to understand: a dollar per square foot of living space in single-family homes. Apply it to any entity, or person, who controls more than five, or even three, rental properties. If you need to, you can excerpt a list of high-value areas from the rule. Maybe use the FHA jumbo mortgage county list, if you like. Who cares? If you want to rent a house in Westchester County, presumably you're a big enough player to not worry about bidding against Blackrock.

This rule would set an upper bound to the economics of home rental, effectively removing the vampire-squid financiers from the equation. It would also encourage home ownership, rather than renting, in most American communities. This, in turn, would increase community cohesion and reduce crime. You don't even need to pass a big sweeping federal law to make it happen. Handle it at the state level. Make it a bit of guidance issued by the SEC or IRS or something like that. All that stuff has the effective force of law.

Now, if you have even a sliver of functioning brain tissue, you probably laughed at the last two paragraphs. Why, you'd have to be an idiot to think that the Federal Government would intercede on behalf of regular-Joe homeowners! Sure, there was the TARP business, but the real purpose there was to keep the banks alive, not to keep people in their homes. We've all internalized the idea that the government will do precisely nothing to help the average constituent even as it bends over backwards to protect the interests of major corporations.

Something feels desperately, tremendously off about this. Isn't there a Democrat majority in both houses, plus a Democrat executive branch, plus a largely Democrat judiciary? Who, precisely, could stop a policy designed to stop this predatory home-buying in its tracks? Lindsey Graham? Ben Shapiro? Surely this is why American voters delivered a "blue wave" in 2020.

You can keep dreaming about that, if you like. The Uniparty is in control, and it has just one priority, namely transferring wealth up the chain. Every policy it espouses, from the rainbow-flag stuff to the way it calculates income tax, is unflinchingly bent towards that priority.

"Well, surely this ride will come to a halt at some point, probably when there are no Americans left who can afford the rental prices of Blackrock homes." Oh, dear reader, I truly treasure your naivete. Whose problem will it be when the investors own 50 million homes with no American customers? It will be the American government's job to fill those houses with paying customers. Where will those customers come from, if not from right here? Contemplate this, if you will: eighty percent of $100 bills are being held overseas.

So, let's follow the chain all the way through. The Fed sells T-bills to subsidize the low-interest loans used by Blackrock to chase you out of the home market and turn you into a renter. Eventually, those bills come due and the foreign investors are in possession of tremendous currency reserves. Which, in turn, makes them ideally placed to rent homes in America, possibly in exchange for citizenship (the micro play) and/or buy Blackrock's home stock to distribute as they sees fit (the macro play). In exchange for selling out a whole generation of Americans, the investor class makes a few bucks to cash out its Boomer/Gen X investors, who will nod along and lend their weight to the legitimacy of the proceedings.

The people who could stop if it they tried hard enough, the Millennials and Zoomers, have already internalized the idea that they'll never own a home or have much in the way of net worth. So they aren't going to fight it. They rent as naturally as they breathe. It's Housing-as-a-Service (HaaS), and it makes as much sense to them as a Netflix bill. They've all been steeped in the language of protest and revolution, and it will occur to a few of them that Blackrock could be brought to its knees by a coordinated rent strike on a nationwide basis. But they won't do it, because it's scary and because the media will tell them it's more important to eliminate the last vestiges of racism from toothpaste advertising.

History teaches us that the devastation from a plague of locusts is never permanent, but it usually lasts long enough to cause a lot of problems for a lot of people. That's what's coming. Hear that sound? It's not my cicadas.

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Last week, I answered a reader question and dreamed of a slightly bitter alternate history.