Wall Street Firms Concoct Bond Backed By Home Rental Income

Like a moth to a flame, Wall Street has returned to creating dodgy real estate securities. In this case, Blackstone and Deutsche Bank are about to market a bond backed by home rental income. However, as the Financial Times reported, the two firms are not packaging Manhattan residential building income. Rather, they are using rental income from foreclosed homes Blackstone and others purchased for pennies on the dollar and transformed into "affordable" housing, often marketed to those who lost homes via the rancid, corrupt foreclosure process.

Blackstone has been a major player in the foreclosure/rental market. The general sense was that Blackstone would rent the homes and sell them for enormous profit when real estate "recovered." In the meantime, Blackstone and Deutsche Bank can leverage their property ownership into funky securities. One catch in the process is the need for a credit agency to provide appropriate blessing to the bonds. Apparently, and unsurprisingly, one such firm has been found.

Let's see if federal regulatory agencies, which have essentially played matador to Wall Street's bulls, ask questions about this new scheme.

Big Banks Buy AIG Toxic Commercial Mortages

With all the deserved attention over funky residential mortgages, their less publicized commercial counterparts offer competition for dodginess. Their value has not escaped the attention of major banks and their staffs. They understand these instruments, their nuances, and their true value. In purchases that should raise eyebrows both inside and outside the commercial mortgage business, Deutsche Bank and Barclays won an auction of "complex packages of commercial mortgage bonds at the heart of the controversial government bailout of AIG," according to a story in today's Financial Times.

Deutsche Bank certainly knows these mortgages, as it was the "original counterparty that sold the securities to Maiden Lane III," the Financial Times reporters observed. In other words, not only did Deutsche Bank know what they were buying, they originally sold them a few years ago for a profit.

Nice work if you can get it.