#The Capital Advisor

[mostlysignssomeportents]

How finfluencers destroyed the housing and lives of thousands of people

For the rest of May, my bestselling solarpunk utopian novel THE LOST CAUSE (2023) is available as a $2.99, DRM-free ebook!

The crash of 2008 imparted many lessons to those of us who were only dimly aware of finance, especially the problems of complexity as a way of disguising fraud and recklessness. That was really the first lesson of 2008: "financial engineering" is mostly a way of obscuring crime behind a screen of technical jargon.

This is a vital principle to keep in mind, because obscenely well-resourced "financial engineers" are on a tireless, perennial search for opportunities to disguise fraud as innovation. As Riley Quinn says, "Any time you hear 'fintech,' substitute 'unlicensed bank'":

https://pluralistic.net/2023/05/01/usury/#tech-exceptionalism

But there's another important lesson to learn from the 2008 disaster, a lesson that's as old as the South Seas Bubble: "leverage" (that is, debt) is a force multiplier for fraud. Easy credit for financial speculation turns local scams into regional crime waves; it turns regional crime into national crises; it turns national crises into destabilizing global meltdowns.

When financial speculators have easy access to credit, they "lever up" their wagers. A speculator buys your house and uses it for collateral for a loan to buy another house, then they make a bet using that house as collateral and buy a third house, and so on. This is an obviously terrible practice and lenders who extend credit on this basis end up riddling the real economy with rot – a single default in the chain can ripple up and down it and take down a whole neighborhood, town or city. Any time you see this behavior in debt markets, you should batten your hatches for the coming collapse. Unsurprisingly, this is very common in crypto speculation, where it's obscured behind the bland, unpronounceable euphemism of "re-hypothecation":

https://www.coindesk.com/consensus-magazine/2023/05/10/rehypothecation-may-be-common-in-traditional-finance-but-it-will-never-work-with-bitcoin/

Loose credit markets often originate with central banks. The dogma that holds that the only role the government has to play in tuning the economy is in setting interest rates at the Fed means the answer to a cooling economy is cranking down the prime rate, meaning that everyone earns less money on their savings and are therefore incentivized to go and risk their retirement playing at Wall Street's casino.

The "zero interest rate policy" shows what happens when this tactic is carried out for long enough. When the economy is built upon mountains of low-interest debt, when every business, every stick of physical plant, every car and every home is leveraged to the brim and cross-collateralized with one another, central bankers have to keep interest rates low. Raising them, even a little, could trigger waves of defaults and blow up the whole economy.

Holding interest rates at zero – or even flipping them to negative, so that your savings lose value every day you refuse to flush them into the finance casino – results in still more reckless betting, and that results in even more risk, which makes it even harder to put interest rates back up again.

This is a morally and economically complicated phenomenon. On the one hand, when the government provides risk-free bonds to investors (that is, when the Fed rate is over 0%), they're providing "universal basic income for people with money." If you have money, you can park it in T-Bills (Treasury bonds) and the US government will give you more money:

https://realprogressives.org/mmp-blog-34-responses/

On the other hand, while T-Bills exist and are foundational to the borrowing picture for speculators, ZIRP creates free debt for people with money – it allows for ever-greater, ever-deadlier forms of leverage, with ever-worsening consequences for turning off the tap. As 2008 forcibly reminded us, the vast mountains of complex derivatives and other forms of exotic debt only seems like an abstraction. In reality, these exotic financial instruments are directly tethered to real things in the real economy, and when the faery gold disappears, it takes down your home, your job, your community center, your schools, and your whole country's access to cancer medication:

https://www.theguardian.com/world/2012/jun/08/greek-drug-shortage-worsens

Being a billionaire automatically lowers your IQ by 30 points, as you are insulated from the consequences of your follies, lapses, prejudices and superstitions. As @pixelpusher220@dmv.community says, Elon Musk is what Howard Hughes would have turned into if he hadn't been a recluse:

https://mamot.fr/@pixelpusher220@dmv.community/112457199729198644

The same goes for financiers during periods of loose credit. Loose Fed money created an "everything bubble" that saw the prices of every asset explode, from housing to stocks, from wine to baseball cards. When every bet pays off, you win the game by betting on everything:

https://en.wikipedia.org/wiki/Everything_bubble

That meant that the ZIRPocene was an era in which ever-stupider people were given ever-larger sums of money to gamble with. This was the golden age of the "finfluencer" – a Tiktok dolt with a surefire way for you to get rich by making reckless bets that endanger the livelihoods, homes and wellbeing of your neighbors.

Finfluencers are dolts, but they're also dangerous. Writing for The American Prospect, the always-amazing Maureen Tkacik describes how a small clutch of passive-income-brainworm gurus created a financial weapon of mass destruction, buying swathes of apartment buildings and then destroying them, ruining the lives of their tenants, and their investors:

https://prospect.org/infrastructure/housing/2024-05-22-hell-underwater-landlord/

Tcacik's main characters are Matt Picheny, Brent Ritchie and Koteswar “Jay” Gajavelli, who ran a scheme to flip apartment buildings, primarily in Houston, America's fastest growing metro, which also boasts some of America's weakest protections for tenants. These finance bros worked through Gajavelli's company Applesway Investment Group, which levered up his investors' money with massive loans from Arbor Realty Trust, who also originated loans to many other speculators and flippers.

For investors, the scheme was a classic heads-I-win/tails-you-lose: Gajavelli paid himself a percentage of the price of every building he bought, a percentage of monthly rental income, and a percentage of the resale price. This is typical of the "syndicating" sector, which raised $111 billion on this basis:

https://www.wsj.com/articles/a-housing-bust-comes-for-thousands-of-small-time-investors-3934beb3

Gajavelli and co bought up whole swathes of Houston and other cities, apartment blocks both modest and luxurious, including buildings that had already been looted by previous speculators. As interest rates crept up and the payments for the adjustable-rate loans supporting these investments exploded, Gajavell's Applesway and its subsidiary LLCs started to stiff their suppliers. Garbage collection dwindled, then ceased. Water outages became common – first weekly, then daily. Community rooms and pools shuttered. Lawns grew to waist-high gardens of weeds, fouled with mounds of fossil dogshit. Crime ran rampant, including murders. Buildings filled with rats and bedbugs. Ceilings caved in. Toilets backed up. Hallways filled with raw sewage:

https://pluralistic.net/timberridge

Meanwhile, the value of these buildings was plummeting, and not just because of their terrible condition – the whole market was cooling off, in part thanks to those same interest-rate hikes. Because the loans were daisy-chained, problems with a single building threatened every building in the portfolio – and there were problems with a lot more than one building.

This ruination wasn't limited to Gajavelli's holdings. Arbor lent to multiple finfluencer grifters, providing the leverage for every Tiktok dolt to ruin a neighborhood of their choosing. Arbor's founder, the "flamboyant" Ivan Kaufman, is associated with a long list of bizarre pop-culture and financial freak incidents. These have somehow eclipsed his scandals, involving – you guessed it – buying up apartment buildings and turning them into dangerous slums. Two of his buildings in Hyattsville, MD accumulated 2,162 violations in less than three years.

Arbor graduated from owning slums to creating them, lending out money to grifters via a "crowdfunding" platform that rooked retail investors into the scam, taking advantage of Obama-era deregulation of "qualified investor" restrictions to sucker unsophisticated savers into handing over money that was funneled to dolts like Gajavelli. Arbor ran the loosest book in town, originating mortgages that wouldn't pass the (relatively lax) criteria of Fannie Mae and Freddie Mac. This created an ever-enlarging pool of apartments run by dolts, without the benefit of federal insurance. As one short-seller's report on Arbor put it, they were the origin of an epidemic of "Slumlord Millionaires":

https://viceroyresearch.org/wp-content/uploads/2023/11/Arbor-Slumlord-Millionaires-Jan-8-2023.pdf

The private equity grift is hard to understand from the outside, because it appears that a bunch of sober-sided, responsible institutions lose out big when PE firms default on their loans. But the story of the Slumlord Millionaires shows how such a scam could be durable over such long timescales: remember that the "syndicating" sector pays itself giant amounts of money whether it wins or loses. The consider that they finance this with investor capital from "crowdfunding" platforms that rope in naive investors. The owners of these crowdfunding platforms are conduits for the money to make the loans to make the bets – but it's not their money. Quite the contrary: they get a fee on every loan they originate, and a share of the interest payments, but they're not on the hook for loans that default. Heads they win, tails we lose.

In other words, these crooks are intermediaries – they're platforms. When you're on the customer side of the platform, it's easy to think that your misery benefits the sellers on the platform's other side. For example, it's easy to believe that as your Facebook feed becomes enshittified with ads, that advertisers are the beneficiaries of this enshittification.

But the reason you're seeing so many ads in your feed is that Facebook is also ripping off advertisers: charging them more, spending less to police ad-fraud, being sloppier with ad-targeting. If you're not paying for the product, you're the product. But if you are paying for the product? You're still the product:

https://pluralistic.net/2021/01/04/how-to-truth/#adfraud

In the same way: the private equity slumlord who raises your rent, loads up on junk fees, and lets your building disintegrate into a crime-riddled, sewage-tainted, rat-infested literal pile of garbage is absolutely fucking you over. But they're also fucking over their investors. They didn't buy the building with their own money, so they're not on the hook when it's condemned or when there's a forced sale. They got a share of the initial sale price, they get a percentage of your rental payments, so any upside they miss out on from a successful sale is just a little extra they're not getting. If they squeeze you hard enough, they can probably make up the difference.

The fact that this criminal playbook has wormed its way into every corner of the housing market makes it especially urgent and visible. Housing – shelter – is a human right, and no person can thrive without a stable home. The conversion of housing, from human right to speculative asset, has been a catastrophe:

https://pluralistic.net/2021/06/06/the-rents-too-damned-high/

Of course, that's not the only "asset class" that has been enshittified by private equity looters. They love any kind of business that you must patronize. Capitalists hate capitalism, so they love a captive audience, which is why PE took over your local nursing home and murdered your gran:

https://pluralistic.net/2021/02/23/acceptable-losses/#disposable-olds

Homes are the last asset of the middle class, and the grifter class know it, so they're coming for your house. Willie Sutton robbed banks because "that's where the money is" and We Buy Ugly Houses defrauds your parents out of their family home because that's where their money is:

https://pluralistic.net/2023/05/11/ugly-houses-ugly-truth/#homevestor

The plague of housing speculation isn't a US-only phenomenon. We have allies in Spain who are fighting our Wall Street landlords:

https://pluralistic.net/2021/11/24/no-puedo-pagar-no-pagara/#fuckin-aardvarks

Also in Berlin:

https://pluralistic.net/2021/08/16/die-miete-ist-zu-hoch/#assets-v-human-rights

The fight for decent housing is the fight for a decent world. That's why unions have joined the fight for better, de-financialized housing. When a union member spends two hours commuting every day from a black-mold-filled apartment that costs 50% of their paycheck, they suffer just as surely as if their boss cut their wage:

https://pluralistic.net/2023/12/13/i-want-a-roof-over-my-head/#and-bread-on-the-table

The solutions to our housing crises aren't all that complicated – they just run counter to the interests of speculators and the ruling class. Rent control, which neoliberal economists have long dismissed as an impossible, inevitable disaster, actually works very well:

https://pluralistic.net/2023/05/16/mortgages-are-rent-control/#housing-is-a-human-right-not-an-asset

As does public housing:

https://jacobin.com/2023/10/red-vienna-public-affordable-housing-homelessness-matthew-yglesias

There are ways to have a decent home and a decent life without being burdened with debt, and without being a pawn in someone else's highly leveraged casino bet.

If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

https://pluralistic.net/2024/05/22/koteswar-jay-gajavelli/#if-you-ever-go-to-houston

Image: Boy G/Google Maps (modified) https://pluralistic.net/timberridge

[tothechaos]

two classes i have to take for my major are micro and macroeconomics and oh. oh boy. its gonna be rough.

[junemo10]

Merlin: man, I miss when the dinosaurs were alive

Arthur: excuse me?

Merlin: ya know, wouldn’t it be so great if they were alive again?

Arthur: no? wouldn’t they be crushing us every day?

Merlin: maybe. but you know what crushes us a lot worse every day currently?

Arthur:

Merlin: capitalism

Arthur, throwing his hands up: oh for the love of- alright, here we go

[iamthepulta]

I've actually been scrounging for an ending to Ellenville, because it's hard to actually 'end' a tragedy with something that feels complete, and that last post hit me with yeah, that's right. Because we live in a world where blood is protection and the cost of safety; and it fits in so neatly with the themes of death as stasis and longevity.

The 'end' is the regulations in place. Not even watching it happen, but success. This is The Pushcart War but epic fantasy.

[opens-up-4-nobody]

I feel like the Rules of Capitalization should not apply to me. Let me make Proper Nouns of whatever I please.

[khasnis11]

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[alaric-greyson]

Having now burned through two seasons of a cute happy go lucky anime about an adventurer with goofy bear powers I only have one question.

Her noble friend's mother is definitely the King's mistress right?

[veralynnmorriscapital]

Veralynn M. Morris, a Certified Divorce Financial Analyst (CDFA) with over 30 years in the financial industry, joined Capital Portfolio Management in 2014.

[likefolklore]

not to be anti capitalist on main but i’m in the middle of a job search rn and why are there entry level job listings requiring a PHD? We need to delete big business and start over.

[alienaiver]

Hiii Nohr~ 💜

I saw your request for words for your Royal Advisor AU, so how about "Heart"?

deruu !!!! im glad ur sending one in! 🥺🧡🧡✨ and actually, heart got 12 hits in my document! 👀 so i chose the cutest one, hehhe.... 🥰

In your defense, Sugawara Koushi is a very handsome young gentleman who’s always kind to anyone he encounters and diligent in both studies and work. In his spare time, he helps the scribe, Takeda Ittetsu, tutor the Keep children in both numbers and letters. He engages in the conservation of documents and is an active part of both the maps and the libraries’ keeping to.

It’s a very favorable image of a person meant to become so close to you. Not to mention that his smile always makes your heart skip a beat. Azumane often scolds you for reading too many romance novels and not enough educational works to prepare you better and at a time like this, you think you should’ve listened to him more.

as this is still first draft, im still debating whether or not to keep certain words with a capital first letter? since its a fantasy i can do what i Want lmao but im not sure....... i kept it capital in keep here to make sure it was known i was talking about a specific place!!! (this will be soooo fun to edit later on im sure) thank you again for sending one in 🧡🧡✨

send me a word and if its in my current draft ill post it and if its not, ill write something!

[deux-jared]

the worst thing capitalism ever did was monetize time. because you can get rich as all fuck. enough to kill the world ten times over. but every second you relax you will still feel the sand grain falling with a resolute beat. there’s barely time to sleep anymore because god forbid you’re not using that time for self improvement. reading a good book ? maybe you should also be working out on a treadmill too. like this movie ? okay yeah but there’s emails to send while you watch. who’s got time to live when there’s an economy to run. and running this economy sure as fuck ain’t living. you go to school and go to work and go shopping and tell yourself that this is life. you can stop on all the scenic roads and take all the pictures but you’ll still have to put in a vacation request to do it. i don’t even want to do it on the company’s dime anymore, regardless of what my boss and i are earning. i want to be fucking free.

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[roysexton]

From Detroit Legal News: “People often fail to realize the importance of visibility and representation.” INvolve Outstanding 100 LGBTQ+ Executives Role Model List 2024

Thank you, Detroit Legal News’ Sheila Pursglove, Brian Cox, Brad Thompson, Tom Kirvan, and team for all this support you show our professional community. It means a lot. Original article here. Roy Sexton, director of Marketing at Clark Hill and 2024 International Immediate Past President of the Legal Marketing Association, has been named to the INvolve Outstanding 100 LGBTQ+ Executives Role…

[acquisory]

Masala Bonds – A New-fangled way of raising money

A term which has recently gained momentum in the financial market is termed as Masala Bonds. They are the bonds issued outside India but denominated in Indian Rupees, rather than the local currency of that country. They are named after the Masala Spice, a mix of spices used in India. Unlike dollar bonds where the borrower takes the currency risk, masala bond investors have to bear the risk. The first Masala Bond was issued by the World Bank backed International Finance Corporation in November, 2014 when it raised Rupees 1000 crore bond to fund infrastructure projects in India. Later in August 2015 International Finance Corporation for the first time issued green masala bonds and raised Rupees 3.15 billion to be used for private sector investments that address climate change in India.

About Masala Bonds

“Masala Bond is a kind of financial instrument through which Indian entities can raise money from overseas Markets in rupee and not in foreign currency. Indian rupee denominated bonds issued in offshore Capital markets.”

Masala Bond is a kind of financial instrument through which Indian entities can raise money from overseas markets in the rupee and not foreign currency. These are Indian rupee denominated bonds issued in offshore capital markets. The rupee denominated bond is an attempt to shield issuers from currency risk and instead transfer the risk to investors buying these bonds. In a way Masala Bonds is a step to help internationalize the Indian rupee. Investors in these bonds however will have a clear understanding and view on the Indian rupee risks. Therefore, stable Indian currency would be key to the success of these bonds.

The currency risk in the Masala Bonds lies in the hands of investors thus the investor demands a currency risk premium on the coupon and hence borrowing cost for Indian corporates through this route would be slightly higher. However, it may still be cheaper if one considers the currency risk. Though raised in Indian currency, these bonds will be considered as part of foreign borrowing by Indian corporate and hence would have to follow the RBI norms in this regard. Under the automatic route, companies can raise as much as Rupees 50 billion per annum through Masala bonds.

Pricing of Masala Bonds

There are two critical factors for the success of such bond : (a) coupon rate and (b) liquidity of Indian currency. India is rated BBB- by global ratings agencies — a notch above junk rating. Sovereign rating will influence pricing of these bonds. HDFC, for example, had recently borrowed in the domestic market through a three-year bond at 8.35%. HDFC expects to fix a coupon rate at least 10 basis points lower than the domestic rate for the masala bonds. It was observed that Indian banks were borrowing US dollar-denominated loan at under 4% in later half of 2015. If HDFC were able to issue masala bonds at 8.25%, it would imply a currency risk premium of above 4% per annum. Overseas investors are yet to decide their preferred coupon rate for the Indian masala bonds. Generally, given the view on Indian currency, investors are expecting a higher coupon from the issuers, which may make these bonds costly for Indian borrowers. This is the main reason holding back issue of masala bonds. If US Fed increases interest rate, that would make Indian masala bonds less attractive.

Allowing Indian firms to raise rupee-denominated loan from overseas market is a step towards full convertibility of Indian currency and the Indian central bank is supportive of this experiment. Despite initial glitches on pricing, masala bonds have potential to raise $5 billion in next two years. British government is wooing masala bond issuers and would like to position London as the global hub for offshore rupee financing.

The success of masala bonds would demonstrate overseas investors’ confidence on Indian currency. In other words, successful issue of these bonds by Indian corporate would imply faith on country’s macroeconomic fundamentals and the central bank’s role in currency management.

Regulatory Regime for Masala Bonds

The Reserve Bank of India (RBI) has paved the way by permitting the issuance of rupee — denominated bonds as part of its Fourth bi-monthly Policy statement for the year 2015–16 on September 29, 2015. While the RBI pronounced on the issue from the perspective of foreign exchange regulation, particularly that governing external commercial borrowings (ECBs), several other issues…

Read more: https://www.acquisory.com/ArticleDetails/16/Masala-Bonds-%E2%80%93-A-New-fangled-way-of-raising-money