Janet Yellen - The Nation's New Chief Slumlord

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Janet Yellen's role as the nation's slumlord is masked by her apparent distance from the Fed's money spigot and the resulting institutional ownership of the nation's rental housing stock.

Please welcome the nation's new chief slumlord, Janet Yellen. The previous top slumlord, Ben Bernanke, has retired from the position of Chief Slumlord (i.e. chair of the Federal Reserve) to the accolades of those who benefited from his extraordinary transfer of wealth from the many to the few.

Why is the chairperson of the Fed the nation's top slumlord? Allow me to explain.We only need to understand two facts to understand the Fed's role as Slumlord.

1. Rental housing has long been a decentralized, locally owned industry. Over 90% of rental properties under 50 units have historically been owned by individuals or couples: the nation's landlords have historically been Mom and Pop, middle-class folks who saved capital and used those savings to buy a single-family home or small apartment building (duplex, triplex, four-plex) as an investment that they own and manage.

Very few amass a huge portfolio of properties, as few have the income or assets (i.e. the collateral) to leverage the purchase of dozens of rental properties.

Buildings up to four units qualify for conventional mortgages; small rental properties are not considered commercial properties like strip malls or large apartment complexes.

This diverse, local ownership provided a wide spectrum of residential rentals. The wider the variety of rentals and owners, the greater the diversity of prices, locales and requirements. This is the essence of free enterprise: sellers (landlords) and buyers (renters) agree to price and conditions in a dynamic, open and adaptive marketplace.

2. No Mom and Pop real estate investor can compete with financial institutions who can borrow unlimited sums of money from the Federal Reserve at near-zero rates of interest.

Let's start by asking what happens to the price of real estate when mortgages fall from 8% interest to 4%: prices basically double, because buyers can "afford" to pay more at low rates of interest.

When conventional mortgage rates are 8%, a rental that costs $200,000 requires a 30% down payment in cash (because the buyers are not owner-occupants) or $60,000. The simple interest on a $140,000 mortgage is about $11,200 annually. (Let's use simple annual interest for simplicity's sake.)

At 4%, the price can double to $400,000, with a 30% down of $120,000 and a mortgage of $280,000, and the mortgage accrues the same $11,200 in annual interest.

Declining interest rates push real estate prices higher.

At first glance, this doubling in price doesn't seem to affect the cost of ownership. But that is deceptive; consider how many households can scrape up $120,000 in cash compared to the number who can scrape up $60,000. The higher the price, the bigger the down payment required. The higher the down payment, the fewer the number of households who can accumulate that much cash.

To households that live paycheck-to-paycheck, both sums are out of reach. But a significant number of middle class households could accumulate $60,000: such a sum could come from a family house that was sold and divided amongst the offspring, for example, or a Solo 401K that allows the retirement fund to own real estate, or from saving $5,000 a year for 12 years.

The Federal Reserve's Zero Interest Rate Policy (ZIRP) was designed to push real estate prices higher. The Fed's public justification was "the wealth effect": the idea was that as the family home increased in value, homeowners would begin to borrow and spend more money due to their increased home equity.

The second Fed goal was to increase home sales by lowering mortgage rates, theoretically enabling more marginal buyers to buy a home. But since prices rise as mortgage rates drop, this goal is mooted unless marginal buyers are also given a free ride on down payments and qualifying income, i.e. offered near-zero down payments and no-document mortgage qualification processes.

But zero interest rates and unlimited liquidity don't just push real estate prices higher--they give institutions with access to the Fed's nearly-free money an unbeatable advantage over Mom and Pop real estate investors.

Imagine being able to borrow $400,000 at 1% with zero collateral. You can now buy the rental property for cash, and pay only $4,000 in simple annual interest. And you didn't have to put up a dollar of actual collateral to buy the property.

Consider the huge advantages you now have over the competing Mom and Pop bidders. Sellers typically prefer cash offers, so your cash offer (of Fed money) is more attractive than Mom and Pop's loan-based bid.

If the price jumps to $500,000, Mom and Pop are blown out of the water: they don't have the additional $30,000 cash required as collateral.

Thanks to the Fed, you don't need any collateral. You can borrow $500,000 as easily as $400,000, and the increase in annual interest is trivial: a mere $1,000.

Now consider the operating costs: you have a $7,000 annual advantage because you have access to the Fed's nearly-free money. Mom and Pop have to pay $11,200 in simple annual interest, while you pay only $4,000. A property that is break-even to Mom and Pop reaps you a $7,000 annual profit, just because you can borrow money from the Fed for next to nothing.

Now multiply the $400,000 and the $7,000 by 1,000. Now you can buy $400,000,000 of rental properties and skim $7,000,000 in annual profits, just from the advantage of having access to the Fed's quantitative easing (QE) nearly-free money.

Any advantages you can accrue from economies of scale from owning tens of thousands of rental properties are also yours to keep, courtesy of the Fed.

Now you understand why Janet Yellen is the nation's new top slumlord. Her policies of unlimited liquidity, QE and zero interest rates directly enable financial Elites to beat out Mom and Pop rental housing investors and buy tens of thousands of rental properties at will.

Access to free money and near-zero interest rates gives institutional buyers a built-in advantage over Mom and Pop rental property owners: no collateral and free profits from super-low rates available to those closest to the Fed's QE money spigot.

Institutional ownership turns the rental housing stock into a Fed-enabled financial monoculture. Individual Mom and Pop owners may not require a credit check, or they might not raise the rents very often; the odds that you will be treated as a human being are higher because the scale of the operation is small and local.

To Fed-enabled Institutional landlords, you are an income stream to be skimmed.You will be processed and managed remotely, and variations are not allowed, as they mess up the profit machine.

Fed-enabled Institutional landlords may or may not hire competent, responsive managerial firms to manage their thousands of properties: from the point of view of Fed-enabled Institutional landlords, the lower the costs, the larger the profits. One way to lower costs is to not respond to tenant complaints or requests for service. Another is to hire the lowest-cost (and likely understaffed) management firm.

Janet Yellen's role as the nation's slumlord is masked by her apparent distance from the Fed's money spigot and the resulting institutional ownership of the nation's rental housing stock. But guess what, Chairperson Yellen: we're not fooled. Your phony facade of "progressivism" doesn't mask your real role as the nation's top slumlord. 

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Ignatius's picture

Nice summary of the 'FED Mission Statement' by CHS  "No mom and pop real estate investors can compete..."

NotApplicable's picture

Why, I do believe this is the finest CHS article I've ever read.

What's even scarier though, is that the Fed has the same influence throughout the economy, so honest Mom & Pop businesses can't compete anywhere. They can only hang on until they run out of capital.

Back-door Communism. It's what's for dinner. (and lunch, and breakfast...)

InjectTheVenom's picture

If you like your slumlord , you can keep your slumlord. Period.

nope-1004's picture

It is interesting to me that all these knowledgeable economists have studied and written papers on monetary and fiscal policy.  What is even more surprising is the fact that NONE of this knowledge is being used today by the Fed.  The Fed is a criminal syndicate, stoking stawks, lifting equities, slamming PM's, manipulating interest rates, and hiding cash infusions into insolvent banks.

It is quite a joke that these knowledgeable money people are using zero knowledge from day to day.  White collar crime and market manipulation is not a matter of knowledge, but a matter of back-room allegiance and interconnectivity.  Since the entire band of bankers all control the financial conduits, theft and criminality is easy.

I think Bernocchio simply had enough and can see that he is losing respect big-time because of the incompatibilities seen everyday.  If unemployment is falling, why is food stamp usage rising?  If housing is recovering, why are new home sales at 2001 levels?  If OsamaCare is so good and accepted, why are TV ads during the Olympics needed?

And my biggest question:  If you were leading a war against economic catastrophe and you were seeing signs of improvement and were getting respected in the community for what you are in the process of doing, would you quit?  And, interestingly enough, in the midst of said war would your greatest achievement be self stated as "transparency"?

Bernocchio's actions are crystal clear.  He has failed, his theories disproven by himself, his policies under the cloak of white collar criminality desperately looking for affirmation.  He is quitting because of failure, and transparency is the absolute last thing we have been given due to the massive amount of Fed fraud and manipulation.

Wonder when he’ll stop living a lie?


NotApplicable's picture

Your statements are a contradiction. Bernanke has not failed at all, because, as you note, he is part of a criminal syndicate.

His only failure is to be a convincing criminal (a.k.a. "con-man").

BKbroiler's picture

Now you can buy $400,000,000 of rental properties and skim $7,000,000 in annual profits, just from the advantage of having access to the Fed's quantitative easing (QE) nearly-free money.

Um... so the scam nets them 7 on 400? 1.75% return on 400 million?


YC2's picture

No, they borrowed $400M.  They used zero collateral, and made $7M.  The cash on cash return is infinite, the cap rate is 1.75%.

NihilistZero's picture

And that miniscule cap rate is what is going to doom the model decsaribed in the article.  These houses are nothing but a stream in the ponzi scheme river to these "investors" once the FED loses even some of it's grip on the bond market and rates, the whole thing goes to shit.  In the meantime the properties DO become slums and the same vultures dive back in after the crash.  I guess after 85 years of contolling the boom/bust stock market they figured they could fuck over even more of the populace by bringing residential real estate into the casino.  Greenspan lit the match, Bernanke stoked the flame, and here we are.

666's picture

Now that Bernanke is out, I wonder where his next job will be at?

Hint, hint, nudge, nudge.

WarriorClass's picture



The bigger picture that takes jobs from Americans and lowers the wages of those still working are LEGAL immigration and WORK VISAS. Those are the middle class jobs that are going to foreigners at the expense of Americans. The illegal aliens tend to take the lower paying jobs that black people won't do and white kids are no longer allowed to do.

Companies would rather hire a foreign national since that person can't demand a raise or just go across the street and get another job. A foreigner would have to go back to his country of origin and then start looking for a higher paying job. This keeps wages down for both the foreign national and the American worker. The massive legal immigrants add directly to the labor pool of American workers, driving down wages generally. This is simple supply and demand for labor.

Increase the supply of labor and the price of labor goes down. All of you "law abiding" that support LEGAL immigration are cutting your own throats, and the big corporations are helping you do that with work visas.

Nevertheless, the dumbed down masses cry for "legal" immigration while their paycheck whittles down to nothing and they can't afford to send their kids to college while the aliens go for free.


BLOTTO's picture

We've been hoodwinked for a long long time...


'Hunger Games' meets '1984' meets 'Brave New World' meets....Zombieland.

nightshiftsucks's picture

Shit,I'm going to need more ammo.

kurt's picture

He knows he's a whore?

Imagery's picture

ABSOLUTELY.  I own a small, independent O&G Company and we simply cannot compete with all the Free-money PE firms out there literally closing the doors of ALL competitors!

Guess i will put my family on the FSA train until something changes as it has simply become impossible to compete and i don't mean from a lack of skills or effort or desire as I and my 2 geologists each have over 30 years industry experience, major university and major US E&P Co prior experience, and no other means of support.


ebworthen's picture

Pretty sure the purpose of the FED from the beginning was to create a large underclass dependent upon debt to banks.

But yes, Janet Yellen = slumlord , Scrooge, and a forger of chains both literal and figurative.

Zymurguy's picture

I think the goal of the FED originally was to consolidate all the small independent banks into a syndicate of controlled centralized banks.  This being so successfully achieved after the Great Depression, the FED looked toward other malfeasance by exploiting crisis' it itself generated.

philosophers bone's picture

All true, so invest accordingly:  1.  apartment blocks (best quality you can afford with your capital) with the longest-term fixed rate debt you can obtain for some cash flow; and 2. the balance in physical PMs

duo's picture

Wait until Section 8 vouchers can only be spent on Blackrock-owned or GS-owned properties.  Like the Wal-Mart of real estate.

Musashi Miyamoto's picture

Oooh. It makes me feel all warm and fuzzy inside. I think i might go on an arson binge.


Ignatius's picture

Right.  In a sense that's what is happening with ACA and healthcare (choose only from cloumn A, etc.).

PTR's picture

There's no competition like no competition.

101 years and counting's picture

and i thought this article was going to be about the Fed buying 40B in MBS every month....anyone out there want to check to see if the Fed now owns your mortgage....which makes you their bitch.

ArkansasAngie's picture

YOu will never know. if the fedury does.  They ain't going to tell you.

As a small real estate investor, that is exactly why tbtf is too big to exist.  You provide monopolistic advantage to arse holes and call it progress.

The fact that its the same arse holes who put us in this jam is their cherry on top.

Screw'em and the horse that brung'em.


suteibu's picture

The county tax office apparently owns the mortgage for my paid-off home.

NotApplicable's picture

Fuckers sent me a letter last summer telling me that since they didn't maintain my country road, they weren't going to try again until at least December. After we had time to clear the trees from their right of way, that is.

So, a month ago, they parked the tractor/mower at the end of our road, and it sits there to this day.

Anybody want to buy a tractor?

BuddyEffed's picture

And what percentage of Janes properties are not listed, not occupied, or occupied but not generating an income stream?

U4 eee aaa's picture

Emperor Yellen,

If you are reading this site, and we know that you probably are, please put a match to all the bonds the Fed holds in order to create a great American reset. Now that you hold the power, you can do this. If your paymasters murder you for it, that is the risk you should be required to take considering the American taxpayers have given you the good life for quite some time now.

It is time, Emperor Yellen, to fall on your sword as an act of contrition and humility for the damage you helped to create. At a minimum, you have the moral duty to start the public discussion regarding the fed deleting the debt it holds and reeducating the American public on the evil of public debt. Use the bully pulpit until the bullies put a bullet in you or forever be known as a coward and a thief

It is time to give back to the America that has given so much to you

Mercury's picture

At 4%, the price can double to $400,000, with a 30% down of $120,000 and a mortgage of $280,000, and the mortgage accrues the same $11,200 in annual interest.

I agree with the general thesis here but that "can" isn't exactly a well supported and documented cause and effect.

Even an institutional buyer of rental property has to reckon with what kind of rent the property can actually generate (what the market will bear) and a property's income potential is also a big driver of price.

QQQBall's picture

ZIRP is being used to inflate real estate values and thus help recapitalize the banks/financial sector. ZIRP and QE are being used to recpaitalize the banks. ZIRP and QE are not generating money velocity because it is a complex pitch and catch between Banks-Treasury-FED and of course our over-spending govt rulers. 


Look for rent-to-own schemes with higher rents with 20% or so accrueing to downpayments; of course interest rates will be higher to home; landlord/sellers make huge spread - homemoaners saddled with sub-prime level IRs and payments.... 

kurt's picture

I always thought those "Rental Centers" were a creep show... quoting prices in WEEKLY rates, taking advantage of the pawnshop, jailbound, smoking. You are correct sir. The creep factor expands like an oily sheen on a once verdant pond. I'd like to talk but I have to go to Dullard Tree to get a Loan to Pay this week's TV rental, and I have a court date... waiting for my insurance settlement... 

mobius8curve's picture

This is all by design:

For God did put in their hearts to do his mind, and to come to one mind, and to give their kingdom unto the beast, until the words of God should be accomplished. And the woman whom thou sawest is the great city, which reigneth over the kings of the earth.

Take a guess who this woman is?

Hint:She is a part of it but it's not just Yellen.

BLOTTO's picture


Queen Elizabeth II?



indygo55's picture

Its mostly men axcept for QE II. Try taking it up with one of the real guys in charge:




earnulf's picture

Nice reference "Tiamat".   We are all expendible in the Dungeon of life.

Lost Word's picture

Book of Revelation,

description of the Whore of Babylon,

often interpreted as referring to Rome and the Roman Empire or Roman Church.

Of course, the Vatican has its Jewish and Masonic bankers also.

rlouis's picture

"To Fed-enabled Institutional landlords, you are an income stream to be skimmed.You will be processed and managed remotely, and variations are not allowed, as they mess up the profit machine."


LOL - it ain't so ez; there's icebergs, pirates and collectivists all seeking to take a bite.  Remote ... hahahaha

ugmug's picture

Ironically the typical institutional slumlord will willingly rent to a government subsidy slum-renter over a hard working taxpayer and then watch the neighborhood become an ObamaGhetto..



bigrooster's picture

I saw this happen first hand in Phoenix and Las Vegas.  We bought 4 rental properties in Phoenix in 2010/2011.  Then starting at the beginning of 2012 all deals below $150,000 were going all cash.  We would even bid $20,000 over the asking price and the bank's asset manager would take the all cash offer of 20k less to close the deal fast.  To me this is criminal behavior to not get the best asking price for the seller, in this case the bank's shareholders because they are foreclosure properties.  

Once the big boys saw that the little guys like me were making some serious money on rents they had to get into the business.  Crime does pay.

ussa's picture

CHS could also have tied in the increase in property taxes to the inflation of housing prices.  As prices ramp property taxes increase while income may grow at a lower rate, stagnate or decline.   The implementation of the income tax and the Fed were no coincidence.   Both should be abolished. 

Tapeworm's picture

He has made the increase in taxes and junk fees a center point of many other essays.

odatruf's picture

Props for the Dirty Rotten Filthy Stinking Rich image.


DOGGONE's picture

Real asset price histories show bubbles very well.
Real Homes, Real Dow
But these histories are rarely shown to the people -- what do you call this?
I call it "The Establishment are conpersons first."

the grateful unemployed's picture

as long as private mom and pop owners set rental prices the institutions are in the sweet spot on the curve, but once they begin to dominate the market, rental prices start to fall, through competition. the fed can levitate asset prices, but the inflation measure is rents paid, if that remains high, then inflation sneaks in. the smart thing to do from the institutional investors needs is to turn rental property into government subsidized housing, and work both sides of the street. 

Ranger_Will's picture

All of this stems from the Council on Foreign Relations.  Yellen is merely the newest iteration of the elite placed in power and while I revile her as I did the Bernanke we need to remember that they are just pawns, albeit willing ones.

Rule From the Shadows - The Psychology of Power:

SmittyinLA's picture

Why do I think of Menachem "Max" Stark when I read this rant? 


Think Max Stark gives a shift if America becomes a debt ridden 3rd world mob rule Socialist kleptocracy? 

He welcomes it, its part of his business model. 



fijisailor's picture

So there's going to be a $10 billion taper.  What keeps the FED from simply lying and actually increasing QE?

wisehiney's picture

They gotta squeeze the tbond bears, rinse repeat.

mombers's picture

One huge flaw in the argument is that 'Mom and Pop' landlords are often amateur and as a result don't provide a good service. They are short term investors who essentially want a revenue stream to cover their mortgage while they wait for prices to go up. This is SPECULATION not wealth creation or useful economic activity. A good symptom of wealth creation is a steady and growing income, not a business model based on asset price appreciation. I should know - I had two flats in Cape Town and hardly made any money from rent but a 400% leveraged gain on asset price inflation. Over 8 YEARS. It was pure luck, I was obviously not running a good business if I couldn't get a decent income for 8 years. I've since had to deal with amateur landlords here in London who don't budget for repairs and end up trying to defer maintenance. A thousand pound roof repair bill spiraled to ten thousand while the landlady tried to avoid it, and she was lucky that it didn't get bad enough for us to be put up in a hotel if the roof collapsed. A professional investor would have this sort of thing budgeted for and fixed the day the fault was identified. A friend of mine is in the same position. He doesn't have £4k to fix his amateur rental and he's hoping that it won't get worse... Hope it doesn't end in tears for him, his family and tenants