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Behind big banks profits, a sea change

Tue, 2014-10-14 11:33

Wells Fargo, Citigroup and JP Morgan Chase all reported earnings Tuesday morning. The results were more or less what analysts expected, with two banks barely beating expectations, and JP Morgan Chase barely missing. But all three are profitable, with gains in the single-digit billions of dollars for the quarter.

"The return to profitability by banks of all sizes is a good thing for our economy," says Aaron Klein, director of the Financial Regulatory Reform Initiative at the Bipartisan Policy Center. "It shows that loans are being made and repaid."

But the more significant change since the financial crisis is the quality of those loans. "You've seen a significant reduction in lending to individuals who are outside the traditional credit box," says Klein.  

Safer loans are part of a broader sea change in bank processes that have reduced risk, sometimes at the cost of profits. 

"I would say [the big banks are] far safer, better capitalized today than they were before the crisis, but they certainly aren’t as profitable," says Fred Cannon, global director of research at KBW. 

In addition to making safer loans, banks have been forced to spin off risky "proprietary trading" desks, and to increase capital or equity. The latter directly impacts one key measure of profitability: Return on equity.

"Citigroup is a good example," says Cannon. "Before the crisis, because they didn’t have much equity, the returns on equity, were you know in the mid-twenties. And today, Citigroup struggles to make it to 10 percent."

A less profitable Citigroup, but a safer financial system?

"So that’s the good news," says Dennis Kelleher is the president of Better Markets, an organization that  pushes tighter regulation of the financial industry. "The bad news is if those circumstances repeat themselves, we’re not in dramatically different  position than we were in '08."

The problem, he says, is that while the big banks may be less likely to fail, if they do fail, they're still too big to avoid having taxpayers bail them out.

Weak demand for oil is sign of weak global economy

Tue, 2014-10-14 11:04

Oil prices have been on a downward swing for the past few months and now there is an expectation among industry forecasters that demand for oil will slow soon.

The International Energy Agency says oil demand growth is at its lowest in five years, with demand expected to grow by 700,000 barrels a day. That’s 200,000 fewer than it previously expected.

Antoine Halff is the chief oil analyst for the agency: “The main driver really has been the economy," says Halff. “The economic recovery continues to be slower than expected.”

The agency lowered its forecasts in large part because the International Monetary Fund recently lowered its forecast for GDP growth worldwide.  

“And now China, which for the last 10 to 15 years was the main engine of economic growth, has been slowing dramatically as well,” says Halff.

Slower growth in Asia and in developing nations around the world is a big factor in oil demand. Last year, for the first time, the demand for oil in developing countries exceeded that of developed nations.

Growth in those developing nations is slowing, a worrying sign for oil producers, says IHS oil analyst Jamie Webster. “It’s also a worrying sign for the economy and for oil markets because that is really considered to be the home for demand growth long term.”

Despite the drop in global demand, so far at least, oil production has not declined. As a result, analyst Steven Kopits expects gas prices to drop in the U.S. which could spur demand.

“The caveat on that is that the miles per gallon for our automobiles has increased quite a bit," he says. "For new cars over the last seven years, or so it’s up 20 percent.”

Renewable energy sources don’t make up a big enough share to cut into demand for oil. But gains in efficiency, and the rise of the electric car, Kopits says, could be game changers.

The BuzzFeed wizard who changed media as we know it

Tue, 2014-10-14 09:37

Dao Nguyen got a big promotion Tuesday. She's now BuzzFeed's publisher, a title that means something a whole lot different than it used to in the media world. But that media world is a whole lot different too, in no small part because of Nguyen.

As BuzzFeed's head of growth and data, Nguyen is credited with orchestrating the by-the-numbers approach that has made the site explode to more than 150 million users a month and changed the way we consume media. Before a listicle gets posted or a headline goes viral, it's gone through BuzzFeed's testing system, orchestrated by Nguyen.

"Data should not dictate your strategy," Nguyen says, "But you should understand what data tells you and also what its limits are." 

Nguyen and her team have used that data to figure out how and why we share content, and it's led to some surprising discoveries.

"Women share at a much higher rate than men, and when I talk about that now at a conference or with other people I say women share more than men online as it is in life. But men click at the same rate as women," Nguyen says. "So women will start the conversation and men will participate. If you think about it in the context of just regular human people, it isn't that surprising."

Nguyen says she spends her days deep in sprea sheets and data, but her team thinks about people all the time. "That's our competitive advantage." 

She now has a seat at BuzzFeed's leadership table, and Nguyen is pretty confident in the company's future. 

"I think that BuzzFeed has a great opportunity to become the pre-eminent media for the social age." 

The numbers for October 14, 2014

Tue, 2014-10-14 08:09

A World Bank projection pegs the total global economic cost of the Ebola outbreak in West Africa at $32.6 billion by the end of 2015. The New York Times reports that model is a "worst-case" scenario, but doesn't take into account dramatic, global spread. In contrast, the same report notes if the disease is contained in the short term, the total economic hit might be as low as $359 million.

As a nurse in Dallas is hospitalized with Ebola, the Centers for Disease Control is calling for a reassessment of treatment protocols.

Here's what we're reading - and other numbers we're watching - Tuesday.

$950 million

That's how much Disney could end up paying for Maker Studios. The YouTube network was acquired by Disney in May, and now Maker's YouTube stars are getting their own programming blocks on Disney XD and Fusion, Variety reported. The news comes less than a day after the Wall Street Journal reported on the wave of book deals being thrown to YouTube personalities.

$50,000-$75,000

The cost of digital projectors, the new movie theater standard some studios are still subsidizing. Digital distribution should theoretically be cheaper, but those costs could still be keeping major releases from small markets, the Los Angeles Times reported, and theater owners aren't happy about it. Another reason one executive gave for the delayed release of "Gone Girl" in those markets: "R-rated movies in small towns don't always go together."

25

That's how many Crumbs Bake Shop locations will open in the next 30 days, Bloomberg reported. After dramatically closing down in July, the cupcake chain just refuses to die.

Google expands delivery service

Tue, 2014-10-14 07:00

In a bid to take a bigger bite out of Amazon’s business, this week Google is expanding its same-day delivery service.

If you didn’t know Google was in the delivery business, here's the gist: In a handful of cities — now including Boston, Chicago, and Washington, D.C. — you can buy stuff from brick and mortar stores and receive it the same day.

The service formerly known as Google Shopping Express, and formerly free, it will now be called simply Google Express. Members can pay $10 a month for unlimited same-day and overnight delivery on items costing more than $15.

Google used to be the go-to place for product research, says Forrester Research analyst Sucharita Mulpuru.

“Amazon is now the primary place where consumers go when they are looking to research almost any product,” she says. “Google wants its crown back.”

In a speech in Berlin yesterday, Google chairman Eric Schmidt acknowledged as much.

“Many people think our main competition is Bing or Yahoo,” he said. “But, really, our biggest search competitor is Amazon.”

Delivery is an expensive and labor-intensive business, though, says analyst Colin Gillis with BGC Financial. Another same-day delivery service, offered by eBay, has struggled to get off the ground.

“Either you hire an army of people to get these packages and to deliver them to your customers, or you outsource it to a carrier or logistics company,” Gillis says.

Then again, Forrester’s Mulpuru says Google is such a profitable company, it can afford to experiment.

PODCAST: Talking statues

Tue, 2014-10-14 03:00

The Organization of Petroleum Exporting Countries (OPEC) continues to cut the price of oil in part because there's so much of it being produced in the Middle East and North Africa, and also here in North America. More on that. And Google's taken another step today in its quest to take over world commerce. The search engine giant is expanding its Google Express delivery service this week, and introducing a new fee. And as we discover, it's all about competing with Amazon. Plus, they are a city's permanent residents, yet many of them are forgotten; often ignored. We're talking about statues. But there's a British non-profit that says statues have stories to tell, and they're working to give these figures...a voice.

Banks seek profits in credit cards

Tue, 2014-10-14 02:00

When J.P. Morgan Chase and Citigroup announce earnings Tuesday, many analysts will be looking for profits in a traditionally less-than-exciting place: credit cards.

Unlike a few years ago, consumers are being smart with their cards, which means low delinquency rates, and they’re also starting to feel comfortable enough with the state of the economy to spend a bit more.

Credit cards look pretty good compared with mortgages or other low-interest bank products, says Jim Sinegal, who covers banks and credit card companies for Morningstar. They generally charge rates of “12 percent plus, up to 20 percent in some cases," he says.

He says banks also like the steady income from merchants each time people use their cards.

Overall, the economy is stronger and the industry is reaping the rewards of tighter lending standards.

“That made for really good results in the way of losses,” he explains. “Banks aren’t losing much money at all because of those two factors.”

Ironically, the industry may also be benefitting from regulation. The CARD Act of 2009 sought to limit certain fees and simply interest rates.

“Obviously, the card industry did feel it had increased costs as a result of the regulation,” says Andrew Davidson, a senior vice president with Mintel Comperemedia. “They, I think, in the long term, benefit from this better consumer behavior in terms of paying back their bills.”

Davidson says card issuers are feeling confident enough to again pitch cards to mid- and sub-prime borrowers.

But Madeline Aufseeser, a senior analyst with Aite Group, cautions that credit cards are also a very competitive business.

“It’s bullish compared to where we’ve been over the last couple of years,” she says, though she notes that recent security breaches could be costly. “But in the credit card business, it’s a very tight rope that we walk on balance between expense and  revenue. It’s a low margin business.” 

 

Giving voice to London's statues

Tue, 2014-10-14 02:00

With an aquiline nose, deerstalker hat, meerschaum pipe and haughty air, he cuts a familiar figure.

Sherlock Homes is instantly recognizable, but on his plinth outside Baker Street subway station in London, the statue of the famous fictional detective is often ignored. Most people pass him by with barely a second glance.

Colette Hiller, a U.S.-born resident of London, is determined to change that.

"Too many people walk through this city without paying attention to the public art," says Hiller. "They bury their faces in their phones and miss so much that’s around them."

As part of a group called Sing London, which tries to promote the enjoyment of public spaces, Hiller came up with the idea of "Talking Statues."

"You use your smart phone to scan a barcode which we have placed on or near a statue," Hiller explains. "You then get a call from Sherlock Holmes, or Peter Pan, or Queen Victoria and they tell you something about themselves."

This is what Sherlock Holmes has to say:

The dour-looking statue of Victoria on Blackfriars Bridge offers this insight into her private life: the famously prudish monarch confides that it wasn’t for love of children that she had nine babies.

"I thought they were all terribly ugly when they were born. And I hated breastfeeding. I loved Albert, though," says the queen in her recorded message, voiced by British TV actress Prunella Scales.

Sing London has programmed 35 statues to tell their own tales. There are statues of statesmen, artists, engineers and even animals.

"Hello and meow. Good of you to call by," purrs Hodge, the cat that belonged to Samuel Johnson. The cat’s statue sits outside the great lexicographer’s former home in Gough Square off Fleet Street.

Talk isn’t cheap. Each talking statue cost $15,000 in actors’ and writers’ fees, a sum raised partially from corporate sponsorship and partially from the British Arts Council. Hiller is now seeking funding to take her idea across the Atlantic; first to Chicago and then, she hopes, to many other U.S. cities.

"There’s a whole range of American cities that are absolutely full of fantastic statues. New York, Boston, Baltimore, Seattle," she says. "And every statue is just waiting for the gift of voice."

Photos courtesy of Sing London and Stephen Beard

The magic number in fighting Ebola

Tue, 2014-10-14 02:00

"Break the chain of transmission" is the phrase mathematical epidemiologist Gerardo Chowell keeps turning over in his head—which makes sense when you consider that every person with Ebola generates as many as two new cases.

“So you can start to visualize in your mind how quickly this virus can spread in the population,” he says.

Chowell, who has been tracking transmission since this summer, says in Sierra Leone, Guinea and Liberia, the growth rate is exponential.

The way to get in front of that awful math, says the World Health Organization’s Dan Epstein, involves a financial kind of math.

“For a United Nations-wide response, we need about $978 million,” he says.

Epstein says that money would cover 3 million protective suits, 1,000 ambulances and new health centers. But to contain this outbreak, says Epstein, what is needed is courage.

“We really need more people. People to treat Ebola patients. People to bury the ones who have died safely,” he says.

Epstein says at least 750 more doctors are needed. That, and the aid, are the numbers needed to make the outbreak math more manageable.

How do cemeteries make money?

Mon, 2014-10-13 11:51

At Washington Cemetery in Brooklyn, a weed-whacker sends a spray of grass clippings into the air, as the ground crew weaves in between black and grey tombstones packed so tightly they almost touch.

Manager Michael Ciamaga stumbled into a summer job here in the late '90s, when plots were selling for $2,800. A few years ago, they’d climbed to $16,000.

And now?

“People come in [and say] ‘I’ll give you $30,000 if you give us a grave,’” he says. “You could give us $1 million, we don’t have nothing to sell you.”

Washington Cemetery is sold out, though not all of its plots are occupied yet. It has already squeezed out every single possible plot – shrinking the parking lot, tearing up roads, even offering up a small lawn in front of the office.

“It’s an odd business setup, you know,” Ciamaga shrugs, surveying a stretch of newer glossy-black graves etched with portraits of the deceased. 

State laws require that many cemeteries put a certain amount of their proceeds from the sale of plots into an endowment to support it once it’s sold out – much like a 401(k). But while a retirement plan has to support a person for a few decades, this money is supposed to fund the cemeteries forever. 

“Forever is a pretty big promise,” says John Llewellyn, the chairman of the board of the Forest Lawn Memorial-Park Association and author of a book called, “A Cemetery Should Be Forever.

Llewellyn worries that many cemeteries won’t be able to keep that promise.

“Not all cemeteries put aside enough money,” he says. “Some are not required by state law to put aside money. In other instances, the state sets certain minimums are that inadequate.”

Just like people need to sock away as much as possible in their prime earning years, Llewellyn thinks cemeteries, many of which are non-profits, should be saving more. He says the best time from cemeteries is two or three generations into its life, when the high start-up costs of land, roads, and irrigation systems are behind it and revenue from sales starts really flowing.

Celebrating its 150th anniversary this year, Woodlawn Cemetery in the Bronx already houses 300,000 people and there’s space for tens of thousands more on its rolling hills.

“We are going to cater to every case, whether it be an individual on social security or somebody that’s a multi-millionaire,” says Woodlawn’s executive director David Ison. “We have to have pricing structures to fit all needs.”

Options range from cremation to a private mausoleum available for $4.6 million.

Density is key, says Ison. On a little less than an acre of new space, Woodlawn be able to fit 2,500 new people, a mix of burials and cremations.

By expanding, Woodlawn gives itself more inventory – more time in this middle, lucrative selling phase.

Back in Brooklyn, Washington Cemetery looks at a lot different from the Bronx. It’s under a subway line in a much more urban area, but it’s still popular with local residents.

“I couldn’t, like, emphasize enough to you how people desperately want to be buried here,” says Michael Ciamaga.

He’s hoping a new section the cemetery’s opening will help it emerge from its forced retirement.

“With the Staten Island section that we’re opening, we’ll be good for, you know, anywhere from 10 to 15 years,” he explains. “After that, I have no idea.”

It’s relatively rare, but cemeteries can fail. On average, eight cemeteries have been abandoned in New York State each year since 2001, according to the state’s Division of Cemeteries. They generally become the responsibility of the town, though they may also be taken over by another cemetery.

Ciamaga says if Washington runs out of money, they’ll close the office, cut the maintenance staff, and maybe just keep on a gravedigger until all its “reservations” have been filled.

The Internet is not big enough for political ads

Mon, 2014-10-13 11:48

Whoever said "there’s plenty of room for everyone on the Internet" was wrong - at least if you’re looking for advertisement space for your political campaign.

"There’s a finite amount of inventory on premium video sites like on YouTube or Hulu," says New York Times reporter Ashley Parker.

There are two types of online video ads, and they are priced differently. Skip-able ads give you the option to skip the ad onto the music video or clip that you went on the Internet to watch in the first place. But these are also usually… skipped.

"Those ads do not sell out, but they are sold via an auction system," says Parker. "Closer to Election Day more people are demanding them, so the price goes up."

The other type of ad is called “reserved by ads.” These are normally 15 to 30 seconds long.

"Those are more expensive, often, but they can be reserved in advance which is a big advantage for campaigns that think ahead," says Parker.

The rise of Germany's 'euro-skeptics'

Mon, 2014-10-13 11:42

The IMF recently claimed that there’s a 40 percent chance of a triple dip recession in the eurozone, and a 30 percent chance of deflation. This grim picture has not been improved by developments in the currency bloc’s biggest economy – Germany.

There’s a political tornado brewing in that country that could blow the euro off course and reignite the debt crisis. Germany’s newest political party – Alternative for Deutschland (AfD) - which wants to pull out of the single currency - is on the rise.

“I think we are becoming a real force in German politics, ” says party worker Friedrich Hilse. “ We have broken through into the European parliament, we have won seats in three regional assemblies, and we’re likely to get into the Bundestag (the German parliament) at the next election.”

But the party has the support of only 7  percent of the electorate. How much of a threat to the euro does the AfD really pose?

"The rise of the AfD is unusual because it seems to break the German consensus," says Pavel Swidlicki, an analyst with the Open Europe think tank in London. “This is the consensus across all political parties – that European integration is the best way forward.”

That does not mean Germany is anywhere close to ditching the euro. Far from it: The country would suffer huge political as well as financial damage if it pulled the plug on monetary union.

But the rise of a euro-skeptic party in the eurozone’s most powerful economy could weaken the single currency and trigger another wave of market unrest. The German government may now be less willing to bailout heavily-indebted member states like Greece or Italy.

“Berlin could dig in its heels much more to try to appeal to those voters that it lost to its new party... and that of course would make the coordination of eurozone-wide policies even harder than it is anyway,” says Dr. Moritz Kraemer of the Standard and Poor’s credit rating agency in Frankfurt . Kraemer claims that the German government – goaded by the AfD – is likely to be even more critical of any special measures by the European Central Bank to stave off deflation. This could mean that if the ECB embarks on U.S. Fed- style money printing, its effectiveness would be undermined.

Can J.C. Penney's new CEO make the brand popular again?

Mon, 2014-10-13 11:29

J.C. Penney's new President and CEO, Marvin Ellison, moves to the legendary retailer from Home Depot. He'll be the third CEO in less than four years and he’s got a tough job in front of him: Making J.C. Penney relevant again.  

But before we get into J.C. Penney’s future, it’s worth remembering its past. Once upon a time, department stores were where you went for a bargain, says Ira Kalb, a marketing professor at UCS’s business school.

“I know that when I was in high school, my friends went there to buy underwear,” Kalb says. “So they went to J.C. Penney to buy things [that] were not fashionable items but items where they could save money.”

J.C. Penney still fills that niche and still has a loyal following of mostly older, female bargain hunters, Kalb says. So what's the problem? Well, the world of bargain retailing has radically changed since Penney’s heyday.

“Now there’s a lot of competition at that low-end,” Kalb says.

He says JC Penney needs to re-brand itself because Wal-Mart and Target now dominate that market.

Finding a niche to attract new low-to-middle-income consumers is difficult, says Richard Church, of Discern Investment Analytics.

“The obvious challenge is how do you retain a customer in a slower growth economic world,” he says.

Consumers are buying more online and they’re shifting their spending to gadgets from clothes. While Church admires the new CEO, he’s skeptical about whether Ellison can bring sexy back to Penney’s.

“Anybody who says that Penney needs to be sexy, I believe is not looking at the picture correctly,” says Gilford Securities retail analyst Bernie Sosnick. Penney’s went searching for sexy and it nearly destroyed the company, he says. Now, after a rough couple of years, it’s rediscovering its identity and getting its footing again.

Your boss doesn't care about Columbus Day

Mon, 2014-10-13 11:00

The bond market closes for Columbus Day, and so does the federal government.

But a study by the Society for Human Resources Management says 14 percent of organizations and businesses close for the federal holiday.

On top of that, Seattle and Minneapolis have opted to ignore Columbus altogether, replacing the second Monday in October with with Indigenous People's Day.

As it turns out, no one really cares about Columbus Day.

A conversation with Jean Tirole, Nobel Prize winner

Mon, 2014-10-13 10:15

If you are a researcher in economics and you miss a call from Sweden on your cell phone, you might have missed something significant. That was the case for Jean Tirole, a French economist and professor, and recipient of the 2014 Nobel Prize in Economic Sciences.

“I missed the call and then I noticed that my phone was vibrating and I went to see and it was a call from Sweden. So I was a bit surprised, but then I learned the great news,” he said to Marketplace host David Gura.

Tirole’s research deals with market power and regulation, an area of study that first interested him as a student at MIT, where he received a doctorate of economics before returning to France.

There’s already been an outpouring of national pride in response to Tirole’s win — French Prime Minister Manuel Valls tweeted that the victory was a “thumb in the eye for French bashing.” Tirole is one of only three French citizens to have won the Nobel Prize in Economic Sciences. 

For his part, Tirole doesn’t see being based in France as having a huge impact on his work, as he feels that aside from having to understand individual country’s economic structures, a lot of his research applies globally. 

“In the end, it’s really an international field nowadays," he says. "I probably would have put less emphasis on debt crisis or labor market reforms if I had stayed in the U.S., but most of my work is completely independent of that.”

While his research has directly influenced the formation of policy, Tirole says he prefers to focus on his work as a researcher and professor, instead watching his recommendations be implemented from afar.

“My main role is to be a researcher and to be with colleagues and students. I’m very happy when, of course, recommendations are adopted. That goes without saying," he says. "But there’s only 24 hours a day.”

Check back later for the full audio interview with Jean Tirole or listen to it tomorrow as part of our Marketplace Morning Report.

The numbers for October 13, 2014

Mon, 2014-10-13 08:28

Sentencing is underway for Olympic runner Oscar Pistorius, who was convicted last month of culpable homicide — equivalent to manslaughter — in the shooting death of his girlfriend Reeva Steenkamp. Pistorius' defense team asked for leniency, the New York Times reported, citing the athlete's anguish over the killing. One witness suggested house arrest and community service, which prosecutors rejected.

Pistorius could face up to 15 years in prison and the trial will resume Tuesday morning. In the mean time, here are the stories we're reading — and other numbers we're watching — Monday.

200,000

That's how many sensitive photo and video messages — some of minors — that were stolen in the latest hack into the self-destructing message app Snapchat. The images began appearing on 4chan over the weekend, Business Insider reported, and users set up a system to search for specific usernames. The unofficial app SnapSaved has taken responsibility for being hacked, but experts say the blame could be on Snapchat's own security, which is open to third-parties like SnapSaved.

29

The list of globally, systematically important banks maintained by the international Financial Stability Board. U.S. and U.K. regulators will simulate the failure of two big lenders and their impact on the global economy as part of a "war game" Monday, Bloomberg reported.

$29.31 billion

The National Institutes of Health's budget for fiscal year 2013, which has been on a steady decline for a decade, when adjusted for inflation. NIH head Francis Collins told the Huffington Post a lack of funding has inhibited the organization's research on an Ebola vaccine.

Railroads profit from energy boom

Mon, 2014-10-13 04:00

The railroad business has been heating up, thanks in part to the energy boom underway in parts of the United States. Now there’s word that Canadian Pacific Railway approached U.S. rail company CSX Corporation about a merger. CSX reportedly declined.  

Together the two companies would have a market value of about $62 billion, according to the Wall Street Journal, which first reported the proposed merger. Combined they have more than 35,000 miles of track across much of Canada and the U.S.

The offer comes as the railroad business is experiencing a resurgence, fueled partly by an increase in crude oil production in states like North Dakota and Texas. Major railroads operating in the U.S. made more than $2 billion hauling crude last year, according to the Journal. Meanwhile, bumper crops of grain in the Midwest and Canada and an improving economy have increased other kinds of rail traffic.

“The railroads are suffering right now from basically too much traffic that they’re having a little difficulty handling," says Steve Ditmeyer, who teaches railway management at Michigan State University. “It’s a problem, but it’s a good problem that they have.”

All the extra traffic has caused delays for Amtrak, the passenger rail service, and for farmers trying to get their products to market.  

PODCAST: Controlling the panic over Ebola

Mon, 2014-10-13 03:00

First up, more on what materials the Centers for Disease Control is telling hospitals in the midst of panic over the Ebola virus. Plus, a look at a supposed merger proposed by the Canadian Pacific Railway with CSX Corporation. And more on spacecraft Rosetta which could collect data that could tell us how to mine asteroids.

A new financial innovation in the housing market

Mon, 2014-10-13 02:00

Financial innovation in the housing market is back.

The last year saw the creation of something called "REO-to-rental securities" or "rental-backed securities." It's enough to give you subprime crisis flashbacks. But in fact, it's a very different species of financial instrument. 

It does start with a house, much like that of Jess Joslin. "It's a two-story brick house with a two garage," she says. 

Joslin rents from American Homes 4 Rent, one of the largest players in the emerging market of single family rentals owned by big investors. "From what I understand, almost all their houses look like this," Joslin says. "They’re really nice."

The largest investors have purchased nearly 200,000 houses in the last several years. The purchasing peaked in 2012, and has focused on places where the subprime mortgage crisis hit hardest. 

"You’re seeing it in Phoenix, in Las Vegas, in Atlanta," says Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute. 

In many of these markets, housing prices fell by more than a third, and the plan was to buy low with cash from investors, and then reap the profits from high rents. But in many of these markets, housing prices have appreciated, while rents have remained more stagnant. "Rents haven't gone up all that much," says Goodman. "And they haven't gone up nearly as much as home prices."

This change has meant that the buy-to-rent strategy generates less return for every dollar. To make up for it, in the last year, these investors have looked for ways to put other people's dollars to work. 

Enter securitization. 

Do we call them rental-backed securities? 

"They're viewed as a hybrid," says Doug Bendt, director of research for mortgage-backed securities at Deutsche Bank. 

His bank pioneered this new financial instrument as a way of giving investors more leverage. "'Necessity is the mother of invention,' as the saying goes," he says.

Think of it as a really big loan to a really big landlord, chopped into little pieces and sold to bondholders. The landlord—like American Homes 4 Rent—gets some cash for the rising home prices, and lower borrowing costs going forward. "Just kinda like a homeowner refinancing," says Bendt. 

The bondholders get a check every month, thanks to thousands of rental payments from people like Jess Joslin.

And if some of the thousands of Joslins stop paying their rent? The landlord can kick them out of their homes and find new tenants, or sell the whole house. That, and a much smaller scale and more conservative approach, are why analysts like Goodman and Bendt see the rental-backed security as far more benign than the infamous toxic assets that led to the last housing crisis. 

"I think people think, ‘Oh this is a repeat of the excesses of the past!’ But in reality, it’s very, very different than the past," says Goodman. "It’s sort of a begin to creep back to normalcy."

A normalcy where more people are renting, and more of their landlords are multi-billion-dollar companies.

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