Things that have been securitized include your credit card payments, mortgage payments, auto payments etc...
The risks outlined by the article is not specific to rent checks alone- it applies to all forms of securitization.
Unless- Mother Jones is claiming that all forms of securitization bad.
Imagine how big this market would be if homes were affordable nationwide and Americans could buy them with cash. Not very big, right?
Houses didn't get any more expensive to build over the last 30 years, but they shot up in value thanks to policies basically designed to fuck the poor and transfer wealth directly to the rich (ZIRP, de-taxing land/wealth, etc.). Hence the fact that securitization of rental streams is a thriving market rather than just an idea.
This financial product, at least for the latter half of the last century, was almost entirely provided by US governmental debt. The monetary policy of the last decade+ has caused that debt to no longer be an acceptable investment for this. Coupled with the increase in number of investors looking for this style of vehicle (from China and other developing nations) and there is a huge market need.
Of course, in the face of a huge market need financial product offerers are going to try new and possibly dodgy means to fill the gap.
Could you elaborate on why that's the case? What happened to treasury bonds? Which part of monetary policy affected the returns and how?
And you think hopping on the next CDO bandwagon is a low risk investment?
For example - say you take part in a peer to peer lending market and give a loan to 100 people. You go through a life changing event (e.g. have a kid) and suddenly want to reduce the risk of lending to 100 people over the internet and prefer to put it in government bonds. What do you do now?
You can resell your loans to another party who will take on the risk and the resulting coupon payments from those 100 borrowers. That is in simplistic terms the process of securitization.
However- this process became badly mauled in the 2004 to 2008 period when rating agencies (S&P, Moody's etc) didn't do a good enough job of rating the credit worthiness of these borrowers and then buyers who took on the risk of buying the loans of the borrowers based on the judgement of these rating agencies got hammered. I am simplifying what was the issue of 2004-2008 crisis. But this is just to give you a very quick idea.
I'd argue the real issue was ratings agencies giving the securitized debts AAA ratings when in fact the holdings were toxic. When things went sour, the risk premia just weren't there to cover the impact.
The sellers were obviously trying to offload them, the buyers were happy to be told they were no risk securities and the ratings agencies' customers were the sellers.
That the ratings agencies still exist after that meltdown is the single biggest mind blowing thing that happened after the crisis in my mind.
I find it unlikely that what happened wasn't at least partially orchestrated.
Regarding end-buyers, how much of this demand for yield is one that has been artificially created by the ongoing depressed interest rate environment?
Securitization has existed in high interest environments as well.
However- securitization offers a framework to slice up risk in such a way to meet the demand for more yield. E.g.the Z tranches & CDOs of the 2004-2008 era.
It could be that rental checks could be a higher risk product & they are being securitzed in such a way to meet the need for yield. But- I am not sure how much exactly.
In the last real estate crash, investors didn't understand they were buying mortgages made to people who had no business owning a house as expensive as they did.
We don't know what assumptions have been made about these rent checks (aside from a couple off-hand figures such as the 95% occupancy quote), so we don't know whether or not the buyers understand the risks.
As the article states - "You kind of just hope they know what they're doing"
EDIT: Apologies I really meant he has just about enough imagination, not more not less, to be working on Wall Street. https://www.youtube.com/watch?v=6R00VBj5ehk