Remember the crash of 2008?
It got started a few years earlier, when real estate flippers drove up home prices and created the housing bubble. Banks lent money to people who couldn't afford to repay the loans on these overpriced houses, and then those banks rolled those bad loans into complex investment vehicles that no one really understood, but which became worth less than the paper they were printed on when people defaulted on their loans.
The economy imploded. Most of the big banks were bailed out, but millions of Americans lost their jobs, their homes and billions of dollars.
It took several years for the economy to regain some semblance of normality, and many Americans never regained their jobs, homes and livelihoods. The average person has become permanently poorer, while corporations and the richest Americans have drastically increased their net worth.
Donald Trump's tax bill is going to let that happen again. How?
The tax bill is explicitly crafted to reduce Trump's tax bill zero. The tax bill eliminates loopholes for certain kinds of businesses, but not Trump's and Jared Kushner's.
For example:
- The alternative minimum tax will be eliminated. That was the only reason Trump paid taxes on his 2005 tax return.
- The tax rate on pass-through corporations will be reduced significantly. Trump's businesses are all pass-throughs.
- Rental income, royalty payments and licensing fees get especially favorable treatment. Most of Trump's income comes from these types of arrangements.
- The tax bill exempts real estate from the limitations of the deductibility of interest payments.
- The like-kind exchange loophole will be eliminated for everything except real estate.
Since 2008 Americans have been leery of buying houses themselves, and are renting instead. The tax law changes mean even more investors will rush to buy up single-family dwellings to rent them out. They'll also buy up existing rental units to "upgrade" them with fancy granite countertops and stainless steel appliances so they double and triple the rent.
In the end, a few giant corporations (like Jared Kusher's) will wind up owning most single-family dwellings and apartment buildings, pushing more and more average Americans and small businesses out of housing ownership. This will cause the rental market to overheat, and rents will skyrocket. While rents are high, Wall Street will create investment vehicles from these overpriced rental properties and sell them to suckers.
Like banks in recent years, these giant rental corporations will find hundreds of ways to screw renters, much the way Jared Kushner's company in Baltimore screwed over their tenants with excessive fees and ridiculous penalties. Kushner sicced collection agencies on former renters for rent they didn't owe and even using the court system to harass tenants by getting them arrested.
Then, like the last time, it'll collapse when people can't pay the exorbitant rents. It will all come crashing down, and millions will be thrown out of their homes, and lose their jobs and billions of dollars in security deposits.
I'm betting the collapse will be caused by something really stupid, like firms using security deposits as a gigantic illicit slush fund, or drastically overstating the value of the assets through some real estate depreciation gimmick made possible by Trump's tax bill.
And the crash will almost certainly involve a huge stock market "correction" as investors pull out of stocks whose prices were driven sky-high with the promise of giant dividends made possible by Trump's tax cut gimmicks. Many of those stocks will plummet when fickle investors have realized their gains from those stocks, and pull out of them to find the next golden ticket.
During the last bubble the Bush administration was asleep at the switch: regulators ignored all the warning signs of the impending crash. Trump recently appointed Mick Mulvaney to head the Consumer Financial Protection Bureau. Mulvaney takes over agency with the intent of totally neutering it. This means that nothing will be done to prevent the shenanigans that will cause the bubble, because the people running the government will be profiting from the bubble.
The CFPB was created to prevent another economic disaster by forcing the big banks to have enough assets to cover their loans. It also went after the predatory practices of banks, such as the Wells Fargo debacles, where they opened accounts for customers without their permission and sold them unneeded car insurance. They also went after payday lenders and other financial scams that hurt regular Americans. This will all end with Mulvaney in charge.
Most people are focusing on the inherent unfairness of the tax cut, with huge cuts for the wealthy and corporations and much smaller cuts for real Americans that completely dry up in 10 years -- a scam required to get around Senate rules to avoid a filibuster.
The problems I outlined above will take a few years to manifest, with the economic crash coming in six to eight years, on a timetable similar to the disasters that befell most previous Republican administrations in the 20th century: Coolidge/Hoover (the Depression), Nixon (1974 recession), Reagan (the S&L crisis) and the George W. Bush (2008 collapse).
The only hope we have to avoid a repeat of 2008 is if Democrats take the House in 2018 and the presidency in 2020.
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