Busted: The New York Times's Edmund Andrews trips into the mortgage meltdown
Filed under: Banks, Borrowing, Credit, Debt, Home, Real Estate, Ripoffs and Scams, Saving Money, Wealth, Recession, Bankruptcy
In the coming years, many books will be written about the subprime fiasco -- most of them reported from the outside of the bubble looking in. If the authors look close enough, they might see Edmund L. Andrews staring back out at them.
It will be hard for any chronicle of the bubble to match the stomach-clenching verisimilitude of Busted: Life Inside the Great Mortgage Meltdown, Andrews's account of his own mortgage disaster. Andrews (right), an economics reporter for the New York Times, was covering the market meltdown as a journalist -- and, to his dismay, living the meltdown at home. Turns out all the economic expertise in the world couldn't keep the subprime crisis from tearing apart his personal finances and his new marriage.
His sorry tale begins in 2004, when a new marriage and the promise of easy lending for a house in Silver Spring, Maryland, lull Andrews into taking leave of both his ethics and his good sense. Andrews overlooked not only the ominously expanding bubble he was covering -- one source, the owner of a large California brokerage, told him: "If you can fog up a mirror, you can get a loan" -- but also how little pocket change he'd have left over to pay the mortgage after forking over $4,000 a month in child support and alimony.
The vortex of debt that grew from Andrews's "creative" financing has come close to destroying his finances and his marriage in insurmountable debts from credit cards and desperate refinancing. But as a reporter, Andrews goes straight to the source, following the money pit by interviewing the lenders, the economists, even Alan Greenspan.
Reading Andrews's wonderfully written, agonizingly personal account, you might begin to realize that the only way to climb out of such a mess is by landing a book contract. Busted, due to hit shelves next month, was excerpted in The New York Times Magazine this month, arousing applause -- and controversy, when The Atlantic's Megan McArdle revealed in her blog that Busted does not disclose the history of bankruptcy of Andrews's wife, Patty. Andrews responded in an online interview with PBS's Newshour last Friday: "These bankruptcies did occur, but they had nothing to do with our mortgage woes."
If you're expecting a happy ending to Busted, you've come to the wrong book. Andrews ends his story unresolved, at the beginning of 2009, several months after he and his wife have stopped paying their mortgage. They're still waiting for the axe to fall from their lenders, and they're still trying to heal a precarious marriage.
In an exclusive interview with WalletPop, Andrews tells me, in stark terms, the book's sobering message: That for many people, currently in the process of losing their homes, there will be no happy endings.
Q: What had your attitude been towards people who took on more debt than they could reasonably expect to pay, before you walked into the exact same trap?A: I'd been highly intolerant and judgmental. I thought the country was getting reckless back in 2004, and I was deeply suspicious of the housing boom. I could not get over a gut feeling that there would be hell to pay for Alan Greenspan's cheap-money policies. When I took out my first junk mortgage, in 2004, I took all those anti-debt rumblings and locked them in a closet. I was incredibly I love with Patty, and buying a house was a key to starting a new chapter in my life.
Q: But a lack of openness with Patty over finances was a source of friction.
A: Our problem was less about sharing information than about being able to discuss money at all. I was resentful about Patty's inability to earn more money; Patty was defensive and felt I was attacking her over things outside her control. Money became a power struggle, and as the problems became worse, the subject became ever more explosive.
Q: How do you imagine your marriage would have fared if you had lived within your means from the onset?
A: I've asked myself that question many times. The toll this took on both of us, and on our marriage, was horrific. But there was one major benefit in all the madness: the house and neighborhood provided an anchor of stability for our children at a time of enormous stress for them. They loved the neighborhood and made really good friends here. They're happy and well-grounded. That is a huge deal for us as husband and wife.
Q: I was taken by your comment in the book, "Don't beat yourself up about your mistakes." Can human beings in the throes of love make rational decisions?
A: I have no one to blame but myself for my woes -- but it is too easy to snarl in contempt at homeowners who got in over their heads in the housing bubble. I've seen too many people who really were duped by the system, and I've learned too much about how corrupt the system itself had become. Our entire financial system had run amok. The recklessness on Wall Street was driving the recklessness on Main Street. As individuals, we need to learn from our mistakes and our follies, which means we need to face the consequences of our mistakes. Financial institutions like Citigroup -- the "smart money" -- were enticing, encouraging, and enabling the "dumb money" (that would be us) to take huge risks. I understand why somebody who did all the right things feels ripped off if the government is bailing out people who made poor decisions, but the real morons were at the top of the pyramid.
Q: I think Busted is not a story about finance but about love and pride.
A: My personal story inevitably attracts most of the attention, not to mention sturm und drang, but Busted is very much a story about business and finance; about two-thirds of the book is about my lenders, the Wall Street guys behind them, and the policymakers in Washington who all helped deliver that money to our door. Those stories, together with my own saga as a borrower, are intended to provide an intimate look at the catastrophe from each level of the financial food chain. As a reporter, I'm actually proudest of those. Check out the chapters on American Home Mortgage; on how my raunchiest lender, Fremont Investment and Loan, securitized its loans; and on the rating agencies. I also delve into the whole phenomenon of "reverse redlining," the horrific practice of steering minority and women homebuyers into disastrous subprime loans and option ARMs.
Q: Reading Busted gave me a new appreciation for how bubbles can form, when everyone in the food chain has an incentive to buy into the fiction. Where do you see the warning signs for the next bubble?
A: Treasuries and commodities seem potentially dangerous. Gold is near all-time highs, but it could shoot up a lot more if inflation starts to pick up. The run-up and reversal in oil last year was partly driven by worries about the dollar. Here's the thing: even though trillions have been lost in the housing market -- in fact, because those markets are busted -- you have a lot of money looking for someplace to go. The Fed has created about $2 trillion out of thin air. Right now, most of that is still sitting idle as bank reserves. But when the economy picks up for real, that money will flow into the global economy.
Q: It seems that everyone had an incentive to keep the subprime game going, apart from the bond holders, who assumed all the risk.
A: Actually, bond holders probably aren't an exception either. Bond managers should have known -- I believe many did know -- that the Triple-A ratings on subprime mortgage-backed securities were bogus. But the bond managers were handling Other People's Money, and they were competing to deliver that extra fraction of a percent return. The question of incentives is crucial to the whole mess, but how do you fix it? Perhaps the bonus incentives should have longer lifetimes.
Q: Which government agency should have blown the whistle on mortgage-backed securities?
A: The problem is that all the existing agencies have become emaciated over the years. The SEC was a proud and formidable enforcement agency in the '80s, but it was a joke by the end of the Bush administration. The Office of Thrift Supervision literally marketed itself to banks, trying to get them to convert their charters to thrifts. The FDIC's watch list of troubled banks didn't include any of the really big failed institutions, including IndyMac. The Fed has a big and really high-powered staff, but it failed abysmally to use its existing authority to clamp down on no-doc loans, option ARMs, or any of the other loans in which lenders qualified borrowers who clearly, obviously, could not repay.
Q. What should the government do to help those trapped by a looming foreclosure?
A: Let me be clear: I do not think I am entitled to a bailout -- at least not on any moral grounds. I would welcome a government-subsidized loan modification, but I wouldn't make the case that I deserve one. But I do think the government needs to rescue at least some homeowners for economic reasons. The housing market still appears to be the biggest problem facing the economy, and ordinary homebuyers are crucial to the housing market.
Q: There's a blogosphere tempest regarding your wife's two prior bankruptcies, and the fact that you chose not to disclose them in Busted. Why didn't you?
A: The bankruptcies, while mortifying to my wife, stemmed from older debts that had no bearing on our own mortgage finances. The real catastrophe for us, which I do describe in agonizing detail, occurred when Patty was fired from her well-paying job in October 2006. That event, on top of our enormous debt, was what pushed our finances from improbable to impossible.
A: Within minutes, I got my first "OMG" message. Most of my friends in the office already knew I was in dire straits over my house, and that I was writing a book about it. What seemed to surprise many was how much I revealed about my personal finances – starting with my salary, which is even more taboo as a topic of conversation than personal sexual matters. The big surprise: most people did not treat me like a pariah. Lots of people had stories of their own -- a brother with this problem, an old friend with that one. I hadn't seen the office so relaxed in a long time.
Q: Last year, your Times colleague David Carr published The Night of the Gun, a memoir of his years of drug addiction. Carr's old friend Jayson Blair once wrote a memoir about how he singlehandedly nearly ruined the paper's reputation and ended the careers of its top editors. Okay, look -- is The New York Times an Island of Misfit Media Toys?
A: I'm told that our executive editor, Bill Keller, recently moaned that his media columnist was a former crack addict with a violent streak, that a top food writer had bulimia, and that his economics reporter can't balance a checkbook. So is there something in the water at The Times? It's an incredible paper with an extraordinary array of talented journalists -- David Carr is one of the jewels -- but reporters are human beings, and human beings are flawed. The wonderful thing about working at The New York Times is that you become trained to wrestle with uncomfortable and even queasy questions. No matter what subject you cover, you inevitably have to confront unpleasant facts even about people you admire and agree with.
I think David Carr's book is a fascinating, totally original meditation on our haphazard memories, on self-perception and self-awareness. David has said he started the book in part to help put his daughters through college, but he really has something new and useful to say, and not just about drug addiction. Same thing with me. I'd love to make some money on this book, but I never ever expected it to solve my financial crisis. But I did think I had an incredible opportunity to shed some light on the worst business catastrophe since the Great Depression. It was the one book I thought I would read myself, beginning to end, and I was burning to write it.
Edmund L. Andrews's Busted: Life Inside the Great Mortgage Meltdown (W.W. Norton, $26) comes out next month. For more on the controversy over the narrative omissions, check out DailyFinance.com.
Reader Comments (Page 1 of 3)
5-26-2009 @ 6:04AM
Allnaturalguy said...
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5-26-2009 @ 6:07AM
Bigbizman said...
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5-26-2009 @ 6:36AM
sbourg said...
Excellent article by TBarlow. Congrats. And it's even precise enough to draw some important "semi-conclusions" about Andrews. First, I'm highly skeptical of Andrews's abilities to take on an analysis of the mortgage loan business. He seems to have ignored Carter's CRAct and Clinton's draconian regulations that forced lenders to give huge fractions of their loans to poor people starting in 1995, or face severe penalties. They therefore HAD to make loans that immediately became ticking time bombs. If Andrews ignored this and/or didn't sufficiently conclude how responsible these actions were by Democrat "do-gooders" in bastardizing the system and business of home loans.......well, then it would not be surprising, because again, I'm highly skeptical of Andrews and his conclusions that I wouldn't pay 25 cents for. I'm sure he probably looked for the "easy" conclusions......blame the businesses. No surprise there. How about "caveat emptor"?
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5-26-2009 @ 7:27AM
Fred said...
I feel for everyone in foreclosure or in such financial woes but what really happened here is mortgage companies sold loans to people well above and beyond their ability to pay and for whatever reason, the home buyers were unable to decline by simply stating "I may qualify for that much but what I can qualify for and what I can pay for are two different things. People need to learn to think on their own and not depend on what a co worker has, what a relative has, or anyone else. Quit trying to impress others and purchase what you need.
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5-26-2009 @ 7:39AM
Amey said...
Tom, I think you're right that this is an important book. I just read the NYT excerpt so far, but I did have a sense that there will be a happy ending for this family because he will hopefully make a mint off this book. I was definitely rooting for him reading this and know a lot of people in the same bind.
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5-26-2009 @ 7:55AM
G Edward King said...
When are people going to wake up to the fact that the real problem that started this whole mess is the exporting of jobs out of the country. when people don't have a job how can they pay their morgage. first it hit the worker, and now the higher up's in Industry, who bought them high priced house's, cars, boats ect.
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5-26-2009 @ 7:56AM
jill said...
several years ago, my real estate agent neighbors tried to convince me that I could buy a bigger house, because they had all kinds of "creative" loans around. I knew I was just barely making it in my house as it is (the property taxes in NY are astronomical-they are more than my mortgage)-I knew that taking on more debt was insane, AND SO SHOULD OTHER PEOPLE...how intelligent do you have to be to realize that if you can't afford something at the price you're alreay paying, you can't afford something even higher!!
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5-26-2009 @ 7:58AM
holistchomeopath said...
yes many books will be written about the subprime fiasco. a fiasco created by bill clinton and driven by barney franks. the mystery here is, why doesnt the press ever mention the fact that these two incompetant fools caused this mess? meanwhile nobama consistantly points the finger at george bush. typical hitlerian move. demonize your enemy. beware America. be very aware. join grassfire.org
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5-26-2009 @ 8:01AM
Paul Williams said...
A lesson here for everyone. LIVE WITHIN YOUR MEANS!!! Don't expect a government bailout. That's socialism. Take charge of your finances and don't expect the US Govt. to pull you out of the crapper.
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5-27-2009 @ 7:44AM
duckhookmaster said...
Hey Edmund. Next time you get that warm, fuzzy feeling take a cold shower, or at least get a prenup.
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5-26-2009 @ 8:47AM
jim said...
listen people everybody is stuck in the mud of other peoples GREED ! It's that simple everyone feels that we all bought homes that we cannot afford wake thFu%k up i was grossing about 40-60,000 a month the economy hit the wall at lightspeed and crashed im lucky to gross 12,000 a month (on a great month now) I am self employed have been for over 15 years i now have troble with my mortgage I have 7 years left to pay my fault?? bull sh*t!! greed got the big fish and they will always make theirs, they just shoved it into the laps of the average joe and now we are stuck with it ! good jobs = home greedy rich people = economic meltdown +no job and of course no home !
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5-26-2009 @ 8:54AM
whereisvic said...
Bill Clinton is to blame? What about republicans Gramm-Leach and by extension McCain....They are the ones who wanted the regs loosened so that investment groups could cash in on the housing bubble. And investors are who burst the bubble! They flooded the market with houses, more houses than could be purchased...lowering the value of homes surrounding their developments....putting those who may or may not have used their home equity in the position of being upside down in their home mortgage. Yes, Bill Clinton did push to allow individuals to use the loosened up regulations because, after all, if the housing boom was going to benefit the rich shouldn't it also benefit the average American? I am so sick of people blaming individuals when it is quite obviously greedy investors who burst the bubble. Don't believe me...drive around...you will see entire neighborhoods of $200 to $300K homes empty....that is not caused by individuals conservatives fire their insults and anger towards but instead towards investors and the greedy who pushed Gramm-Leach.
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5-26-2009 @ 9:07AM
no slappz said...
The original article ignores the alimony and child support received by Andrews' wife. She too was divorced with kids. Bottom line -- he blamed everything on her. That fact may have been shadowed by all the blather about everything else.
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5-26-2009 @ 9:13AM
kjlib said...
Amazing, when you can blame a politician for people's stupidity in borrowing more than they can repay.
Amazing, that Andrews can say "the house and neighborhood provided an anchor of stability for our children at a time of enormous stress for them " and ignore that losing their second home, and seeing the new marriage's serious problems has to be a greater source of stress for his and his wife's children than what might have come before. His and his new wife's divorces and subsequent upheaval of their children's lives were the cause of the original stress, and now they have piled worse stress on top of the original. Their poor choices started well before their money management fiasco.
Blame the government. There "oughta be a law" against arithmetically challenged and/or seriously short-sighted, selfish adults.
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5-26-2009 @ 9:17AM
chillax said...
I thought he was blaming her too but, if she is married to someone else she is not getting alimony from any previous husband. Child support was most certainly consumed by the day to day living of her children so, she really didn't contribute a great deal after she was fired. Don't get me wrong, I find them to be equally culpable in their financial demise. Some are never happy with what they have and are always looking to "upgrade" whether it is a house, car, or spouse....it appears both people in the Andrews marriage were not realistic about life or finances.
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5-26-2009 @ 9:17AM
Mary said...
Since when is a bigger house better? Seriously, why do some people think that? We just sold our house and are downsizing. We found a small place with more garage space for my husbands business and it has an art studio for me. The house is not in "the best" neighborhood according to "some" people. BUT it gives us what we need, a creative outlet. What if more people bought houses then "needed"...and who is impressed by these McMansions in the suburbs? Not me.
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5-26-2009 @ 9:56AM
delores said...
FREE grants!!!!!!!!!! There's nothing FREE about it. Where do you think the government gets its money. Taxes!! Taxpayers!! Anyone working is giving this money. If we can get rid of these FREE money programs we could pay less taxes. Granted some of these programs are needed to help people build businesses, etc. But to help someone buy a car? NOTHING is FREE. Someone paid for it.
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9-07-2009 @ 7:24PM
eanmdphd said...
Perhaps instead of buying the book, people can get it from the library, a good source of reading material... instead of having their own book to put in their own bookcase in a home that they have no chance of actually ever owning.
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5-26-2009 @ 10:42AM
David Pitlock said...
Blame Gramm-Leach but not Clinton? Sounds like another Republican party basher! The facts are: 82% of Democrats voted in favor of Gramm-Leach, so let's face reality and state that both Republicans and Democrats are to blame. Same goes for blaming Wall Street. It is true that Wall Street execs created the financing vehicles to accommodate less-than-creditworthy borrowers to acquire homes far beyond their means. But how many less-than-creditworthy borrowers have any dialogue with Wall Street types? The less-than-creditworthy borrowers were fooled by ethics-lacking real estate salespeople and mortgage brokers, living on Main Street, who did not care about the loans being paid off. They just wanted their commissions paid today!!
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5-26-2009 @ 10:43AM
samuel said...
This mortgage problem didn't start with Bill Clinton or George Bush but now Obama is trying to stop the bleeding. The banks and the people themselves are the real problem. So many of us were on high times when the money was flowing, now we are all pointing the finger that it's over. The the banks lend money and I fault the people for purchasing things they couldn't afford. The banks tried looking at it base on the over all long run as to how much one could afford based on their pay scale and the ability to make more money over time with raises etc...
The people that got themselves into this mess are to blame and now like all things, let's point the finger at someone else. You know damn well you can't afford a home of $250.000.00 and all the other things that come with it when you're only making $40 or $50.000.00 a year. But we the people, we see all this crap that we wanted and still tried it anyway and now we filling the pinch.
Here I see it as the people that are now hurting from this mess let themselves be played by the banks. They the banks made it look good, but you know when you go into any bank office they look at what you make and base this on a 60,40% dept racial. Once this was done, lots of people went outside and then started making purchases on other things. This is the fault of the people and no one else. Now, people are going to have to live within their means & not live high on the hog.
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