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.