In 2004, Edmund Andrews dove into the world of subprime mortgages and bought a home he couldn't afford. Two years later, he wound up with $50,000 in credit card debt, and the stress and panic attacks started straining his relationship with his new finacee, Patty. Currently, he's seven months behind on his mortgage and he faces foreclosure proceedings.
Andrews should have known better - after all, he's a business reporter for the New York Times, who's been sounding the alarm about the looming housing crisis for several years.
In his new book, "Busted: Life Inside The Mortgage Meltdown," he writes:
If there is anybody who should have avoided the mortgage catastrophe, it is me. As an economics reporter for The New York Times, I have been the paper's chief eyes and ears on the Federal Reserve for the past six years. I watched Alan Greenspan and his successor, Ben S. Bernanke, at close range. I wrote several early-warning stories in 2004 about the spike in go-go mortgages. Before that, I had a hand in covering the Asian financial crisis of 1997, the Russia meltdown in 1998, and the dot-com collapse in 2000. I know a lot about the curveballs that the economy can throw at us.
"Nobody duped or hypnotized me," Andrews writes in an excerpt that appears in this Sunday's New York Times Magazine.
The most grotesque parts of Andrews' story involve the elaborate refinancing schemes his broker comes up with to solve his debt problems with, essentially, piles and piles of additional debt. Amid all the details, Andrews provides some great perspective, showing how his personal crisis reflected what was going on in the larger economy.
By the time that Patty and I fell behind, the rest of the world was falling apart so fast that Chase barely had time for us. Bear Stearns and Lehman Brothers were gone. American International Group, one of the world's biggest insurance conglomerates, received the biggest taxpayer-financed bailout in history. Citigroup was a zombie bank. All of them were brought down by the same mortgage madness that infected me.
Along the way, Andrews, who claims to be "an economic conservative," had his own crisis of faith as a "believer in the merits of capitalism." After his experience, which reminded him that "free markets can become corrupt and self-destructive," Andrews blames Wall Street and sides with the millions of homeowners who made bad choices.
Take a cue from the bank or Wall Street firm that is now trying to foreclose on your house. Don't apologize. They knew what they were getting into far better than you did. They knew they were in a giant Ponzi scheme, and they certainly should have known it would lead to disaster. They knew the housing bubble was a mirage. They knew their loans were absurd. They knew the triple-A ratings were bogus. They knew, they knew, they knew. They deserve whatever losses come their way.
Andrews has no patience with bankers and federal regulators deflecting responsibility by blaming the mortgage meltdown on fraud.
Once he was even moved to interrupt Alan Greenspan during an interview with the former Fed chief when Greenspan refused to take any blame for the crisis, "hiding behind anonymous bureaucrats to justify his inaction":
I had been ready to listen quietly. But then he talked about fraud, and I began to feel an irresistible urge to spill my guts... Yes, I had borrowed a huge pile of money without documenting my ability to keep up with the payments. But I hadn't defrauded anybody, and nobody had defrauded me It had all been perfectly legal. In fact, I had been assisted by a long chain of enablers and promoters - loan officers, underwriters, banks, Wall Street firms, and rating agencies.
When Andrews made his confession, "Alan Greenspan blanched. First he looked appalled. Then he looked perplexed. And for the first time that I could remember, his patient and gravelly voice turned curt and commanding. "Why did you do it?" he asked, interrupting me in midsentence. I felt like a teenager who had just told his father he had crashed the family car."
Andrews writes that he "might have been the only person [Greenspan] had known personally who had been caught in the mortgage meltdown."
The reporter uses his experience to dig deeper into the causes of the housing crisis - unweaving the web of subprime lenders, bankers, federal regulators and Greenspan, who refused to support a voluntary code of conduct for mortgage lenders and declined to use the Fed's authority to prohibit or restrict "unfair and deceptive practices" by any kind of mortgage lender.
As his personal problems threatened to impinge on his reporting, Andrews started to worry abougt whether he was crossing an ethical line as a journalist. But the New York Times ethics manual didn't address his situation. When he presented his book to the Times, standards editor Craig Whitney had some concerns and wondered if he could keep covering the issue since he was so personally involved, suggesting that Andrews recuse himself from stories involving his own mortgage lenders.
In the end, Andrews writes that he took "a certain pride" that he outlasted two of his three mortgage lenders, who ended up going out of business.
But his story, like the current economic crisis, isn't finished.