Friday, May 15, 2009

Wow. This is a Must-Read.

Here's how the story begins (all emphasis mine):

If there was anybody who should have avoided the mortgage catastrophe, it was I. 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 articles 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.

But in 2004, I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me. Like so many others — borrowers, lenders and the Wall Street dealmakers behind them — I just thought I could beat the odds. We all had our reasons. The brokers and dealmakers were scoring huge commissions. Ordinary homebuyers were stretching to get into first houses, or bigger houses, or better neighborhoods. Some were greedy, some were desperate and some were deceived.


So, the author starts a new family with a second wife, and buys too much house-- his budget is stretched to cover alimony payments so he gets a no-doc mortgage. Then his credit cards get maxed out, not just because he and his wife are spending a lot, but because his overdraft protection hits his credit card with a minimum $100 charge every time he's overdrawn! Before you know it, he's broke:

I felt foolish, ashamed and angry as I confessed to Bob. Why had I been trying to live a lifestyle that I couldn’t afford? Why had I tried to keep up the image of a conventional suburban family man, when nothing about my situation was conventional? How could I have glossed over the fact that we had been spending about $3,000 more than we were earning, month after month after month? How could a person who wrote about economics for a living fall into the kind of credit-card trap that consumer groups had warned about for years?


But guess what, it gets worse. Bob the mortgage guy helps him "solve" his money problems by consolidating his debt into a new, even bigger adjustable rate mortgage that could potentially hit rates of 11.5%:
The paperwork was so confusing that I was never exactly sure who was paying what. I hazily understood that I was paying most of the fees, one way or another, but I couldn’t figure out how, and I couldn’t see any better alternatives. After it was all over, I figured we had paid about $5,800 in fees to Bob’s mortgage company and the settlement company, on top of the sales commission that came out in higher interest rates every month.


I won't spoil the rest of the story for you-- it's a long article, but read it all!

My Personal Credit Crisis, by Edmund L. Andrews. The web article is a preview from the 5/17 New York Times Magazine.

17 comments:

Hazzard said...

WOW!!!!

When I read that I was thinking of people around me that are probably in similar emotional distress for the same reasons.

It's amazing how crooked the industry became due to all the capital floating around out there. They called it "easy money" but if you asked them today I think they'd call it "hard money" due to the holes they are finding themselves in.

I really found the part where he talked about how different they each felt about money, pretty fascinating. Thank God my wife and I have similar views towards spending!!!

MrsSmith said...

I am not exaggerating when I say that the article turned my stomach! I was really, truly sick! It was totally horrifying- like watching a really gruesome car wreck!

Adrienne said...

I was in a similar boat in 2007. Not from buying too much house, but trying to sell one while also paying the mortgage on a new one. So yes, I too lived off my credit card for everyday purchases because all my income was going towards mortgages.

At first I passed some judgement at their (or really the wife's) choice to shop at JCrew and go on vacations, but I had my own indulgences while I was down and out too. I think there is something about being down and slightly out that forces you to have just that one indulgence...which you always regret of course.

clear_water said...

One of the scariest stories ever; and sadly repeated all ove the country (the world?).

For the just-as-scary-if-not-more flipside, the New Yorker's current article "The Death of Kings" on the wizards of Wall Street and beyond who created the financial instruments that made this all possible:

http://www.newyorker.com/reporting/2009/05/18/090518fa_fact_paumgarten

Anonymous said...

There's nothing to spoil. This guy got off easy. Yeah, he's stressed out, but he hasn't paid a bill in 8 months. I wish I could not pay a bill for 8 months. All the people that are so rich are getting off easy even though they were the ones that bought into the "fast-money" scheme. I agree with MrsSmith. This story makes me sick.

-Tasha

lazybride said...

reading that article was traumatizing.

I can't believe he didn't know better than to sign up for those loans!

Andrea said...

Thanks for a great link Madame X! I felt more and more anxious as I read his story. I also felt angry that someone with his knowledge made those decisions...but I guess that was the whole point of the article, wasn't it?

TeacHer said...

What a harrowing story! I think it's very easy to say "I would never do something so stupid," but really, it only takes one or two stupid moves to set the financial dominoes in motion. I am so thankful that I made my stupid moves at a young age, so I have plenty of time to recover. Hopefully, I won't have any more :)

Anonymous said...

There's nothing to spoil. This guy got off easy. Yeah, he's stressed out, but he hasn't paid a bill in 8 months. I wish I could not pay a bill for 8 months. All the people that are so rich are getting off easy even though they were the ones that bought into the "fast-money" scheme. I agree with MrsSmith. This story makes me sick.
Seriously. What a jerk: he rolled up all his and his wife's indulgences into his house, which he intends to default on. So he'll walk away with a dinged credit score and a tenth of the debt he deserves. He's a scumbag.

mOOm said...

And it seems that the house he bought was an average priced one for the Washington Metro area. So from that perspective it might not have seemed such a silly thing to do...

mOOm said...

hmmm he has to pay $4000 a month in alimony but she gets nothing from her former husband for the upkeep of her children? Why?

Anonymous said...

Please. This idiot dug a hole, and then he continued digging. I have no sympathy for this ass who knowingly lived beyond his means. It wasn't like he had a medical crisis or something unexpected. His situation was spending more than he made. End of story.

Adding insult to injury, he turns around and writes a book about.

The only thing this story shows is the supposed "experts" in the media are clueless.

If I was King we'd bring back debtors prisons for idiots like this who make $120,000 a year and stick it to others to clean up his mess.

Hope they garner his royalties to pay his debts.

Alison | Quest for Balance said...

I came across this article the other day and read it straight through! This is an insightful look into the credit mess from a personal perspective. However, I agree with the previous commenters who feel that he is getting off easy. I find it hard to see how some various obvious pieces of his personal puzzle could have been overlooked! I also don't have a lot of sympathy for people who overspend on discretionary items, then default on their financial obligations.

kelsi said...

The most ridiculous thing about this debacle?
This dude (a.k.a. Professional Financial Reporter) finally came forward to share his personal financial woes when he's promoting his own book. No point exposing his own stupidity unless he can profit from it. Blah. Loser.

SavingDiva said...

This is insane! I hope this recent craziness serves as a warning for younger generations...but I have a feeling things are just going to repeat in a few years :(

Liz said...

The story recently took an interesting turn. Read this Atlantic article: http://meganmcardle.theatlantic.com/archives/2009/05/the_road_to_bankruptcy.php for the details Edmund Andrews didn't include in the book.

Madame X said...

Thanks for that link, Liz! That certainly is an interesting, if not entirely surprising, twist!