A little data dropout at the Cliche Cafe

At the age of 27 I emerged from the money-free world of graduate school into a land of regular employment with a paycheck that looked huge and bright, shiny credit cards. I proceeded fairly quickly to get myself in way over my head financially. Once I realized I was spending a more than trivial amount of time fretting over bills, I took myself off to a financial counselor who assigned me homework: write down everything I’d spent over the last year and then everything I was obligated to spend currently. Unusually for me, I actually did my homework - clear proof of how truly worried I was - and reported back that it had been an eye-opening experience.

The counselor smiled and told me that for most of his clients the exercise of having to face in black and white exactly what their financial situation really was often sufficed to set them on the path to economic righteousness. It certainly did for me. I took the counselor’s advice to recast my car loan; it meant exchanging lower monthly payments for a longer term and therefore more interest paid in the end, but was still an excellent deal since the money I saved each month on that payment could now go to pay down the much more expensive credit card debt I owed. I took a second weekend job and put every penny from that job and every penny I could squeeze out of my regular paycheck toward my credit card debt.

Within a year I was debt-free and able to quit my weekend job. As I got a credit card paid off, I cancelled it and for years after that experience the only credit card I carried was American Express - because that I had to pay off every month. I cannot tell you how many free credit card offers I have torn up, how many times I have turned down the offer of a department store credit card. (“Sign up now and get 10, 15, 25% off your current purchase.”) I found that if a particular saleslady was especially insistent I could simply explain that I found too many credit cards too great a temptation and almost always receive an “I gotcha” in response.

I know it is this piece of my history that colored much of my initial reaction to Edmund Andrews’ story of taking on truly massive debt. The contempt I felt for him and his story stemmed from the fact that he had taken on so incredibly much debt without stopping to think about what he was doing and stop doing it and - most of all - from the fact that he had put assorted children at financial risk through his greed and stupidity. Nonetheless, I could understand both the greed and the stupidity. I got into trouble when I moved from a graduate school world of bare minimum money to a gainfully employed world that looked filled with financial excess. In Andrews’ case, it was the world that moved. As Andrews puts it, “this was unlike any other time in history”; “the money was there”. Like me, Andrews found himself in a new world of financial excess and was unable or unwilling to resist the shiny goodies that now seemed within his reach.

So I could relate to the core of his story if not to the sheer excess or to his willingness to drag his and his new wife’s children over the edge with him. Andrews’ story was a small version of the great tragedies: we relate to Othello because we understand jealousy; to Macbeth because we understand ambition; to Romeo and Juliet because we have felt “I’ll die if I can’t have you” love. We would never go so far as murder, serial murder, or suicide but we understand the impulse behind them. I never went - would never have gone - as far as Andrews down the road to financial ruin but I could understand the basic impulse, the response to that unexplored realm of materialist plenty.

There’s just one problem. It looks like Andrews’ story was not a classic tragedy for our time but the oldest cliche in the book: a mid-life romance with the least suitable person he could find. According to Megan McArdle, Andrews’ “brainy, regal, sexy, fiery and eclectic” new wife Patty is a repeat bankrupt. She filed for bankruptcy in 1998 along with her first husband. Almost as soon as her eight-year waiting period was up, in 2007, she filed again. At this time she was already married to Andrews and although she attempted to file separately, his income was added to the filing at the insistence of a creditor.

Patty’s bankruptcy filings were not mentioned in Andrews’ New York Times article and according to McArdle are not mentioned in his book either. This is like Shakespeare forgetting to mention Iago, Lady Macbeth and the witches, and those two other guys who killed themselves over Juliet. Andrews is not a kid in the brand new candy store of financial excess: he’s a sane, sober economics writer who kicked over the traces just before his 50th birthday by marrying a woman who thrives on not just financial excess but financial chaos. He’s the pushing-50 bank manager who falls for an embezzler; the pushing-50 cop who is infatuated with the crook; the pushing-50 Baptist minister who marries the alcoholic. He’s sad and trite and because of the kids he’s even tragic. But he is not a cautionary tale about subprime mortgages, easy credit, predatory lending, or too many credit cards. He's not even a cautionary tale about greed. He’s just a guy who makes us yearn for the days when he would have gotten his hormonal rebellion out of his system by spending a little too much on a red convertible and hair plugs.

I have far less desire to read Andrews’ book than I did before I knew about Patty’s bankruptcies and if I do read it, I’ll be mostly looking for the things in the book that don’t quite make sense unless you know about his data dropout. I also no longer have any desire to hear Patty’s version of the story. I don’t consider her the villainess of the piece - she is what she is and always has been - but I no longer feel she came off badly in Andrews’ version. Besides she is as much of a cliche as he is.

However, I would still like to hear Patty’s former husband’s version of their economic adventures and, boy, would I love to hear what Andrews’ former wife has to say about their financial life together.

Into thin air

On May 14, The New York Times printed Edmund Andrews’ article about embracing massive debt. I have six thoughts on this.

First, I don’t see how anyone can claim this is a story about predatory lending. To me, predatory lending assumes a certain lack of sophistication, intelligence, and/or education on the part of the borrower and a certain amount of misleading on the part of the lender. Andrews is an economics reporter for The New York Times and as Conor Clarke points out certainly seemed to understand the costs of borrowing more money than you can afford in order to buy a home. As for the lender (Bob), he didn’t mislead Andrews in any way. Although Andrews skims over the process, it seems clear to me he wound up talking to Bob because Andrews and his real estate agent both knew he’d never qualify for a “normal” mortgage. Once contacted, Bob made it clear that obtaining a mortgage would require withholding pertinent information (emphasis mine):

But given my actual income after alimony and child support, I couldn’t possibly have qualified for a standard mortgage. Bob’s plan was to write a “stated-income loan,” or “liar’s loan”,” so that I wouldn’t have to give the game away by producing paychecks or tax returns.

When Bob’s first attempt at this type of loan failed, Bob explained exactly why this had happened: the underwriters determined Andrews was carrying too much debt. Instead Bob got him a loan which allowed him to withhold even more pertinent information. There was a higher interest rate but Bob reassured him that his home’s value would go up and he could refinance.

Bob was right. After a year and a half the house had gone up enough in value to allow Andrews to take out a home equity loan which Bob told him up front would be “really ugly”. Why did Andrews need this home equity loan? Because he’d buried himself in credit card debt. So instead of thanking the mortgage gods that he could buy the house at all, cutting expenses to the bone, preserving his good credit score, and being able to refinance the house at a good rate when its value went up, Andrews spent money like it was water and relied on the increased value of his house to cover his credit cards.

There is no doubt this was stupid on Andrews’ part but he knew and understood exactly what he was doing. No one can believably claim otherwise. As for Bob, he did not mislead Andrews at any point. Do I think Andrews should have been able to get the loans he did? No. I believe the law should require that buyers put 20% down on a mortgage and that the monthly payments on their mortgage should not exceed more than 25% of their income. Home equity loans shouldn’t change those figures. So it should be illegal for Andrews to borrow and Bob to lend the way they did. But it’s not. It is in fact perfectly legal and everyone went into this situation with their eyes wide open.

Second, the article reminds me very much of Jon Krakauer’s Into Thin Air, a book about a lot of people who should have known better trying to climb Mount Everest under the auspices of a lot of guides who should have know better. The book is a horrifying tale of people endangering themselves and others to feed their greed. The climbers’ greed was for glory, for bragging rights, for achieving something they had not earned. How different is that from Andrews’ greed for a nice home, a beach house, dinners out? Not very. And Bob the mortgage guy is not so different from the Everest guides who did nothing illegal and were totally upfront about the fact that there was risk involved but must have known they were putting their clients in a terribly dangerous position.

Similarly, I found Into Thin Air un-put-downable but I hold the author in contempt as a human being. Although not as strong - Andrews’ little adventure didn’t actually kill people - my reaction to his story and him are the same. As Althouse put it:

It was a readable article. I'll give him that. But I wanted to smack him.

Third, I won’t buy the book Andrews has written, for which his NYT article is just a teaser. I’ll read the book, just as I read and reread Into Thin Air but I won’t contribute to bailing Andrews out of debt by paying for it. Althouse says she “felt aggressively hostile to giving Andrews any attention.” I feel aggressively hostile to giving him any money.

Fourth, I’d like to know how Andrews is doing in five years. I’m assuming he’s counting on the book to get his head above financial water. It will be interesting to see if it does so or if he continues to see every hope of increased income as a reason to run up still more debt.

Fifth, when people make the argument that getting married, staying married, and having kids in a stable marriage is the best way to avoid poverty, I tend to think they’re talking about the poor, uneducated, and disadvantaged finding it easier to escape poverty by following this advice. Based on Megan McArdle’s thoughts after reading Andrews’ book, though, it’s pretty clear Andrews’ slide into financial hell began when he divorced his wife; his inamorata, Patty, divorced her husband; Andrews and Patty got married; and “Andrews took on the obligation to support two adult women and, by [McArdle’s] count, six children.“ Clearly a messy personal life is not just a recipe for staying poor; it’s also a good way to get poor.

Sixth, I’d really like to hear some other versions of this story. Andrews’ first wife and Patty’s former husband would provide an interesting look at what their financial lives looked like prior to breaking up and reforming the families.

As for Patty, she comes off pretty badly in the article. I’d love to hear her view of what was going on as they spent more and more and had less and less. Maybe if Andrews’ book isn’t enough to get them out of debt, Patty can give it a try.