BOOK OF THE DAY: LAURA SLATTERYreviews Busted: Life Inside the Great Mortgage MeltdownBy Edmund L Andrews WW Norton Company 220pp, $25.95
OF ALL the crazy things to do when you’re in love, joining the ranks of the subprime mortgage masses must be the least fun of all.
Yet love is the reason New York Timeseconomics reporter Ed Andrews says he ignored every sinew of professional instinct and lied his way into a "second- chance" mortgage. Not long after a reunion with "sexy and cerebral" ex-schoolmate Patty Barreiro, he breaks up with his "resentful" wife of 21 years and persuades Patty to relocate to Maryland, where the rental properties are just that bit "icky".
So despite his take-home pay being decimated by alimony and Patty not having a job as such, they decide what they really want to do is buy a new house. Trouble is, even with an introductory “teaser” rate, the repayments on their desired $460,000 (€327,000) property equal almost 100 per cent of Andrews’s disposable income, and not even the sleaziest of subprime lenders will lend that much. Not officially, anyway.
Courtesy of a “stated income” mortgage – or “liar’s loan” – from the now defunct American Home Mortgage Corporation, Andrews can live in unrestrained credit- dependent harmony with Barreiro, all the while reporting on the alarmingly hot property market.
It’s a compelling scenario. Three credit-card debt piles, two suspect refinancing deals and one cataclysmic credit crunch later, and hot-tempered Ed and puffy-eyed Patty are spending $3,000 more each month than they have. Eventually, they just stop paying their mortgage.
The question Andrews asks in Busted is why did the lenders collude with him? Why was he enabled not only by the predatory subprime bottom-feeders, but by the bankers that took on the risk of dodgy debt by the trillion? Why were credit-rating agencies so happy to reinvent layers of subprime sludge as triple-A rated securities? Andrews gives a solid, stylish account of the banking meltdown, tracing the absurd line from “exploding ARMs” (especially nasty adjustable-rate mortgages) to collateralised debt obligations (CDOs) via a ticker-tape parade of IOUs.
Economically embedded racism and sexism mean “prime” black, Hispanic and female borrowers are ensnared by subprime products and charged even higher interest. The traps set, Lehman Brothers, Merrill Lynch et al play pass-the-parcel with the toxic debt, pocketing the fees and bonuses. In August 2007, everyone has to stop pretending they don’t know it’s a con. It wasn’t so much mass delusion, but mass fraud, wrapped in a fog of plausible deniability. Who knew that property prices could go down?
In the parallel personal drama, the misfortunes of both mortgage and marriage intertwine to an almost tragicomic degree: their estate agent acts like a relationship counsellor, while their wedding celebrant frets over the chasm separating their attitudes to money.
As he recounts their bitter arguments, Andrews proudly describes himself as a “first-class prick”. Obliged to work lower-status jobs to help cover the bills, Barreiro accuses him of chipping away at her self-esteem. “I am terrified of you,” she weeps.
He’s protesting too much, though, and still invites you to take his side. Poor Patty, we are told, misses her housekeeper and “once-dazzling wardrobe”.
This murky world of marital money mismanagement makes Busted an uncommonly voyeuristic pleasure for a book about high finance. But the problem with a tell-all memoir is that, if you don’t tell all, there are others who will do the job for you.
Read Busted,then check out the subsequent controversy online. There's a twist in the tale of Ed and Patty. But like a subprime lender intent on obfuscating the details, Andrews isn't declaring it all upfront.
Laura Slattery is an Irish Timesjournalist and the co-author with Caroline Madden of The Money Book: Everything you ever wanted to know about your finances (but were afraid to ask)