Wednesday, May 27, 2009

Leftist Media Bias of the Day

In the Sunday May 17th New York Times Magazine, journalist Edmund Andrews told his own story:
At any other time in history, the idea of someone like me borrowing more than $400,000 would have seemed insane. . . As I quickly found out, American Home Mortgage had become one of the fastest-growing mortgage lenders in the country. One of its specialties was serving people just like me: borrowers with good credit scores who wanted to stretch their finances far beyond what our incomes could justify. In industry jargon, we were "Alt-A customers, and we usually paid slightly higher rates for the privilege of concealing our financial weaknesses.

What about my alimony and child-support obligations? No need to mention them. What would happen when they saw the automatic withholdings in my paycheck? No need to show them. If I wanted to buy a house, Bob [Edmund Andrews's loan officer], figured, it was my job to decide whether I could afford it. His job was to make it happen.

"I am here to enable dreams," he explained to me long afterward. Bob’s view was that if I’d been unemployed for seven years and didn’t have a dime to my name but I wanted a house, he wouldn’t question my prudence. "Who am I to tell you that you shouldn’t do what you want to do? I am here to sell money and to help you do what you want to do. At the end of the day, it’s your signature on the mortgage -- not mine."

You had to admire this muscular logic. My lenders weren’t assuming that I was an angel. They were betting that a default would be more painful to me than to them. If I wanted to take a risk, for whatever reason, they were not going to second-guess me. . .
By 2008, Andrews and his wife fell behind on mortgage payments, and became subject to foreclosure. Two points:
  1. Bad outcomes don't necessarily imply a flawed or fraudulent process. I sympathize with Andrews. But, Andrews calls it "mortgage madness." And, this being the New York Times, he paints himself as a victim--of greedy bankers:
    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. . .
    Got that?--neither duped not hypnotized, but deceived. An economic expert, yet helpless to resist a loan officer trying to help Andrews realize his dream.

    This is Wall Street's fault? Isn't it more like comedian Mort Sahl's famous parody NY Times headline: "World Ends. Nuclear Holocaust. Women and Minorities Hit Hardest"?


  2. The Times still doesn't fact check. Contrary to the ombudsman's whitewash, something's missing from Andrews' tale. Megan McArdle revealed it in her Atlantic magazine blog:
    [Andrews' writing] reads like the story of an American Everyman, easily sucked in to the alluring world of easy credit as he struggled to blend a new family. The terrifying implication is that it could happen to you--to anyone who leads with their heart and not their head.

    But en route to that moral, it turns out the story has been tidied up a little. Patty Barreiro, Andrews' wife, has declared bankruptcy twice. The second time was while they were married, a detail that didn't make it into either the book or the excerpt that ran in last Sunday's New York Times Magazine.

    Andrews' desire to shield his wife is understandable--hell, laudable. No decent person wants to parade their spouse's financial trouble in front of the world. But this is material information that changes the tenor of his story. Serial bankruptcy is not a creation of the current credit crisis, and it doesn't just happen to anyone, particularly anyone with a six figure salary. . .

    Serial bankruptcies can, of course, happen to anyone with enough bad luck. But they usually don't. And when they do, they usually hit people with marginal incomes that leave no margin for error in the budget. . .

    Moreover, pesky bad luck isn't really the picture painted by either filing. Rather, Ms. Barreiro seems to have spent most of the last two decades living right up to the edge of her income, and beyond, and then massively defaulting. If you structure your finances so that absolutely everything has to go right, it's hard to blame the mortgage company when you don't quite make it.

    Andrews has been admirably open about many of the poor decisions and the wishful thinking that led him deep into debt. Nonetheless, he has laid much of the blame onto irresponsible bankers and mortgage brokers. The missing bankruptcies substantially undermine this basic narrative arc of Andrews' story. Particularly in his book, the bankers are the villains, America's current troubles are the inevitable denouement of their maniacal greed, and the Andrews household stands in for an American public led, by their own greed and longing and hopeful trust, into the money pit.
    BTW, a comment on another blog says that Andrews' 2004 mortgage was interest-only, and he refinanced twice since--with the attendant costs and taxes.
Conclusions: Despite the class-warfare narrative, the credit crunch wasn't caused by fraudulent fat-cats nor Federal "swindlers". There were systemic failures, many of which are fixable. But mostly, the mistakes were made by millions of individuals such as Andrews chasing a dream and--unfortunately--reaching a bit too far.

Although the current confusion is understandable when the mainstream media fails to fact-check liberal presumptions and limits what's "fit to print" to the spectrum from fables to politically convenient half-truths.

(via Instapundit, TimesWatch)

11 comments:

bobn said...

But mostly, the mistakes were made by millions of individuals such as Andrews chasing a dream and--unfortunately--reaching a bit too far.Andrews was an idiot, and was probably doomed even if his wife had some sense.

But the tendency of humans to reach too far has always been with us - gee, I wonder what changed?

MaxedOutMama said...

Oh, please. This guy is a total doofus. He's the one who bought the house. The original mortgage payment ate up all his take home, leaving him only a few hundred a month to live on. His "plan" was for his new wife (who hadn't worked in a very long time, and who was bringing in major debts of her own) to pay for everything else. It was never viable. His story is interesting only because it shows just how bad the lending was.

Nothing about the system caused this guy's problems. A divorce, child support, alimony and stupidity are the causes.

bobn said...

As I said: "Andrews was an idiot, and was probably doomed even if his wife had some sense."

I was referring to the genralization that borrowers caused this. We've always had senseless borrowers - but until we had mortgage-brokers being fed YSP, and securitisers with 40:1 leverage and an SEC that didn't give a damn about anything - the senseless borrowers were told "no".

OBloodyHell said...

> 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.

And yet this man has the BALLS to actually claim the right to speak on economic issues.

Excuse me while I go write a piece for the NYT about how a woman should feel after she's been raped.... No facts or reasoning behind it... but it should succeed just on BALLS, right?

OBloodyHell said...

> I was referring to the genralization that borrowers caused this. We've always had senseless borrowers - but until we had mortgage-brokers being fed YSP, and securitisers with 40:1 leverage and an SEC that didn't give a damn about anything - the senseless borrowers were told "no".

Ah, so, then, bob, when Franklin Raines, of Fannie Mae fame, argued before the Democrats in the Senate Oversight Committee regarding OFHEO's allegations of chicanery and shifty accounting practices (even for a defacto agency of the government!!), and claimed that "2% reserve was too much", that was A-OK, right?

And when same Dems on same committee excoriated not Raines but the representative of OFHEO who brought this to the public's attention, and made claims like "There's nothing wrong with Fannie Mae or Freddie Mac" and "I want to roll the dice a bit longer", that was all the Bush SEC's fault?

This crap at least could have been headed off in 2004 and 2005 by prompt and intelligent attention from the Senate Oversight committee whose job it is to pay attention to such things.

We might have had a downturn but I'd lay huge odds we'd have had a lot less of one than we got with two more years of defective business practices and "unregulated" government oversight that still manages to constitute millions of pages of paperwork each year.

Even if we allow for volume, how many pages of government "oversight" occurred per transaction in the 1800s?

Yet a modern industrial empire was created, literally from scratch, with such boundless opportunities for abuse intact...

So, what, exactly, are you claiming this government oversight is supposed to be providing??

.

Carl said...

bobn:

I agree that some aspects of banking oversight need re-working. But regulation is less appropriate where the incentives are appropriate:


""Who am I to tell you that you shouldn’t do what you want to do? I am here to sell money and to help you do what you want to do. At the end of the day, it’s your signature on the mortgage -- not mine."

You had to admire this muscular logic. My lenders weren’t assuming that I was an angel. They were betting that a default would be more painful to me than to them. If I wanted to take a risk, for whatever reason, they were not going to second-guess me. . ."



Why are you so eager to curtail individual choices and freely entered-into contracts?

OBloodyHell said...

> Why are you so eager to curtail individual choices and freely entered-into contracts?

One word: "Liberal".

bobn said...

OBH:

GSEs were under regulation of OFHEO, which was part of HUD, which was part of the EXECUTIVE branch. The fact that stupid congress-critters (but I repeat myself) said stupid stuff to the head of OFHEO in no way removed his legal requirement to regulate the GSEs sensibly. (I'll admit the regulation of GSEs under Clinton was no better - but the explosion of garbage didn't happen under CLinton, it happened under Bush, who was every bit as far into the "ownership society" crap as the Dems, maybe even moreso.)

And since GSEs were subject to regulation by the executive branch, I won't be discussing this again.


Carl:

Systemically imporatant entities (TBTF) should not be allowed to participate in activities (YSP; CDOs; Securities fraud) that bypass all sensible restraints. I repeat: borrowers who were trying to get in over their heads used to be told "NO". And I still maintain that it's no coincidence that the end of NO followed the massive changes made to a previously working system. We went from the end of the First Great Depression until almost 2000 with no huge crackups. (I'mm not sure how to classify the tech bubble.) That says something for the regulatory regime that was in place, but was dismantled (bi-partisan legislation at the end of the '90s) or ignored (BushCo "regulation").

bobn said...

We went from the end of the First Great Depression until almost 2000 with no huge crackups.

I forgot the S&L crisis. But deregulation and nonregulation seem to have been involved there, too.

It's scary - the S&L crisis looked so big then, and looks so tiny now.....

bobn said...

Why are you so eager to curtail individual choices and freely entered-into contracts?Oh, maybe because the transaction was fraudulent (both sides knew or should have known there was no way this could work) and that millions of the many variations of these, put together, are destroying the world? That sounds like a good reason to me.

One word: "Liberal".

Flattery will get you nowhere.

Who was the last Liberal you know who was rabidly against gun-control, in favor of killing terrorists and pirates wherever it can be done, and against any PC accomodation of creeping Islamofascism?

But hey, if all that, combined with the idea that reasonable regulation of corporations is needed to prevent excessive concentration and abuse of power by large corporation - if that makes me a Liberal, then so be it.

But I think it's silly name calling - and I really couldn't care less. I've already spent too much time responding to it.

Carl said...

bobn:

CDOs and fraud are birds of a different feather. Except for you, there seems to be widespread agreement that--properly accounted for on bank balance sheets--CDOs are good for risk spreading and efficiency. Don't lump them together with illegal activities.