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Sunday, Nov 8, 2009
Roman Berry
Published Letters: 198 Editor's Choice: 10
The information about Patty Barreiro's bankruptcy filings should have been mentioned, but it seems to me that the lack of this info is being used in a way that is designed to obscure/discredit the larger point. And what is that point? It is simply that at the height of the housing bubble, brokers/lenders were more than happy to cast underwriting standards aside and make loans that -- absent a continuing inflation of the bubble which would allow for serial refinances -- buyers could never reasonably expect to be able to repay.
Was Patty Barreiro someone who liked to spend money on things beyond her actual means? It seems clear that she was, and that there was a good deal of friction (disclosed by Andrew Edmund) over this issue. But suppose Patty Barreiro never spent a single cent at J Crew, or that Andrew Edmund had disconnected his home cable/internet/phone service. Would they then have been able to pay their mortgage, put food on the table, keep the lights on and pay their water bill, property taxes and meet other basic needs? I can't see how. Regardless of Patty Barreiro's habits, the question of getting into trouble with the mortgage they were allowed to take out when they never should have been able to qualify in the first place was a question not of "if" but "when". And that's the bottom line. As I said above, the only way this was going to work was if the value of real estate continued its climb and Edmund/Barreiro and untold thousands of others had been able to serially refinance at favorable rates, drawing money out of their ATM/house each time.
We had mortgage products that never should have been offered. Low doc. No doc. Stated income. As long as your FICO score was above 640 (which is a low score really), you were golden. Fog a mirror? Get a loan!
Don't let the Patty Barreiro bankruptcy issue obscure the larger point. We had a toxic culture of debt and it was the poison that allowed many families to live a lifestyle beyond their means. This toxic culture of debt is what was used by both financial interests and the government to mask the fact that the expenses of living have far outpaced the wages and salaries of the vast majority. And this toxic culture of debt is the status quo that our government (through the bailout of banks and Wall Street) is pushing us to return to.
It was a mess. It is a mess. Don't get distracted from that point.
It was not my intention to excuse a financial reporter from "the newspaper of record" or his wife from any responsibility in this particular instance. Andrew Edmund and his wife were beyond all doubt living right on the edge of the possible where absolutely everything from an income for the wife which was beyond the median household income for the United States to the continued inflation of the real estate bubble to the ability to serially refinance/draw out cash at favorable rates had to go exactly right in order to prevent their house of cards from collapsing. Edmund surely should have known better (and he likely did) but when you're in the midst of the madness, the madness is often hard to see.
The culture of toxic debt reminds me of nothing so much as addiction. Yes, the addicts have personal responsibility. But they also have dealers encouraging them to try that first hit, and thereafter offering them more and more up to the point that they are bled dry. Alcohol, heroin, cocaine...and creative finance. Not so different. The big guys make the bucks, the dealers get a cut, and the users are left to pick up the pieces.
Let's start with this:
"...our parents wouldn't have dreamed of living as they did -- fancy cars, foreign vacations, frequent restaurant meals -- and also buying a house."
Yes, there surely are some families who live far beyond their means through the pursuit of the good life and the fancy cars, foreign vacations and frequent restaurant meals that (in the consumer culture) make it up. But for the vast majority, this tale is the same sort of myth as Regan's welfare Cadillac Queens. On this count, I'd recommend Elizabeth Warren's book, The Two Income Trap.
The second thing which I think is left out (and which is explored in the aforementioned book) is the stagnation of wages for the large majority as we put an ever larger portion of wealth in the hands of fewer and fewer. Our bankers, Wall Street financiers and our government sought to address the issue not through responsible policies designed to insure responsible lending and rising wages, but through lending practices and government policies that substituted EZ credit and asset bubbles for wages in order to create an illusion of wealth.
I'd recommend people search out past Elizabeth Warren interviews with people like Charlie Rose, Jon Stewart and especially Bill Moyers. She has a good understanding of the issue.
So yes, there are some out there who just had to have the good life that they could not afford. But most of us have been struggling just to hang on, to live in safe neighborhoods, to send our children to decent schools and to keep our seven to ten year old car on the road.
America is a broken culture. It's a culture that defines success as giving ever more to those who have plenty, and consoles itself by telling us that all the "losers" are where they are because they deserve it. We have to get away from that.
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