My Personal Credit Crisis: A New York Times Economics Reporter's Tale of Financial Disaster

Edmund L. Andrews should have known better than to take a "liar's loan" during the recent mortgage boom. After all, he's an economics reporter for the New York Times and even wrote cautionary articles about the unstable mortgage market as far back as 2004.

Nevertheless, Andrews says he willingly "joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages."

Andrews' story, "My Personal Credit Crisis," which ran in Sunday's New York Times Magazine, makes for fascinating reading. The excerpt below takes place about five months after Andrews bought a $500,000 house with $2,500 monthly mortgage payments. His take-home pay was $2,777 a month (a sizeable portion of his paycheck went towards alimony and child support). After using up the last of the money from the sale of his New York Times stock, he visited an ATM and discovered that his bank account totaled $196.

My stomach churning, I reached Patty [his wife] on her cellphone as she was running errands. “We are out of money,” I snapped, skipping over any warm-up chat.

“What do you mean, we’re out of money?” she asked in bewilderment.

“I mean, I just checked my bank account, and we are out of money,” I repeated, my voice rising in panic. “We can’t buy anything!”

My next paycheck would come in about a day or so, but that was entirely reserved for the February mortgage payment. We didn’t have enough cash to cover more than a week’s worth of groceries and gasoline. For the last few months we were living off the cash left over after I sold my Times stock and we bought the house. But now it was gone.

That's just the beginning of Andrews' woes. In the rest of his piece he bravely divulges the details of his credit crisis, including arguments with his wife and the amount of money he and his wife spent on food, clothing, and travel. It wasn't until they'd racked up about $50,000 in credit card debt that they discovered that they'd been spending $3,000 a month more than they were making.

It takes a lot of courage to admit screwing up, and Andrews deserves respect for revealing the kind of private horror that most people try to hide.

Mark Frauenfelder – Editor-in-chief of MAKE magazine and the founder of the popular Boing Boing weblog, Mark was an editor at Wired from 1993-1998 and is the founding editor of Wired Online.

Comments

[steve dale]

checkout: http://cpinstituteonline.org, they helped me!

[steve dale]

sorry for the spelling error: http://cpinstituteonline.org

[Beth]

I have to disagree about respecting Andrews for 'fessing up. The man worked the get a $460,000 mortage knowing he took home less than $3000 a month. His wife-to-be had no job, and hadn't had one for twenty years. This man is paid a decent - but not exhorbitant - salary by the Times to understand finance, for goodness sake. You cannot, no one can, pay a mortgage of that size on his income. He knew this! No one made him borrow that much.

I'm sorry for his family, his kids, but for him? No. Numbers add up - they're rational things that we can understand objectively. There's no reason he couldn't foresee his problem in the making, and no reason he should have signed that loan. It's important not to be mushy about this mortgate crisis. All of us are now paying to fix the crisis created by people who let their greed and fantasies get in the way of their responsibilities. Now, he's hawking his book and seeking sympathy. Rotten tomatoes would be more appropriate.

[Lars Clausen]

I know how it feels -- we managed to loan about $13000 in half a year simply by having conflated loan money with everyday money. We also had a crunch (though not that severe) of having very little day-to-day money. Having now read a number of places like this, we've gotten to where we have a bit extra money that we throw into things like evening classes (yay education!) and things that bring us happiness. We should soon be able to convert that loan to one with half the interest.

Morale: Don't live off of one-off income. You won't be prepared when it's gone. Use it for savings/investments or for one-off expenses.

[Lars Clausen]

Another thing I just noted in this story: The way Edmund goes "We're out of money" and his wife answers "What?" shows that they did the same mistake as we did of having one person manage the finances. Three problems with this:

1) Two eyes are better than one. When all users of the money know roughly how much there is, they are better prepared to withstand sudden temptation.

2) The money manager gets stressed by having the responsibility alone. It was me in our case, and it really weighed on my shoulders that I had to keep up with what happened *and* be the one to tell my wife when we couldn't afford things.

3) The non-money manager gets stressed by not knowing the financial situation. My wife never knew when something was affordable, and felt very disempowered.

Doing a monthly budget of major items, having the fixed expenses handled automatically, and not walking around with plastic has helped us a lot.

[Uncle Fred]

Sad story. It reminds me of the song "I'm Busted" by Aunt Effy...

http://www.youtube.com/watch?v=2HSu00C2CO8

[Jim]

Binge is an understatement from this guy. For someone who willingly knows they are borrowing more money well beyond what they can pay, that should be criminal fraud. The story itself is quite sad though because it seemed to eat at him for the past couple of years. His wife did not seem on board with the money (partly his fault), which helped fuel the problem. A marriage is a team and the money needs to be a topic both agree on. Each other should have a say in where it goes in the monthly budget. I don't tell my wife how to spend our money, regardless of who earns it, we spend our money. It's also wise to be able to afford to live off of one income should one of us lose a job (which happened to us). I also agree with Beth pointing out it sounds like the guy is selling a victim book.

[Beth]

Megan McArdle has followed up on this story - the reporter conveniently omitted that his wife has twice declared bankruptcy, the second time during this whole mess.

This man is not evidence of evil bankers leading poor homebuyers down a dark path. The book is, I assume, an attempt to get out of this hole of debt. But it strikes me as dishonest, not brave or admirable. As a financial reporter, he ought to have been warning readers against predatory lending at this very time, not rationalizing his way into borrowing money he couldn't pay back, not in his wildest dreams.

[Joe]

Are you kidding me? This guy lived well beyond his means. $700 at J Crew? This guy is a theif, he should be demied bankrupcy protection. If he goes into bankrupcy, it will not be his last. And he is a financial writer for the Times? LOL No wonder the Times has financial problems.

[sim]

Mr Andrews deserves no sympathy. Buying half a million dollar home and raking up $50000 debt while being an economics writer for NYT. Should we give him credit for confessing it all? Yes but if he has really confessed everything. He leaves out the fact that his wife Patty has declared bankruptcy twice. The second time was while they were married - in 2007. You can read more about it at http://meganmcardle.theatlantic.com/archives/2009/05/the_road_to_bankruptcy.php