"I couldn't afford it, but that didn't mean I couldn't buy it."
And there you have it: 12 words that neatly explain the $12 trillion in wealth lost in the United States over the past two years. The "it" to which Busted author and New York Times economics correspondent Edmund L. Andrews is referring is his $460,000 Silver Spring, Md., home, purchased with the assistance of a "no ratio" mortgage. That mortgage was the type of subprime loan for which the borrower needed to supply only a valuation of his assets and not his income or, indeed, proof of his actual ability to repay the loan. For Andrews, hiding his income — significantly diminished by his alimony and child support obligations — enabled him to borrow more than the full price of the house and twice what he could afford.
Of course, it seems a supreme irony that the Times' point reporter on the subprime crisis would find himself among the millions of equity-hemorrhaging Americans whose plight he covered daily for the Gray Lady. But if it could happen to someone as well-informed and connected as the author (Andrews owes some of Busted's insight to various off- and on-the-record interviews with Alan Greenspan), then, the book argues, it's not surprising how many others were ensnared. We may begin by wondering, "How could he have been so stupid?" but we quickly refocus our glare on the lenders. "I was amazed," Andrews writes, "that a company would even contemplate lending that much money to someone in my position, or that a lender simply wouldn't care about the messy details of my life." How could they have been so stupid?
Andrews has come under fire from pundits, notably The Atlantic's Megan McArdle, who question his candor and see his blame-the-bankers stance as an excuse for his own poor judgment. Nonetheless, Andrews' journey through the murky underground of American finance is vivid and enlightening. As he ably demonstrates in breezy yet crisp prose, a user can't get high without his dealer.
Everyone and everything loses in Busted, and Andrews ultimately comes across as far more sober than steamed. That stoicism is, perhaps, the only antidote available for the credit-binge hangover we're now suffering. "In essence," he writes, "the [securities rating] agencies had used bogus assumptions to justify absurd conclusions. The bogus assumptions were more than errors; they were rationalizations for judgments that had no basis in fact." Throughout Busted, Andrews untangles and clarifies those "bogus assumptions," "absurd conclusions," "rationalizations" and "judgments," exposing a constellation of financial farce more redolent of Moliere than Morgan.
Andrews alternates his narrative between an examination of the financial crisis at large and a log of his own personal meltdown. The latter is piteous, the former incomprehensible, especially when one considers that Andrews' story is a chronicle of but one of America's 8.3 million underwater mortgages, according to a recent BusinessWeek report. Admittedly, these subprime loans are pacts that shortsighted Americans should not have made. But Andrews is fairly convincing in his verdict that no one should have been offered them in the first place.
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