economic crisis

A Sin of Omission

The Atlantic finds an NYT memoirist withheld relevant information
May 22, 2009

Megan McArdle of The Atlantic digs up some embarrassing information on The New York Times‘s Edmund Andrews, and the scoop raises questions for him and for the Times.

McArdle finds that Andrews, who reports on the economy, natch, didn’t disclose—in either his New York Times Magazine piece or his book—critical information about his wife’s financial history, information that muddies his story quite a bit. His book (excerpted in the Times Mag) is about his family getting caught up in the great credit crisis, buying a house they clearly couldn’t afford and drowning in the debt. It seems she was caught up before the bubble began.

The odd thing about Andrews’ omission is that he’s already disclosed a lot of embarrassing information about his family’s abysmal financial management (really a lack thereof). That’s what makes the magazine piece work. You don’t come away from it with much sympathy at all for Andrews. You do come away with renewed amazement at the complete insanity of the financial industry: It was falling over itself to lend half a million dollars to people like this?

…I was handing over $4,000 a month in alimony and child-support payments. That left me with take-home pay of $2,777, barely enough to make ends meet in a one-bedroom rental apartment. Patty had yet to even look for a job. At any other time in history, the idea of someone like me borrowing more than $400,000 would have seemed insane.

I’ll turn it over to McArdle now:

At the end of his book’s harrowing account of mortgage mistakes and credit card crises, Edmund Andrews writes: “While our misadventure had certainly been more extreme than those of many other Americans, our situation was not all that unusual.” And indeed the book 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.

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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.

She draws the right conclusion:

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.

By omitting relevant information, Andrews is essentially misleading his readers. The new information that his wife has already declared bankruptcy twice changes the story quite a bit. Instead of a tale of how everyone—even Timesmen—lost their heads in the bubble, you now have a far less interesting tale of someone who simply can’t manage her finances—bubble or no. I’m guessing this is why the bankruptcy information didn’t make it into the story.

More problematic is that his wife’s latest bankruptcy came in 2007, which is right in the middle of the events described in the piece. That is critical information. Leaving it out raises credibility questions on everything else in the piece, especially with regards to Andrews’ wife.

For instance, Andrews essentially says his wife is a spendthrift here but makes her out to be a “good” spender—one who’s unselfish:

Patty spent little on herself, but she refused to scrimp on top-quality produce, Starbucks coffee, bottled juices, fresh cheeses and clothing for the children and for me. She regularly bought me new shirts and ties to replace the frayed and drab ones in my closet. She thought it wasn’t worth agonizing over nickels and dimes.

McArdle adds this about the bankruptcies, the first of which came in a year when Andrews’ wife and her first husband made more than $126,000:

This is really highly unusual. For starters, the overwhelming majority of people who file bankruptcy do not make anything close to $100,000 a year–the standard estimate when the 2005 bankruptcy reform was passed was that about 80% of filers had household incomes below the median income in their state. The number of affluent people who file twice is even smaller, and has presumably gone down since the 2005 filing largely eliminated abusive serial Chapter 13 filings, which used to be used, often by quite wealthy people, to forestall evictions or foreclosure.

The bankruptcy code requires filers to wait 8 years after a previous Chapter 7 discharge. Barely four months after she became eligible, Patty Barreiro filed again. And the filing shows some suggestion of strategic debt management.

McArdle takes the fact that Andrews makes more than $100,000 a year too far. Dude pays out almost two-thirds of his take-home pay in alimony and child support. That leaves him with $2,777 (at least at the time of the house purchase) to play with. That doesn’t go far in DC, lemme tell you.

But she’s right here:

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.

It’s hard to argue that Ms. Barreiro was forced into bankruptcy by crazed subprime mortgage lenders in 1998. Greedy bankers certainly didn’t keep her and her first husband from paying their taxes.

It certainly undermines Andrews’ argument, though you might say it reinforces the point about the insanity of the banks’ lending practices. I mean, let’s face it: When somebody’s dangling half a million bucks in your face and telling you you’ll be sitting on huge equity gains shortly (which the Andrews indeed got—for a while), it’s hard not to take it. The mortgage bankers and banks didn’t care: They were spinning this garbage off to the greater fool (buyers of CDOs).

Here’s how Andrews describes how his mortgage broker got him the loan:

. If Plan A didn’t work, he would simply move down another step on the ladder of credibility. Instead of “stating” my income without documenting it, I would take out a “no ratio” mortgage and not state my income at all. For the price of a slightly higher interest rate, American Home would verify my assets, but that was it. Because I wasn’t stating my income, I couldn’t have a debt-to-income ratio, and therefore, I couldn’t have too much debt. I could have had four other mortgages, and it wouldn’t have mattered. American Home was practically begging me to take the money.

Still, the failure to provide the full picture of his wife’s financial history is an embarrassment for Andrews and for the Times.

(h/t Felix Salmon)

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.