Friday, May 29, 2009

It's the banks fault. They forced me to spend...

Reading some articles in the Weekly Standard, I came across a book review of Life Inside the Great Mortgage Meltdown, by Edmund L. Andrews. This book, as the title implies, is a recount of a couple sliding into financial meltdown. The 53 years old Andrews explains how in 2004, at age 48, he married Patricia Barreiro. Both he and his new wife were divorced, and she had custody of 2 children while Andrews was paying $4,000 a month in alimony. His income was $120,000 and Ms. Barreiro was not working. Their total income after alimony and taxes was $2,777 per month. As any newlywed couple would do with such a monthly income, they went and borrowed $460,000 to purchase a house in Silver Springs, Maryland.

Let’s give Andrews the benefit of the doubt and agree that the bankers were guilty of greed and were wrong in giving them this mortgage; although at no point is there inkling that there was any arm-twisting or intimidation on the part of the financial institutions. And now let's continue with some quotes from the book:

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

And so it was that not to agonize over nickles and dimes, the couple ran up $50,000 in credit credit card debt. Quoting again from Andrews' narrative:

In the previous December alone, we charged $2,845 on the Chase card for
Christmas gifts, food, gasoline, clothing and other expenses. The charges
included almost $350 for groceries, $700 in clothes from J. Crew, $179 at
GapKids and $700 for airplane tickets for two of Patty's children to to visit
their father in Los Angeles. Our balance climbed from $14,118 to $17,
135 and in January 2006 we maxed out at our $19,000 credit limit.

The narrative continues describing additional expenses which include $1,600 to rent a beach house. He calls this rental and "embarrassing mistake." I guess Starbucks and J. Crew were not embarrasing mistakes.

And now to the punchline. Who is, you ask, Edmund L. Andrews, the author of such revealing book about financial genius? He is no other than the famed Edmund L. Andrews, reporter on economics for The New York Times. If he manages to tie his financial mismanagement with Bush's policies, he too might join Krugman as a Nobel laureate.

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