Friday, May 15, 2009
A fascinating insight into the mindset at the height of the bubble
New York Times: My Personal Credit Crisis
"If there was anybody who should have avoided the mortgage catastrophe, it was I. As an economics reporter for The New York Times, I have been the paper’s chief eyes and ears on the Federal Reserve for the past six years. But in 2004, I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me. Like so many others — borrowers, lenders and the Wall Street dealmakers behind them — I just thought I could beat the odds. The only problem was money. I had a take-home pay of $2,777, barely enough to make ends meet. At any other time in history, the idea of someone like me borrowing more than $400,000 would have seemed insane. But this was unlike any other time in history."
12 Comments
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1. quiet guy said...
I'm lost for words. I thought I was cynical but this is horrible/breathtaking. It makes you wonder about the future of the '1st World' economies. Great post.
2. lenny said...
Lost for words too, and this guy has to have had better chances than most for spotting the pitfalls of what he and his partner were doing, One months spending on clothes $800+, if you are behind with mortgage and other debts you don't spend $800+ on clothes. It sounds like his partner was quite good at spending a little too easily (no, too polite there, throwing it away)
I was up to my neck in debt for years after the last recession but took on a second job to pay it all off, lived on Tesco Value Beans on Value toast most days stopped all other spending just to pay off mortgage payments and bills along with credit cards (cut them up too)
Eventually after 4 years with the 2 jobs, I made it through and would never take on credit again.
I saw all this "I want" spending still going on in America last Autumn as people were losing their homes and no doubt it is carrying on in Britain too but surely they must have an idea that their personal debt mountain is rising too high, yet the plonkas still keep bringing out their flexible friends, mastercard and visa, to buy some more.
I know that credit cards and store cards have humungus interest rates and they should be restricted to a reasonable level but put a stop to IVA's and bankruptcy in their present form and let the debts remain to be paid over the course of their working life, even pull a few quid out of their benefits if unlucky enough to be living on those.
3. dbc reed said...
At least this guy places the blame squarely on himself and the willingness of mortgage providers to fix him up
with a silly repayment scheme.All too many journos are so worried that they don't understand the Black-Scholes formula for pricing options( won Nobel prize: led to Long Term Capital Management bust straight after) or the Gaussian Copula formula that computerises risk assessment (does n't work) that they think that the Recession has been started by even more complex mathematical causation and start trying to evaluate the whole banking system and its derivatives.
What about the simple questions: why are American house prices half ours?
Why is his holiday rental ,which he thinks expensive,not unusual by UK standards?
4. Richc said...
And all of this with a non-recourse loan. In the US, you can just walk away from the house and you're free from the mortgage. No such thing in the UK -- where debt levels are significantly higher than the US.
5. lenny said...
post 3,
You ask about why the American houses are half the price of ours. I can see 2 reasons straight away, they have more land available at quite cheap prices away from the city centres and the houses are mostly stick built.
In some estates the house are delivered in a sort of module form and are erected in a few days after the base is down. I could not see these sort of houses lasting like our Victorian Semis, there again I can't see many of the new builds in England lasting too long either.....
6. Dbc Reed said...
@Lenny.
It has got to be more complicated than they have more land than we do (So much for my earlier simplicity argument) .The Royal Planning Institute's figures are that there are building plots with planning permission for 225,000 houses in the UK.God knows how much land there is undeveloped for which planning permission could be sought and, given the presumption in favour of development,almost certainly agreed.There are according to the Empty Home Agency
7. debtfree said...
yep, very good post.
just goes to show how even an economist for a tabloid is living in a flase sense of security. seems like they had to spend money to keep the hapiness in the family with beach hut holidays and clothes shopping trips. the guy lied to himself and was fooled by the sweet talk of his mortgage advisor.
deep down he knew that what he was doing was wrong and think he should have gone with his gut instinct.
8. bidin'matime said...
A long read, but worth it - a really good account of how even a bright, basically honest person, from a financial background, can get drawn in - how many more out there...? If anyone doubts the severity of the situation, this should be made compulsory reading for them. The final paragraph sums it up:-
"I was actually beginning to feel sorry for Chase. It seemed to be so flooded with defaulting borrowers that it didn’t have time to foreclose on my house. Eight months after my last payment to the bank, I am still waiting for the ax to fall."
9. inbreda said...
good post.
"8 months after my last payment I am still waiting for the axe to fall"
Makes you realise that it will take a long time to get to the bottom for paperwork reasons alone.
10. andrew said...
$4000 dollars maintenance post divorce, and his ex wife kept the house, that isn't okay. Looks like he was trying to do the right thing for his children and was very understanding, to his new partner, she wanted to live normally as if nothing had happened not taking into account his situation, a little heartless, poor bloke.
11. str 2007 said...
Yep that's quite frightening and makes you wonder how many are approaching a similar fate over here.
12. Mken said...
same article without nyt login