Edmund Andrews has responded to my piece, though, weirdly, to PBS, rather than to me.
It is hard to believe that anybody would accuse me of trying to airbrush a story in which I recount the cringe-inducing details of my calamitous plunge into junk mortgages.
But Megan McArdle, a blogger for the Atlantic, accuses me of omitting crucial information: namely, that my wife, Patty, was involved in two bankruptcies, one in 1998 with her former husband; and one in 2007, while she was married to me. McArdle says this is "material information that changes the tenor of the story," and then accuses Patty of "serial bankruptcy."
These bankruptcies did occur, but they had nothing to do with our mortgage woes. They were both tied to old debts from before we were married or bought a house. They had nothing to do with my ability to get a mortgage; nor did they have anything to do with our subsequent financial problems.
Since Patty had been so brave in letting me tell our own story so candidly, I wanted to spare her the public exposure on these older woes. But that is now impossible, so here is the story:
The first bankruptcy in 1998, five years before Patty and I got together. It occurred because Patty's former husband, a producer of TV commercials in Los Angeles, didn't file income tax returns for five years. Patty, who was a stay-at-home mom and wasn't earning money, was blindsided. She had been signing returns, but he hadn't actually been filing them. Because her husband's business income was reported on their personal tax returns, she had to join him in the bankruptcy filing.
All that happened in 1998, and it obviously had nothing to do with the story in Busted. It never even occurred to me to mention it.
Patty's second bankruptcy stemmed from a loan she received from her sister, while Patty was still living in Los Angeles. At the time, she was caring for four children, working for very modest pay, and receiving almost no child support from her ex-husband. (Despite multiple court orders, he remains chronically delinquent on untold thousands of dollars.)
When Patty couldn't repay, her sister followed her east and sued her. I offered to pay off the loan by withdrawing money out of my 401k, but I wasn't allowed to because the purpose didn't qualify as a "hardship." Without an alternative, Patty had no choice but to seek bankruptcy protection.
None of this has any connection to our story. It had nothing to do with Patty being a spendthrift. It had no bearing on my ability to take out a mortgage, and it had nothing to do with our financial problems.
Fortunately or unfortunately, BUSTED is a simple story: we took out a mortgage we couldn't afford, earned less than we hoped and couldn't bridge the gap.
I appreciate Mr. Andrews' candor, but I disagree that this had nothing to do with his story.
- I'm not "accusing" Ms. Barreiro of serial bankruptcy: she has filed bankruptcy basically back to back, which no one is disputing. That is serial bankruptcy.
- Patty Barreiro's first bankuptcy does not merely clear past tax debts--indeed, it's really very difficult to shed past tax debts in bankruptcy. They also discharged $47,655.37 in credit card debt, $4701.10 in past medical bills, $14,303 in tuition to Campbell Hall, a Los Angeles private school, and a few other miscellaneous bills. I don't have time right now to look up what the disposition of their debts to the IRS for the 1996-98 tax years was, but I suspect they ended up paying the $70,000 they owed. Frankly, given what Edmund Andrews' says, I'm surprised they got any of their tax debt discharged: as I understand it, it's nearly impossible to discharge tax debts due to fraud.
- Patty Barreiro's second bankruptcy does not merely clear a lawsuit. The value of the settlement was $29,000. The total vale of the unsecured claims discharged was $55,313, inclding almost $8,000 for legal services, almost $10,000 in medical bills, $1200 in phone bills, $1100 owed to Comcast, and $5400 in credit card debt. If the purpose of the bankruptcy was merely to clear the lawsuit settlement, she could have reaffirmed the other bills, though of course, in practice no one ever does that--if you're going to declare bankruptcy, you might as well get a really fresh start. It's hard to fault her for clearing the debts, but the fact remains that nearly half the obligations she discharged were not part of the settlement.
- Andrews is saying that the lawsuit was the driving factor behind the bankruptcy, and that the other unsecured debts are therefore somehow irrelevant. But neither the book nor the bankruptcy filing indicate the means to clear the other unsecured claims without Chapter 7; by her own worksheets, she had very little income and their joint income was exceeded by their allowable expenses. Plus, of course, they're awaiting foreclosure now. If she hadn't declared bankruptcy, where would they have gotten the $25,000 to pay off the medical, legal, credit card, and utility bills she discharged?
- Andrews is correct that many of the debts seem to have been incurred prior to the marriage. I'm not sure what this changes. My contention was not that she somehow illegally shed marital debts--the judge had every opportunity to force him into bankruptcy if he wished. My contention was, first, that the shedding of joint and prior debts along with the lawsuit settlement looks somewhat strategic, and second, that declaring bankruptcy twice is often a sign of deep problems with financial management, and thus should have been disclosed, if only to explain it away.
- People who declare bankruptcy really are not like other people. People who declare bankruptcy twice, even less so. They have very different financial profiles from the average American--less savings, more debt. When an adverse event occurs, they have no margin for error. And, of course, it's only worth declaring bankruptcy if you've run up some pretty substantial bills; one hears horror stories about naive people declaring bankruptcy to get rid of $2000 in credit card debt or some such, and their attorneys should be publicly shamed before being ridden out of town on a rail. But the average debt discharged in bankruptcy in a Chapter 7 filing seems to be in the tens of thousands.
- That kind of living up to the edge is, indeed, exactly what Andrews describes happening in his marriage. The bankruptcies suggest that this may be a symptom of a pre-existing problem, rather than the easy credit of the past five years.
- Andrews seems to now be arguing that the Chapter 7 filings are not relevant because they didn't affect his ability to get a mortgage. But of course the article and the book is not just about him--rightly, because unless your marriage is pretty dysfunctional, it's a financial partnership. The two bankruptcies seem to reveal that one partner has demonstrated a historic inability to live within their means. So though the bankruptcies don't tell us anything about their ability to get a mortgage on their house, they may tell us quite a bit about their willingness to take on a mortgage. This decision is at least as important as the bank's. I'm sure banks would have given me all kinds of stupid mortgage loans in 2004, but I didn't avail myself of the opportunity.
I have an email in to Ms. Carman, Ms. Barreiro's sister, but haven't yet heard back, so I can't comment on the particulars of the story--and anyway, I'm not sure how much the particulars matter.
On a very broad note, I don't see this as a story about the goodness or badness of Andrews or Barreiro--and I've been dismayed by some of the nastiness about her in comments here and elsewhere. Rather, I think this matters because the story Andrews told was basically about the subprime crisis, and the book casts him as a sort of everyman, lured in by cheap credit and a likeable scoundrel of a mortgage broker. That may be what happened to many, or most people in the mortgage crisis--but the back to back bankruptcies strongly suggest that this is not what happened to Andrews. That said, I think the story told with the bankruptcies included would still be a story well worth telling.