I had been ready to listen quietly. But then he talked about fraud, and I began to feel an irresistible urge to spill my guts. Greenspan was arguing that the bulk of the mortgage fiasco stemmed from criminal fraud—by borrowers, lenders, or both. The Federal Reserve, he insisted, wasn’t a criminal investigative agency. “It was up to the legal division,” he said with uncharacteristic meekness. Had I interviewed the Fed’s general counsel? How about the director of consumer affairs? “Deceptive and unfair practices sound very straightforward, until you try to define them,” he said.
What set me off wasn’t that the former “maestro” was hiding behind anonymous bureaucrats to justify his inaction; it was the idea that the wave of bad mortgages had resulted from criminals committing fraud. Yes, I had borrowed a huge pile of money without documenting my ability to keep up with the payments. But I hadn’t defrauded anybody, and nobody had defrauded me. It had all been perfectly legal. In fact, I had been assisted by a long chain of enablers and promoters—loan officers, underwriters, banks, Wall Street firms, and rating agencies. Blaming the mortgage meltdown on fraud ignored the rot and corruption in the whole system, up to and including policy makers like Greenspan.
“My question isn’t about fraud,” I interjected. “My question is whether the government should have prevented companies from making big loans to people who couldn’t repay them.” Then I took a breath. “Let me tell you about my own personal experience with these mortgages.”
Greenspan stopped short. He was never comfortable talking about personal issues and seemed to mirror my own discomfort. I might have been the only person he had known personally who had been caught in the mortgage meltdown.
I gave him the short version. In 2004, I had been in the middle of a divorce and was paying out well over half of my take-home pay in child support and alimony. I could barely make ends meet, but I was in love and wanted to get married. To my amazement, I had easily managed to buy a lovely little house in a cozy neighborhood. “It was like a ‘don’t ask, don’t tell’ loan,” I said. The mortgage company hadn’t asked to see my pay stubs or tax returns, and I hadn’t told them about the automatic withholdings. They hadn’t asked what percentage of my disposable monthly income would go to the mortgage, and I hadn’t told them that all of it would. They hadn’t asked Patty to cosign, and I hadn’t told them that she didn’t have a job.
The faith-based lending hadn’t ended there. Less than two years after buying the house, Patty and I had run up $50,000 in credit card debt. Yet we had been able to refinance the house—not once, but twice—with even bigger mortgages.
I was embarrassed, and Greenspan looked embarrassed for me. But I was trying to make a point: it had all been legal. My mortgage company hadn’t cared, because it would sell my loan to Wall Street. The Wall Street firms hadn’t cared, because they would bundle the loan into a mortgage-backed security and resell it to investors around the world. The investors hadn’t cared, because the rating agencies had given the securities a triple-A rating. And the rating agencies hadn’t cared, because their models showed that these loans had performed well in the past.
“Shouldn’t the Fed or some other government regulator have stopped them from lending to someone like me?” I asked. Green-span hated government regulation as much as he loved the free market. The best regulation, he was convinced, was enlightened self-interest.
“Have you defaulted?”
“Not yet. I’m hanging on by my fingernails.”