Excerpt from Busted: Life Inside the Great Mortgage Meltdown

Chapter 1: “Money for Nothing”

Alan Greenspan blanched. First he looked appalled. Then he looked perplexed. And for the first time that I could remember, his patient and gravelly voice turned curt and commanding. “Why did you do it?” he asked, interrupting me in midsentence. I felt like a teenager who had just told his father he had crashed the family car.

There I was, a fifty-two-year-old economics reporter covering the biggest financial calamity since the Great Depression, and I had just blurted out to the former chairman of the Federal Reserve that I was close to defaulting on the same kind of reckless mortgages that were drowning the nation’s financial system. “I took a gamble,” I answered irritably. “I knew it was a big risk, but I thought that we could manage it.”

Going into the meeting, the last thing I had wanted to do was confess that I had succumbed to the same foolish temptations that had trapped millions of other Americans. My credit scores were shot. Bill collectors called constantly. I was flirting with foreclosure. Almost none of our friends or neighbors had any idea how close to the edge my wife Patty and I were. Like countless others trapped in the mortgage meltdown, we looked like average suburban home owners. We grilled hamburgers on the deck, cut the grass on weekends, walked the dog in the mornings, and drove our children to soccer games. We had carefully preserved our image as normal, home-owning neighbors—stable, reliable, and responsible.

In truth, the words home owner and stable had stopped being inseparable for a lot of people. It was December 2007, and Wall Street had woken to the reality that millions of people who had bought homes with “liar’s loans” had—shockingly—lied to get their loans. Delinquency rates and home foreclosure rates were soaring several times higher than the experts and the financial models had ever predicted. In the press, the yuletide buzzword that season was jingle mail, house keys mailed back to lenders from people who had walked away from their properties. The trillion-dollar credit markets had been frozen since August, and seemingly immortal institutions like Citigroup and Merrill Lynch were hemorrhaging tens of billions of dollars in mortgage-related losses. Out in the “real economy,” tapped-out and stressed-out Americans were starting to buckle.

For two hours, I had been listening to Greenspan explain why he shouldn’t be blamed for what was happening. He had just published his best-selling memoir, The Age of Turbulence, and he was making as much as $200,000 per speech. But a host of economists, including a few of his old friends, accused him of having fostered the housing bubble and bust with low interest rates. An even louder chorus of critics blamed him for refusing to clamp down on sleazy mortgage lending. Greenspan, then eighty-one, was having none of it. “There has been an awful lot of selective reporting,” he grumbled. “The facts are not as they are presented.”