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Busted: Life Inside the Great Mortgage Meltdown

Edmund L Andrews, W W Norton & Company Ltd, 217 pages, £16.99.

The author of this memoir is the Economic Reporter for the New York Times, so he knows how money markets work, and is very much aware of the dangers of easy mortgages and credit. Merrill Lynch published a deadly accurate early warning about the housing market bubble in 2004. In the same year Andrews wrote about the explosive growth in risky mortgages. All warnings seemed to fall on deaf ears and the housing bubble was allowed to expand as the debt mountain escalated.

This book is a fascinating account of how very easy it was to borrow ludicrous amounts of money against homes. It describes the Wall Street players' obsession with leverage and the twists and turns of ever more complicated financial instruments and innovations. The horrors of uncontrollably increasing debt are recounted in terrifying detail. The speed at which debt can mount up at both the personal and national level is clearly demonstrated. It is an appalling story and a lesson to us all.

There was a lot of cheap money looking for high-yield homes, so investors, eager to improve returns ditched safety and espoused risk - with disastrous results. The risks were both identifiable and quantifiable, but neither former Fed chairman Alan Greenspan nor most of the other financial regulators saw them coming in time. Greenspan once argued it was pointless to try and pop bubbles before they burst. There was a belief that the free market would self-correct and that rational self-interest was enough to control destructive excess in the system. Fraud didn't figure in the story.

Neither did the credit-rating agencies whose self-interest lay in not downgrading ratings, as this hit their profits, so they continued to understate the risks of the ever more exotic mortgages. Andrews describes the dangers of 'teaser' mortgages with graphic examples. As the economic crisis progressed, Andrews' own problems got worse. His personal financial difficulties both in the mortgage field and with credit problems are described in detail, interwoven with the unfolding banking crisis. The effect of all this on his second marriage is starkly but lovingly reported on.

The book is a compelling account of how one knowledgeable person came to the edge of bankruptcy due to spiralling debt. This happened almost in parallel with the unfolding US crisis. The book also provides some very interesting insights into the thinking of Alan Greenspan and a number of other key players both before and during the crisis. This is a very instructive but also very human book which is an easy read. I found it difficult to put down.

Rosemary Connell

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