Roll Call: Rich on the run

Greetings folks. I have some stories that I find interesting.


Millionaires Go Missing

Here's a two-minute drill in soak-the-rich economics:

Maryland couldn't balance its budget last year, so the state tried to close the shortfall by fleecing the wealthy. Politicians in Annapolis created a millionaire tax bracket, raising the top marginal income-tax rate to 6.25%. And because cities such as Baltimore and Bethesda also impose income taxes, the state-local tax rate can go as high as 9.45%. Governor Martin O'Malley, a dedicated class warrior, declared that these richest 0.3% of filers were "willing and able to pay their fair share." The Baltimore Sun predicted the rich would "grin and bear it."

One year later, nobody's grinning. One-third of the millionaires have disappeared from Maryland tax rolls. In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April. This year there were 2,000, which the state comptroller's office concedes is a "substantial decline." On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year -- even at higher rates.

The lesson here is that rich people are not stupid because they will strip themselves buck naked when they know they are being taken to the cleaners.


As you may have read, I am not too crazy about Edmond Andrews regarding is his finances. It turns there is more to this story than what he has written.


The Road to Bankruptcy

At the end of his book's harrowing account of mortgage mistakes and credit card crises, Edmund Andrews writes: "While our misadventure had certainly been more extreme than those of many other Americans, our situation was not all that unusual." And indeed the book reads like the story of an American Everyman, easily sucked in to the alluring world of easy credit as he struggled to blend a new family. The terrifying implication is that it could happen to you--to anyone who leads with their heart and not their head.

But en route to that moral, it turns out the story has been tidied up a little. Patty Barreiro, Andrews' wife, has declared bankruptcy twice. The second time was while they were married, a detail that didn't make it into either the book or the excerpt that ran in last Sunday's New York Times Magazine.

Andrews' desire to shield his wife is understandable--hell, laudable. No decent person wants to parade their spouse's financial trouble in front of the world. But this is material information that changes the tenor of his story. Serial bankruptcy is not a creation of the current credit crisis, and it doesn't just happen to anyone, particularly anyone with a six figure salary.

In September 1998, California bankruptcy court records indicate that Patty and her first husband declared bankruptcy. The financial statement they filed with the court indicated family income of $174,000 in 1996, $87,000 in 1997, and $126,000 in the first nine months of 1998. The income fluctuations are not surprising, given that her husband was in the film production industry. By the time of the filing, the couple owed about $30,000 on 8 credit cards, over $200,000 in back taxes, and almost $15,000 in private school tuition, as well as substantial car and mortgage payments.

In 2007, nearly as soon as she was eligible, Patty Barreiro filed again in Montgomery Country. When called for comment yesterday, Andrews was unavailable, but there is no question that it is his wife: his income and occupation are prominently featured in the docket.

This is really highly unusual. For starters, the overwhelming majority of people who file bankruptcy do not make anything close to $100,000 a year--the standard estimate when the 2005 bankruptcy reform was passed was that about 80% of filers had household incomes below the median income in their state. The number of affluent people who file twice is even smaller, and has presumably gone down since the 2005 filing largely eliminated abusive serial Chapter 13 filings, which used to be used, often by quite wealthy people, to forestall evictions or foreclosure.

The bankruptcy code requires filers to wait 8 years after a previous Chapter 7 discharge. Barely four months after she became eligible, Patty Barreiro filed again. And the filing shows some suggestion of strategic debt management.

Ms. Barreiro filed separately from Andrews, and had to amend the filing to include Andrews' income after a complaint from a creditor who wanted to force her into a Chapter 13 repayment plan. She filed when her income was at rock bottom, consisting only of unemployment; the timing may have just excluded having to declare $5,000 in freelance editing income Andrews mentions in the book. And she shed what appear to be jointly incurred debts, such as a Comcast account. Comcast does not service the address listed on the 1998 filing, but as I can attest (to my sorrow), it is the main cable provider in Silver Spring, where she moved to live with Andrews in 2004.

Serial bankruptcies can, of course, happen to anyone with enough bad luck. But they usually don't. And when they do, they usually hit people with marginal incomes that leave no margin for error in the budget. Most people, even in LA, are able to build a sustainable budget out of an income in the low six figures.

Moreover, pesky bad luck isn't really the picture painted by either filing. Rather, Ms. Barreiro seems to have spent most of the last two decades living right up to the edge of her income, and beyond, and then massively defaulting. If you structure your finances so that absolutely everything has to go right, it's hard to blame the mortgage company when you don't quite make it.

Andrews has been admirably open about many of the poor decisions and the wishful thinking that led him deep into debt. Nonetheless, he has laid much of the blame onto irresponsible bankers and mortgage brokers. The missing bankruptcies substantially undermine this basic narrative arc of Andrews' story. Particularly in his book, the bankers are the villains, America's current troubles are the inevitable denouement of their maniacal greed, and the Andrews household stands in for an American public led, by their own greed and longing and hopeful trust, into the money pit.

It's hard to argue that Ms. Barreiro was forced into bankruptcy by crazed subprime mortgage lenders in 1998. Greedy bankers certainly didn't keep her and her first husband from paying their taxes.

Basically Mr. Andrews was kneecapped from the beginning due to his association with Ms. Barreiro. Her financial problems became his problems. Apparently the framing of Mr. Andrews was that it was the evil mortgage company that put him in this position which is hardly the case. Even with this new information, I have had little sympathy for Mr. Andrews situation. For a man of his pedigree, he should have understood the concept of Due diligence.

Mr. Andrews and Ms. Barreiro's relationship is an example of when you marry a person, you don't just get the good stuff you get the crap.

Then I came across this article regarding the wussiness of today's journalists which also criques Mr. Andrews.

Once upon a time, journalists were thought to be worldly-wise, tough-minded and cynical. Having seen it all, they knew the phonies and the angles they played. They could turn on the idealism for a family audience until deadline -- and then turn it off when they put on their fedoras or fixed their faces and went off for a few quick ones that would restore their sangfroid for another day.

That was then. Today's reporters are unreluctant confessors of how they've been conned. One of the new soft-boiled breed, New York Times economics writer Edmund L. Andrews, proudly confesses not only to being a sap and a victim but to being naive about the very subject -- the home-mortgage mess -- that the Times has paid him to understand. His new book, "Busted," which was recently excerpted in the Times Magazine, announces that he bought a house he couldn't afford with a subprime loan he couldn't repay and now faces foreclosure. Not only Mr. Andrews but his employers at the Times were apparently happy to parade the fact that their crack reporter acted like a hayseed Jimmy Stewart instead of a knowing Cary Grant.

Nor was it some kind of impossibly complex scheme Mr. Andrews was caught up in. He and his new wife simply spent more than they earned. His story is a variation on an old theme by Mr. Micawber: "Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

I have to concur with Mr. Schulman's assessment. The New York Times should examine Mr. Andrews very carefully. The New York Times shouldn't be so eager to be promote this guy.

And this is from Gawker.

The Recession is Over! How We Celebrating?
The Recession is Over! How We Celebrating?


Gawker does their usual snark dance regarding the opinions of writers who already feel nostalgic about the latest recession. Just from reading what they have written, I realize now why print is dead.