How to Avoid the Next Credit Crisis Even If Politicians Won't
As co-author of best-sellers All The Devils Are Here and The Smartest Guys In The Room, journalist Bethany McLean unpacked the 2008 financial crises and the Enron scandal. Her new book Shaky Ground scrutinizes Fannie Mae and Freddie Mac—the mortgage giants that were supposed to be reformed but remain weird, public/private hybrid “government-supported entities.” McLean's books always focus on the big picture, but she offers some personal views, too, in the latest installment of “Talking Money.”
Given that you’ve made a career of revealing financial malfeasance, do you basically trust no one? I’m picturing cash stuffed under the mattress.
[Laughs.] Honestly, it’s problematic as I get older. For many years I had so little money, I never had to worry about it. But now I’m almost 45, with children—and you do have to worry about it. I would say I’m phenomenally risk-averse. So it’s not like I’m publicly voicing pessimism but and secretly taking huge gambles on the market. I’m voicing pessimism—and terrified to do anything. [Laughs.]
Really, I have a hard time being interested in anything involving my own money. Give me a financial statement for a company that’s incredibly complex, and I’m really happy and excited. Ask me to look at my own bank account and I have this shudder of horror. I just don’t, don’t want to deal with it.
And yes, I do think my work has made that worse. I’m so aware of how much I don’t know, and how many conflicts of interest there are.
So what do you do at tax time, you just turn it over to an accountant and sign the paperwork?
I do.
I thought it would be intimidating to be Bethany McLean’s accountant.
As if I would be checking every line? [Laughs] No! No, no, no, no, no.
When I was sharing an apartment with roommates, out of college, they would just go into my bag because they’d know there would be five-dollar bills, ten-dollar bills, kind of floating around. Not in a wallet — I didn’t own one. They would tell me; they weren’t stealing. But they all think it’s amusing that I’ve become someone who investigates money. I literally didn’t own a wallet until two years ago.
That’s crazy. Why?
[Laughs] I don’t know! Some sort of total aversion to organizing money – my own money.
Do you own stocks?
Mostly ETF and index funds, not individual stock positions. But beyond that I honestly don’t know what it is that I own.
And that’s partly a professional decision, to avoid conflicts?
It is. But if you told me I had to pour all the energy I dedicate to investigating companies and focus on managing my own money, I would find that utterly horrifying. I don’t have any interest applying what I learn to my financial life. Which frustrates my husband to no end.
Shaky Ground explains that Fannie and Freddie persist in a “conservatorship” structure that makes it unclear what might happen if there’s another financial/real estate rupture. I’m curious whether you own a house—and whether you’re personally worried?
We do own a house. For a long time I was perfectly happy to rent, but something happened—not a financial decision, more of an emotional one. Chicago, where we live, is a house-owning kind of place. So maybe it’s situation- and geographic-dependent for me. But I like the fact that this is my house.
Here’s what scares me. Homeownership is way down since the financial crisis, and rental rates in a lot of places are skyrocketing. So we may have an affordable housing crisis in the making. My worst case is that we don’t focus and come up with a smart housing policy that addresses the status of Fannie of Freddie until there’s another crisis. We don’t want decision-making in a crisis.
It doesn’t sound like I should ask you for personal-finance tips, but got anything?
What caused the credit crisis was really the conflation of homeownership and credit creation—cash-out refinancing [people borrowing against their homes]. A healthy homeownership policy would disentangle those two things.
If politicians aren’t going to do that, people should do it for themselves. If you are going to invest in a home, it’s a home. I remember seeing, after the financial crisis, this tattered banner advertising: “Let your home take you on vacation”—meaning borrow against your house for extra money. Resist!