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I recently rediscovered an article Penny Tompkins and I wrote in 2009 but never published. In it we examine a lovely example of self-deception – a specialist topic of ours – and how we use a person’s language to model the way they think. I've reproduced it below.
“Nobody duped me.”
James Lawley and Penny Tompkins
Alan Greenspan blanched. "Why did you do it?" he asked, appalled. There I was, a 52-year-old economics reporter, telling the former chairman of the Federal Reserve how I'd taken out one of the reckless mortgages that were drowning the nation. And I was about to default.
Alan Greenspan asks Edmund L Andrews the obvious question – “Why?”. But there is a much more interesting question: ‘How
did you do it?’. Rather than looking for reasons, this question asks for the mental process that Andrews went through in order to act in the way he did.
In a beautiful piece of self-revelation, Andrews, a New York Times
economics journalist describes the story of his personal “$500,000 credit meltdown”. His description is a perfect example of self-deception. While the average reader might be intrigued by his story, we are more interested in how
a journalist who in 2004 had written several stories warning about the spike in high-risk mortgages was at the same time
entering into a mortgage that would lead to his financial ruin. We have chosen this example because while tens of thousands of financially naive people could legitimately claim that they were duped, Andrews admits he was not.
We use clues in Andrews’ language to unpack his mental process. Our aim is to place the spotlight of awareness on the illusive nature of self-deception. Although we use Andrew’s story as an illustration, we will not focus on the details of what happened, nor on his explanations (however plausible), instead we look beyond the surface to the deeper mental processes that operate in the moments a financially savvy person makes what looks like, in retrospect, economically insane decisions – and carries on doing so year after year.The story
At 48, Edmund Andrews was recently divorced with an alimony and child support agreement that took 60% of his take-home pay. He fell in love with Patty, a divorced mother of four who was still looking after her two youngest children. They needed a place to live and he “assumed we would start by renting”. Instead they considered buying a property and joining the herd in “what we now know was a catastrophic binge on overpriced property and reckless mortgages”.
They found their perfect home. Even though it was “more than I had ever imagined spending” it didn’t stop Andrews approaching Bob, a mortgage broker who, within 24 hours, said that Andrews qualified for a $500,000 mortgage. Andrews’ financial know-how alerted him “I had already written several articles about the mortgage boom, but I was amazed a company would even contemplate lending me that much money.” The key word here is ‘amazed’. The sensations of surprise should have alerted him to pay extra special attention to what he was getting himself in to. Instead he said, “You had to admire [Bob’s] muscular logic.” Andrews change of language from “I” to “you” and his admiration for Bob suggests that he distanced himself from the responsibility for the decision.
When Andrews’ offer on the house was accepted we presume that any lingering doubts were soon drowned out by his feeling “exhilarated” and being “convinced the stars had aligned for us”. Note that this economics journalist had resorted to the alignment of the stars to convince himself of the rightness of his decision!
Part of Andrews’ brain knew exactly what he was doing. Because of his financial circumstances he couldn’t qualify for a standard mortgage. Bob’s solution was to apply for a “stated income loan”. Andrews knew this was more truthfully called a “liar’s loan”. That way “I wouldn’t have to give the game away by producing pay slips or tax returns.” Even so, the underwriters thought he was carrying too much debt because he still had a mortgage with his first wife. So Plan B was hatched. He would “simply move down another step on the ladder of credibility. I would take a ‘no-ratio’ mortgage which would not require me to state any income at all”.
We assume Andrews had doubts about what he was doing that were cast aside by Bob’s reassurance, “Don’t worry, the value of your house will be higher in five years. You’ll be able to refinance.” We wonder if Andrews ever asked himself ‘But what if house prices go down?’ and if so, what did he do with the answer? Andrews reveals more warning signals: “As I walked out of the settlement office with my loan papers, I couldn't shake the sense of having just done something bad ... but also kind of cool. I had just come up with almost half a million dollars, and I hadn't broken a sweat.” Nurturing self-deception
The seeds of self-deception had been sown. From now on, if they were to flourish they would need to be nurtured. All intuitive signs to the contrary had to be ignored. All counter-evidence had to be interpreted in a supportive light. Although Andrews says he “couldn’t shake the sense of having just done something bad” he obviously did because it took another nine months for an ATM to deliver “the icy slap of reality” – that he was completely out of money.
No problem. His new partner, Patty, would get a job. What Andrews had not realised is that the problem was not a lack of money, the problem was “neither of us was paying attention to how catastrophically easy our bank had made it to build up debt.”
How did they not pay attention to the bank statements? How did they “gloss over the fact that we’d been spending $3,000 more than we were earning, month after month”? How did they not act when they knew they were “lurching from pay cheque to pay cheque, one big car or home repair away from disaster”? This highly intelligent couple were deep into self-deception. In retrospect Andrews could see that “in the euphoria of moving in together [we] had both succumbed to magical thinking about ourselves, as well as money.” But at the time Andrews resorted to the same strategies he knew were used by “dimwits”: He cancelled his collision insurance “to save money” only for his wife to be involved in a car accident; He used the high-interest “blank cheques” helpfully sent by the bank; and as a break from their troubles, he and Patty rented a holiday beach house thinking this was “an indulgence we could work off later.”
By the day of their wedding, two years after they had bought their house, “Patty and I had emptied our savings and maxed out our cards. Patty had landed a job as an editor but we were still drowning in debt. We couldn't afford a honeymoon.” In a self-reflective moment Andrews realised “We had hung ourselves with the rope they had given us. I felt foolish, ashamed and angry. How could a person who wrote about economics for a living fall into the kind of credit card trap consumer groups had warned about for years?”
More of the same
Unfortunately Andrews did not answer this vital question. If he had, he may have seen that it was his own self-deceiving and not the financial circumstances that was running the show. Instead he did what most self-deceivers do – more of the same. Andrews went back to Bob the broker for help. But, having been ignored for so long his warning signs grew stronger, “I felt like a crack addict calling my dealer. I was surprised at how glad I was to hear his voice.” Once again Andrews uses a metaphor to describe his most inner feelings. We wonder what advice Andrews would give to a crack addict and whether he ever considered ‘going cold turkey’.
Of course Bob could solve all of his problems. Just borrow against the increased equity in the house. Naturally the monthly mortgage payments would jump, but when he got out of the current mess Bob could refinance the loan again. This is a classic stage in self-deception. The self-deceiver’s logic has to become evermore convoluted in order to avoid the reality of their situation. Andrews knew that “the whole scheme was insane. The paperwork was so confusing, I was never exactly sure who was paying what. I hazily understood I was paying most of the fees, but I couldn’t figure out how and I couldn’t see any alternatives.” So he went ahead with the deal. Remember this is a mature, intelligent, economics journalist speaking.
When self-deluding logic ups the ante, reality raises the stakes too. Two and a half years after taking out their first mortgage Patty lost her job. Cashing in a retirement account and borrowing from his mother, only delayed the inevitable. By now “bill collectors were calling six days a week.”
Andrews wasn’t alone in mis-managing his finances, Patty was also playing her part: “Patty's husband had long been behind with his child support payments, and her own sister was suing her for being unable to repay a loan from her days as a single mother. Patty had no choice but to declare personal bankruptcy.”
After all this, Andrews’ body wasn’t going to mess around with subtle signals anymore. Lying in bed obsessing over bills that couldn’t be postponed he was hit by a panic attack. He was “scared out of my mind”.
Finally, after four years Andrews succumbed to the inevitable. When they got behind on the mortgage payments, he recognised that “giving up the house and renting a flat would be less painful than holding on”.Looking back
Looking back, what does Edmund Andrews conclude?
Nobody duped me, hypnotised me, or lulled me with drugs. Like so many others, I thought I could beat the odds. Everybody had a reason for getting in trouble. The brokers and deal-makers were scoring huge commissions. The ordinary home buyers wanted to own their first houses, or bigger houses, or holiday homes. Some were greedy, some desperate, some deceived. As for me, I had two utterly compelling reasons: the money was there, and I was in love.
And what has he learned?
It will take years to make up for the costs of our misadventure. I have no idea when I might be able to get credit again, much less retire. But it hasn't been a total loss. The house did protect our children from the trauma of our divorces and remarriage, and Patty and I remain each other's closest companion.
We are not victims, because we knew we were taking a huge gamble. My hunch is that a large share of the people who are now in trouble knew in their gut they were taking unreasonable risks, too. But our misjudgments, however egregious they have been, pale in comparison with the self-enriching recklessness of those at the top of the financial ladder. They knew the housing bubble was a mirage. They knew their loans were absurd. They knew, they knew, they knew.
To some extent Andrews sees his reality more clearly and acknowledges his own responsibility when he says, “Nobody duped me. We were not victims.” And yet there are signs that the full extent of his ability to self-deceive may still be out of his awareness. For example, he maintains that he had “two utterly compelling reasons: the money was there and I was in love”. This is a strange justification. How
did the money being there and being in love compel
him to take “unreasonable risks”? Is everyone who has an opportunity to borrow money when they are in love compelled
take on a huge mortgage? And his use of “utterly” implies that, given these two reasons, there was no other choice to be made but to buy this house. This is a common self-deluder’s logic. Of course, somewhere inside he knows that he had other options; to rent for example.
Further evidence for our supposition that he may still be self-deluding comes from his calling the four years a “misadventure”; a euphemism if ever we heard one. He says he has no idea when he will get credit or be able to retire. What is preventing him from getting out the pencil, doing a few calculations and making a realistic plan? And we don’t think he has quite given up on magical thinking. Couldn’t a rented house have equally “protected” their children from the trauma of divorce and kept them “each other’s closest companions”?
By implication Andrews recognises that his gut knew he was taking unreasonable risks. But there is not a hint that he realises he will need to change his approach if his gut’s knowledge is to be of any use the next time
he is faced with a judgement that has the potential to be “egregious”. Interestingly, ‘egregious’ in Latin originally meant ‘standing out from the flock/herd’ and that’s exactly what any of us will need to do during the next economic bubble.
We would have been more convinced of a transformation in Andrews thinking if, instead of ending his article with “They knew, they knew, they knew”, he had ended it with “I knew, I knew, I knew”.
- - - - - - - - -More in-depth articles related top self-deception and truth telling are available at:
Self-Deception, Self-Delusion and Self-Denial - Part 1 (2004)1. All quotes from: Edmund L Andrews on his own $500,000 credit meltdown, The Guardian, 11 July 2009. theguardian.com/books/2009/jul/11/edmund-l-andrews-credit-meltdown
Self-Deception - Part 2: Learning to Act from What You Know to be True (2004)
How we act from what we know to be true - when that is not easy to do (2009)