Hitting the Foreclosure Nail on the Head with a Simple Question

October 8th, 2008

Sometimes a guileless child will ask an awkward question making the adults uncomfortable. That is exactly what Alex Blumberg did. He hit the foreclosure nail on the head with a simple almost dumb question – why was money lent to those who could not return it?

Blumberg runs a radio show that focuses on America of old in a story-telling fashion. He has never owned any property, suffered foreclosure or talked about the financial world. Nevertheless he was awestruck by the crumbling of the sub-prime connected foreclosure crisis.

In 2006 Blumberg began asking his friend and well known business reporter Adam Davidson about his experiences related to sub-prime loans that have led to the foreclosure crisis. Davidson patiently tutored him through the various stages of high sounding names like collateralized debt commitments, risk curves and need for international capital etc. But Blumberg failed to get at the gist of the matter. He wondered how security based lending of money that was laced with bad risks ultimately translate into profitable business? It seemed an outright contradiction in terms. It appeared Blumberg did not have the capacity to take in such high financial equations!

But Blumberg remained persistent. He repeatedly surfed the net and pestered his family and friends about loan syndication and credit default swapping. It became an obsession for him as he saw that no matter where it started or ended the whole rigmarole had to be routed through foreclosures. It just didn’t make sense to Blumberg that how could those who had fully utilized the capacity of their credit cards pay back loans? This insistent query bubbling inside him led him to do a story for This American Life that is known for its approach being akin to talks at summer camps. Together with Davidson it soon became a success and popular programme as foreclosures began to dominate the socio-economic scene without any sign of respite.

Apart from Blumberg and Davidson there have been others like Gretchen Morgenson who have been asking simple, direct but uncomfortable questions. Andrew Lecky of Arizona State University who is the director of the Center for Business Journalism said that the danger from sub-prime lending came coated with sugar about “warm feelings of home ownership while the executives behind it used obfuscation and a lack of transparency to lie about how deeply they were in the sub-prime business.” As the foreclosure crisis continues to worsen ignoring all remedial measures questions are becoming more strident and daring.