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June 28, 2008
Forgive Us Our Debts
Debt, recession, and morality.
Reading an economic report at Moody's Economy.com, I was struck by one sentence. It read something like: "If the U.S. falls into recession, it will be because the American family couldn't make good on its debts."
While that oversimplifies all the factors that went into the creating and popping of the housing bubble (including deceptive practices and fraud on the part of lenders and the "irrational exuberance" that accompanies any such asset price inflation), the basic cause of the country's economic problems is the fact that a huge number of borrowers couldn't pay their debts.
As we are seeing, fiscal irresponsibility can be devestating not just to those whose houses are foreclosed upon, but neighbors, lenders, other borrowers, the growing numbers of unemployed, and on and on as the effects ripple through the economy. So, it's about time that some thinkers have begun discussing debt not simply in economic terms, but moral ones.
In a terrific essay, Barbara Dafoe Whitehead, co-director of the National Marriage Project at Rutgers University, lays out how our country instituted a culture of thrift and fiscal responsibility only to give in to hucksters pushing payday loans and the lotto.
Whitehead reports that in 2004--when home prices were escalating and families were easily able to borrow against the inflated value--the typical family spent more than 18 percent of its income on debt payments, 12.2 percent said debt payments exceeded 40% of their income. One in seven families has filed for bancruptcy or sought the help of a credit consolidator. "Few other advanced countries confront a debt debacle comparable to that of the United States."
Financial deregulation, allowing for a massive increase in what lenders could charge borrowers in interest, in the 80s began to unravel the once-wary attitude Americans had toward debt. Lenders began to market their products as bringing the advantages of credit to the masses. No longer did the less than affluent need to save up for the new sofa or pay for a car in cash.
This democratization of credit, however, led to the widespread propagation of debt. Between 1989 and 2001, credit card debt almost tripled, from $238 billion to $692 billion. By fall of 2007, the amount of revolving consumer credit had reached $937.5 billion, a 7 percent increase over the previous year.In the generally flush 1990s, many families were able to manage higher credit card debt without undue distress, but in today's more troubled times, families who once kept on top of their credit card balances - even if it meant paying only the minimum on several cards - are now toppling into delinquencies and defaults. Nearly half of all credit card holders have missed payments in the last year.
Creditors today structure loans and repayment terms to keep borrowers borrowing--and creditors flush with fees, interest, and other finance payments. Loans "are structured so that it is hard for the borrower to repay the loan in full. Instead, many consumers end up with little choice but to pay special fees to "roll over" the original loan into the next payday, a practice that can lead to chronic dependency on expensive credit."
Whitehead points out the "loan sharks" are nothing new in American society. As the country industrialized, there were plenty of unscrupulous creditors taking advantage of workers in America's burgeoning cities--workers fresh from the farm who had nothing but their next paycheck to borrow against. "But this was the Progressive Era, and a handful of reformers set out to combat the 'loan sharking evil.' "
Reformers fought to make lending to the poor profitable--allowing banks to charge enough interest to cover the extra risk but not too much to forever impoverish borrowers. Other reformers took on the task of creating "pro-thrift" institutions such as the credit union.
Whitehead's article is based on a report by the Institute for American Values . David Brooks calls the paper, titled "For a New Thrift: Confronting the Debt Culture," "one of the most important think-tank reports you'll read this year."
Brooks does admit that may not be saying much.
But he agrees that financial decadence is something those concerned about the country's moral shift need to be paying more attention to. There are policy fixes to implement, but, he says, "the most important is to shift values. [Benjamin] Franklin made it prestigious to embrace certain bourgeois virtues. Now it's socially acceptable to undermine those virtues. It's considered normal to play the debt game and imagine that decisions made today will have no consequences for the future."
A shift in values is needed in part because those we should be calling upon to bring payday lenders and fast and loose mortgage agents back into line are the politicians. And they're as enslaved to debt as the rest of us. "The debate about our nation's fiscal problems," writes Andrew L. Yarrow in the Balitmore Sun, "is on the wrong track. Debt is a moral issue; by any objective standard, it is wrong to beggar your children."
Our country runs a $9.4 trillion tab and has promised another $50 trillion in outlays (think Social Security and Medicare) that is currently unfunded. What happens to organizations that make huge promises that they can't possibly fulfill? Think the Big Three: Ford, GM, Chrystler. Think Detroit and the Michigan economy.
Yarrow argues that this kind of debt is immoral. "Our culture's Judeo-Christian tradition offers powerful counsel on this subject, words that we should not be afraid to wield. The biblical book of Proverbs, for example, warns that 'the borrower is servant to the lender,' and Psalms 37:21 offers the more pointed injunction that 'the wicked borrow and don't pay back.' "
He offers specific and helpful policy positions and persuasive moral arguments for getting our country's revenues and expenditures back into line: "Increasing the Social Security eligibility age, indexing benefits to price (not wage) inflation and establishing carve-out personal retirement accounts because these are the right things to do for our kids. Speak of sacrifice (whose Latin root means "sacred") for future generations when advocating taxes on those most able to pay." He goes on to address health care, the evironment, and energy.
"As theologian Dietrich Bonhoeffer said: 'The ultimate test of a moral society is the kind of world it leaves to its children.' "
Comments
I understand the relationship between predatory credit practices, covetousness, and immorality. I also understand that the average worker is never going to save enough money to buy a home or a car that is in good shape for cash. We live in a credit-based economy now. To fully embrace what this article suggests would lead to another American Revolution, perhaps, but it would not do anything that would enable the working poor to move out of that status. So the rich continue to benefit as the poor fall further behind.
Posted By: Delwyn Campbell | June 30, 2008 7:23 PM
What has happened to the economy is probably to be expected in a capitalist society. The economic engine doesn't run unless people spend. There is a TV commercial out now for a major bank credit card with the jingle, "I want it all and I want it now." That mentality is what's sinking the ship, which brings me to the missing link in all of this: personal responsibility. What ever happened to it? As long as irresponsible borrowers get bailed out by taxpayers, this problem of taking on too much debt will continue. And Uncle Sam could set a good example by balancing his budget instead of handing out "stimulus checks" and borrowing for an endless war.
Posted By: jaymore | July 1, 2008 1:38 PM
Does this imply that anyone holding a mortgage is missing the mark?
Posted By: caveat bettor | July 1, 2008 9:38 PM
Rob-
Our economy should not be built on lifting the poor out - that would be socialism and it is a model that has proven to be a failure. A better model is to understand that hard and smart work is key to succeeding and that no one has promised us anything other than salvation for eternity (if we accept Christ) and anything we get is an unexpected blessing. And not to use it as an excuse, but Jesus did say we would always have the poor with us and it's also interesting that Jesus never, ever said money was the key to saving the poor.
And Rob, while most people will not save enough money to buy a house or a car by their own choice (or lack of discipline), it is possible. I have paid off all of my debt other than my house - and that will be paid off in probably 5 years. I paid over $15,000 in debt by simply getting on a budget and sticking with it. I plan to never take another loan for anything that I have to pay interest on. I also plan to pay cash for my next good used car. And I will be paying cash for any house I buy in the future. And I I can't pay cash, then I won't buy it. I know this is a novel concept in today's I want it now culture, but there is less pain and misery in not sinning - which is exactly what people do when they buy what they want at whatever cost to them and their families.
Posted By: AP | July 3, 2008 9:55 AM
We have long past the point of biblical counsel in our financial house. People of God (Israelites) were forbidden from charging interest to fellow citizens. It was permitted to charge a FAIR interest rate to foreigners but God's purpose was that everyone was supposed to be a free person and not enslaved to another and it was unthinkable to enslave a fellow Israelite considering the length that God went through to free them from Egyptian bondage. And yet here we are enslaving each other ( I am speaking to Christians here) by charging usurious rates of interest to a free people. Credit card companies in particular have long ago left good sense and leapt headlong into usury which again is forbidden in scripture. And then we have the year of jubilee every 50 years when everyone's debts were to be forgiven.
Christian it is not sound biblical living to find yourself in debt. Christian lenders it is an affront to the character of God to hold our fellow man hostage and enslaved to debt. I do not know about you but every week in church we pray as the Lord taught his disciples to forgive us our debts as we forgive our debtors.
I have been living DEBT free since 1982 when the Lord convicted me of my covetousness and greed. We are living in a greed based economy and not a needs based one. If everyone ONLY bought what they needed at a price they could afford then these lenders and big ticket hucksters would have to find another way to sell their overpriced goods. If we all were forced to pay cash for everything imagine what WOULD NOT SELL!
Posted By: Allen Scott | July 3, 2008 1:00 PM
One of the tings we as professed Christians need to keep clearly in mind, is that everything we have belongs to Jesus Christ. By His incarnation He uas united us to Himself by bonds that will never be broken. He has taken His humanity into the highest heaven to sit with His divine Father in His throne. That makes us co-stewards of His gifts, which includes our time, our talents, and our financial resources. One of the things we find in the Old Testament is God's ideal for dealing with financial obligations. We can argue that all that was done away with at the Cross. But if anything, His ownership of our lives and the resources we associate with our lives, is even more secured in His purchase of all that we have and enjoy, as a consequence of what took place on the Cross. Thus if God made provision that every 7 years all debts would be cancelled, And further that no interest was to be charged to the one to whom the loan was provided, then Christians have wandered so far away from Jesus' ideal for His brothers and sisters, that we cannot claim that we are representing Him in our
financial behavior, and our profession is invalid.
Posted By: Gerald M. Reynolds | July 3, 2008 1:23 PM
To Caveat Bettor -
Yes Jesus did say that the poor will always be with us. But His word is littered with commands (not just polite requests) to take care of the poor.
So Jesus's line "there will always be poo among us" should not be used as a license to ignore the problems of the poor or to stop trying to help them out of their poverty.
I know that many will say that its better to give a poor man a fishing pole than a fish. And that works for some. But there must be a system in place that allows the poor man and his 'new fishing pole' access to some sort of body of water to catch a fish. If not, the pole is useless and fairly insulting.
Posted By: Michael | July 7, 2008 10:36 AM
Debt is benign until it meets moral and sentient agency. It is in this intersection that debt constitutes evil or good, oppression or liberation. Accordingly, appropriate use of debt finds coincidence in debt duration and asset life as well as an honest aseessment of the amount, prospect (volatility) and stewardhip of income stream(s). Neither greed nor envy has a reservation at this table though admittedly, human history is littered with these party basheres wreaking personal and social chaos, doing to themselves and others what they should not. Discussion of interest, debt, jubilee, even NT communalism do little to address this New Covenant matter, this "Gentilicity" of the arena of incarnate faith and the Incarnate One, in our modern age...SW
Posted By: Skip Wagner | August 8, 2008 5:43 PM
Sigh...one thing I like to get off my chest is that I've heard people say that "God told me to do it" when they take humongous amounts of cash out of their homes and buy more houses. I don't think God supports irresponsibility.
Posted By: The Baglady | August 22, 2008 5:56 AM
And what about the people who can't work smart and work hard for reasons of mental health or disability? Do you think Jesus would not want them to be lifted up and given the dignity of not being in poverty - them and their children? The best societies are those where there is less polarisation between rich and poor, such as Denmark - it's better and happier for everyone.
Posted By: Tiggy | February 26, 2010 7:42 PM