Narrating the Story of Consumer Debt in the US

An interesting narration of the story of how consumers in the US came to be so heavily in debt appeared recently in the group blog Credit Slips. Kevin Leicht points out that real wages peaked in 1976. Since that time, the economy based on mass consumption has shifted its funding from good wages to open credit. As workers faced the exportation of industry, the decline of wages, and the shift from paying workers to paying executives, the economy depending on consumption had to find a way to keep its engine turning. Credit cards and borrowing were the replacement of a decent wage. Of course, this system ultimately took on the same characteristics of feeding on the very people on whom it depends.

This unsustainable economy has become a smash and grab system that will keep producing bubbles from irrational exuberance. The inevitable crashes will repeat as long as the idiotic assumption remains that a just economy is one in which the few are free to bleed the many until a "market correction" solves the problem. A better economy cannot come without some form of consumer protection which places guardrails and lane markers on the economic highway. Otherwise the behemoths will continue to "take their half in the middle" and push everyone else in the ditch.

Economic Recovery for All 7: Faith Perspectives, Pt 3

THEOLOGICAL REFLECTION ON THE ECONOMY
A Working Paper for North Carolina United Power
from an Interchange Among Theological Educators
July 2009

III. Faith Perspectives on Responding to the Crisis

B. Biblical, Theological, and Ethical Principles Guiding NCUP Actions and Campaigns in Response to the Economic Crisis

5. Economic value tied to real, material goods and services, not ephemeral financial machinations

The practice of making money off of money was strictly limited and often prohibited throughout the history of the Christian church. Citing Exodus 22:25, which states, "If you lend money to my people, to the poor among you, you shall not deal with them as a creditor; you shall not exact interest from them, " Thomas Aquinas, wrote that "To take usury for money lent is unjust in itself, because this is to sell what does not exist, and this evidently leads to inequality which is contrary to justice" (Summa Theologica, IIa IIae. Art. 1, Q. 78). One of the critical problems that created the economic recession was the fact that mortgage-backed securities and other financial products were sold and resold for values that had lost touch with the actual homes and real estate that stood behind them. Credit default swaps were another form of betting on the paper assets of others, using more money than anyone can afford to risk. Playing this imaginary game of finance puts the entire economy at risk.

6. Transparency and honesty in exchanges and business dealings

The current practices of consumer credit and the recent "creative financing" of mortgages fall under the condemnation of the biblical view of usury. High-powered marketing campaigns promise easy access to money, with the details of excessive interest rates, charges, and penalties often relegated to the fine print. Offering low "minimum payments" and changing the terms of a credit agreement are deceptive practices that often saddle the unsuspecting borrower with accruing debt accompanied by unforeseen and undisclosed rate hikes.

These practices strongly parallel the devious ways of Zacchaeus, the tax collector mentioned in Luke 19, whom Jesus admonished to rethink his business tactics. Zacchaeus' repentance leads him to repay those he has cheated fourfold, an act of obedience to Jesus that comes into full view when contrasted to a story from the previous chapter of Luke. There one sees the failure of the rich young ruler who could not bring himself to sell what he had and distribute it to the poor in order to follow Christ. There is a clear message here that Jesus' followers must turn from lives of economic exploitation toward lives of generosity and just and honest business activity.

7. The dignity of work and the opportunity to contribute to the material and spiritual common good

In a biblical economics, work has dignity as the creative activity of those made in the image of God. Thus, human beings work as for the Lord and not for human masters (Col. 3:23). Even so, this work done unto God also serves the divine purpose of doing good for all. Paul encouraged the Philippian Christians to emulate the ways of Christ when he wrote, "Let each of you look not to your own interests, but to the interests of others" (Phlp. 2:4).

All work which serves the common good has dignity as part of God's purpose for creation. When market economies become distorted by wealth, greed, and inequity, the work of some earns status and wealth, while other essential work receives disdain and very low compensation. Although financial institutions are resisting limits on wages of executives because they fear a "talent drain," they consistently oppose better wages and benefits for the average worker. The shocking fact is that many of these so-called “talented” executives played games with other people's wealth, took undue risks, promoted questionable mortgages and remained blind to the housing bubble.

Why aren't average workers considered "talent?" Workers are the assets that make careers for executives possible. A long-range view of business and the economy aims to reward and keep talented, hard-working people. Only shortsighted greed leads some members of a corporation to pursue their own self-interest at the expense of the interests of those responsible for creating the value, through goods and services, that sustains the corporations and the common good. "The laborer deserves to be paid" (1 Tim. 5:18).

Economic Recovery for All 3: A Bailout for the Few that Did Not Trickle Down

I should mention, with thanks, the assistance of Stephen Boyd of Wake Forest University and Winston-Salem CHANGE. Steve carefully examined the earlier drafts of this document and suggested a reorganization of the material to make it more user-friendly for study.

THEOLOGICAL REFLECTION ON THE ECONOMY
A Working Paper for North Carolina United Power
from an Interchange Among Theological Educators
July 2009

II. The Initial Government Solution

A. Top-Down Bailout for Institutions "Too Big to Fail"
When the economic situation became too severe to ignore, government officials recommended a massive bailout of major financial institutions. With only a bare sketch of a plan, the engines of government shifted into high gear to authorize transferring hundreds of billions of dollars directly to banks and other financial institutions to prop up their endangered portfolios of assets. "Too big to fail" became a motto for saving the financial institutions that helped to create the collapse, as a way of assuring average citizens that their own economic future was bound up intimately with the success of these mega-banks.

B. Problems Remaining After the Bailout
The purpose of the bailout plan was to stabilize the financial system so that banks would be willing to lend money. Banks and other financial institutions were unwilling to lend money because they could not get a clear idea of the value of the ubiquitous securities intertwined with delinquent and "troubled" loans ("toxic assets"). By lending money, more people and businesses could buy goods and services and fuel economic recovery. However, the banks and financial institutions took the money and held it or used the money for self-aggrandizing purposes. Consequently, the bailout did not have the intended ripple effect on the economy, and it did not pump up the economy.

1. Foreclosures have increased unabated regardless of claims that programs would help people keep their homes.

2. A crisis in credit markets has led financial institutions to rewrite overnight the terms and conditions of credit cards, to the disadvantage and dismay of their customers.

3. Many have found themselves now holding more debt than they can possibly repay.

4. Bankruptcies have continued to increase resulting from credit card debt, mortgage debt, and debt arising from skyrocketing costs of health care and growing numbers of people without insurance.

Bailout 16: Thoughts on Describing the Problem

As mentioned earlier, I am working on the problem of analyzing the current economic situation in light of biblical and theological concepts related to Jubilee, the Sabbatical year, the denunciation of usury, etc. Below are a few short paragraphs in which I have tried to describe the problems of the economy in order to begin this sort of analysis. Obviously, this is a work in progress.

1. Hard economic times place people and institutions in jeopardy. In 2009, there is plenty of pain to go around. People are losing their homes. Banks are closing. Businesses are failing. Workers are losing jobs. Families are uprooted.

2. Some call the economic woes a credit crisis. Some focus on the housing price bubble. Others emphasize the irresponsibility of financial institutions eager to sell “creative” investment products. Still others highlight the complexity of financial instruments divided, bundled, and resold again and again so that no one is sure who owns what. Many recognize that consumption had outpaced income, and too much of the economy depended on overextended debt. Others criticized the deregulation of financial institutions which allowed them to take inordinate risks with other people’s money.

3. A major part of the problem had to do with a collapse of home prices. Loans had been written with the assumption that housing values would rise steadily and without interruption. Some people borrowed more than they could afford, but others who could afford their mortgages found that they were making payments on a mortgage for an amount that was up to twice the new value of their home. They could not afford to keep paying double for a house that had originally been priced in an inflated market. In a weak economy, workers losing jobs also could no longer meet their mortgage payments.

4. All these mortgage problems led to a crisis of confidence in the mortgage-based securities and the financial institutions investing in them. As the seriousness of the mortgage problems became apparent, the more people became concerned about many other forms of debt, including credit card debt which has grown exponentially. A crash in the stock market followed up the crash in home prices, and many people who had thought they were in good financial shape now saw their pensions, their homes, and their investments lose value dramatically. People losing health insurance coverage were building mountains of debt for medical care.

5. When the economic situation became too severe to avoid, former Treasury Secretary Paulson and Federal Reserve Chair Bernanke recommended a massive bailout of major financial institutions. With only a bare sketch of a plan, the engines of government shifted into high gear to authorize transferring hundreds of billions of dollars directly to banks and other financial institutions to prop up their endangered portfolios of assets.

6. Their idea was to stabilized the financial system by providing cash to banks and other financial institutions who owned securities based on delinquent loans. They said that this would set things in order so that banks would be willing to lend money to grease the wheels of commerce. However, the banks and financial institutions took the money and held it. It did not slow down the pace of foreclosures of mortgages. It did not pump up the economy. Homeowners kept losing their homes with no relief. Credit card companies pressured small borrowers with tightened terms and higher interest rates.

7. What kind of a solution leaves giant banks standing while the average worker’s life gets harder and harder? That is not a solution. It smells like collusion. Whose money bailed out the banks? Who is an economy supposed to benefit? Who says billions can bail out executive jobs but nothing can bail out labor jobs? Who says tax dollars can pay off banks’ bad debts, but the average taxpaying citizens are on their own? Debt relief for millionaires and homelessness for working people—that’s not the kind of economy we believe in.

Bailout 14: Thinking About Jubilee

Last Monday I was in an interesting meeting at Wake Forest Divinity School. The Wake Forest folks and some of their ecclesial friends from Winston-Salem CHANGE showed up in force. I was there as a faculty member of Shaw Divinity and as a leader in Durham CAN. No one from the other invited divinity school was able to attend.

There were two purposes for the meeting. The one I was most aware of was an effort to bring together divinity faculty to discuss ways for community organizing to be taught to their students. The second purpose, which turned out to dominate the meeting, was the idea that North Carolina United Power (NCUP) should consider a campaign relating to the economic situation.

Gerald Taylor, who called the meeting, is the regional organizer for IAF, the oldest of the national institutions which promote Alinsky-rooted community organizing. Gerald discussed the current economic situation and what he sees as the wrong-headed direction of the governmental responses. In that context, he brought up the biblical concept of Jubilee.

The most significant thing said at that meeting was that biblical Jubilee is not merely about solving the economic problems of the wealthy. Forgiving debts of the poor and setting the oppressed free are its central concepts. Thus, a bailout which attempts to benefit everyone by clearing out the debts of the banks and financial instututions contradicts the wisdom of the Jubilee tradition.

Taylor argued that the way to help the economy, including the banks and other financial institutions, would be to help the average person who is deep in debt. Provide debt relief to everyday people, and they will pay off credit cards, pay and restructure mortgages, pay for higher education, and purchase goods. For those persons who are not in debt, the same financial stimulus would provide economic opportunities that would strengthen economic activity, bolster retirement funds, and stabilize families and businesses.

Taylor also went on to discuss the ways that credit card companies and other lenders are sticking it to common people at the same time that they are able to borrow at the lowest rates in history. This is what the Bible condemns as usury, and the state of usury laws in the U. S. is such that the credit companies can locate in one or two of the fifty states which give them the greatest freedom to charge whatever they want in interest. The situation calls for a national policy.

What kind of bailout would a jubilee call for? It is about fifty years since the Civil Rights Movement. It is about fifty years since the Nixon government began to institutionalize the backlash against progressive reforms. It may be time to proclaim a Jubilee.