Well before the September 2008 implosion of Lehman Brothers, pastors and priests sounded the alarm that something was rotten at the foundations of the American economy. As far back as 1992, religious investors warned that securitization (the process of pooling and re-selling loans to investors) would encourage unsustainable lending by separating the risks of credit from its benefits. Cardinal Theodore McCarrick, Catholic Archbishop of Washington, told Congress in 2002 that predatory lending was trapping families in high-cost loans, provoking foreclosures and loss of wealth for low-income households.
It was not just the Wall Street-watchers and social justice stalwarts like Cardinal McCarrick who suspected problems in the American economy. Throughout the 2000s, I knew many pastors who worried about ever-expanding consumer debt and an economy premised upon it. As Quaker author Parker Palmer wrote last year, those in tune with their “deeper knowing” had long sensed the coming economic tremors.
We know now that these concerns were all too prescient. The loans that religious investors and advocates warned about ultimately resulted in millions of foreclosures. These surging waves of foreclosure, in turn, triggered the massive losses and bank failures at the heart of the current financial crisis. Since the economic crisis began in 2007, over 4 million families have lost their homes to foreclosure. Another 9 million are expected to experience the same fate by 2012.
As common-sense as the warnings voiced by many in the religious community were, they differed sharply from much of the prevailing philosophy on Wall Street, where the whole business of debt had undergone transformation. Rather than collecting payments from homeowners over the life of a loan, banks and mortgage companies began making huge sums by bundling and re-selling mortgages to investors. This model encouraged unsustainable and even deceptive lending for the sake of short-term gains. Regulators – many of whom shared the culture and philosophy of the bankers they regulated – stayed silent. Few were asking the holistic question of whether the risks and benefits of credit were adequately shared. Even fewer were investigating the impact of new credit models on the most vulnerable, as Cardinal McCarrick did.
As Christians seek to turn their wisdom – which served as an early warning system – into a moral compass for the economic rebuilding ahead, here are some key ways to engage.
• Help de-bunk myths that blame the poor. There’s a pernicious story going around that the financial crisis happened because banks were forced to lend to “unworthy” low-income borrowers through the Community Reinvestment Act (CRA). The reality is that well-structured, non-predatory loans to low-income borrowers have a strong success rate.
• Support fair financial reform. Amidst the reform measures debated on the national level, there’s an important proposal to create Consumer Financial Protection Agency to bolster the quality of credit extended to families and address many of the abuses at the heart of this crisis. Religious support for measures that restore integrity to our financial system is greatly needed in this debate.
•Revisit the ethics of lending. Some may consider usury a relic, but the Christian moral tradition around lending is vital to our economic troubles today. The Presbyterian Church USA published an excellent resource titled A Reformed Understanding of Usury for the 21st Century that details the history of the concept and its modern applicability, specifically with respect to lending in low-income communities. Community organizing networks like the Industrial Areas Foundation are finding creative ways to revive the discussion of usury in a modern economy.
One year after the demise of Lehman Brothers and the near-collapse of the global financial system, who can dispute that an economy completely unmoored from its moral roots can long survive? We now face a need to restore lending and debt to its rightful purpose: mutual opportunity for lenders and borrowers rather than a scheme for one to exploit the other.
As Christians, we must venture with our values into complex and contested financial terrain, to promote an economy that reflects true justice and integrity.