Father Peter's Forum

New Year's Resolutions

Friday, January 08, 2010

Happy New Year! (Names are changed to keep anonymity)
Val J. Peter

New Year’s Resolutions

We ask our children to make New Year’s resolutions for the very simple reason that it is a New Year and as the New Year dawns, there is a fresh initiative of hope available to each and every one of us…a hope that we will grow and be kinder and better and more loving and more courageous. For this reason, we ask our kids to write New Year’s resolutions. We share some of them with you in the hope that you will be inspired by them.

1. My New Year’s resolution is to accept “No” for an answer and to stay in Community One until I am ready to go to a big house. This will mean that I have to promise myself not to run. I want to do this because when I go home, I want to be able to accept no for an answer and not argue. --Brittany

2. My New Year’s resolution is to be respectful to others by not talking back. By being respectful to my peers, I will not make rude comments to them, even though they deserve them…and many of them do deserve them. I will also talk to my Family-Teachers about my feelings and my problems. I know that I can trust them. --Debra

3. My New Year’s resolution is to set myself one goal every day and try hard to meet it. For example, one day I can try and improve on expressing my emotions and not hiding them all as I have learned to do. I am now eleven years old and growing up. I can do as well as the older girls do. --Lindsay

4. My New Year’s resolution is to work on having a better relationship with my mother by talking with her on the phone every week and trying to be pleasant, even when she is not so pleasant. If she hollers at me, I will hand the phone to my Family-Teacher.
--Martha

5. My New Year’s resolution is to deal with my anger more often. I will take deep breaths before I get mad. I think that will help me a lot. --Tony

6. My New Year’s resolution is to look on the positive side of things and stop looking always at the bad side. I learned how to look at the bad side from my mother. I am very good at it. I will do what I need to accomplish this resolution in my heart.
--Trevaughn


7. My New Year’s resolution is to work so hard on my behaviors that I can leave Boys Town positively in the spring, whether it is April or May. I am going to achieve that goal by praying real hard every day and by trying real hard. --Michael

8. My New Year’s resolution is to control my impulses. I act before I think. People have told me that, but now I believe it. I know it is not so good. I will try a lot harder.
--Wayne

9. My New Year’s resolution is to do a better job with responsibility so that when I grow up and get married, I can be a good father and a good husband. I know that is hard because I have never seen it at my own home. --Cameron

10. My New Year’s resolution is to hold my temper for at least two weeks. If I don’t hold it for fourteen days, then I have to start again. I think if I try to do this every day, I will achieve my goal and be a better person. --Jesse

11. My New Year’s resolution is to get an office referral only three times a week instead of five times a week. I think that is a good resolution. Maybe Monday and Tuesday I can have office referrals, but not Wednesday, Thursday and Friday.
--Name Withheld

12. My New Year’s resolution is to have good home visits and not run around with my gang friends. I am going to talk to my mom about this resolution and hope I can keep it.
--Jordan

13. My New Year’s resolution is to get my act together. That is what my dad always tells me to do, so I am going to try and do it. I am not sure what that means, but I am going to ask my Family-Teacher. --Billy

14. My New Year’s resolution is to be a better big brother to my little sister and to obey my mom. It is going to be hard, but I think I can do it. --Michael

15. My New Year’s resolution is when I am angry to not be acting with aggression.
--Spencer

16. My New Year’s resolution is to talk to my mom respectfully, by not calling her names and cussing at her, especially when she is drunk. --Name Withheld

17. My New Year’s resolution is to lose eight pounds. Maybe if I lose two pounds, I will be happy. --Dawn

Watch Out for Your Credit Cards!

Friday, December 04, 2009

Val J. Peter

We just finished a seven chapter book entitled “How Does a Christian Profit from Tough Economic Times.”

Now let’s look at the reforms and how they are getting along. The first one we will look at in this report is the credit card industry. As you recall, credit card issuers encouraged all of us Americans to spend more and more and more, put it all on our credit cards and then pay the minimum balance. With the economic collapse of 2008 and 2009, a new sense of thrift of frugality and industry is beginning to take hold in America. Congress looked at the credit card industry’s abuse practices and passed recently The Credit Card Accountability, Responsibility & Disclosure Act of 2009, covering so much. The first part of the act went into effect in August and the second part will be in January of 2010.

What is interesting to see and sad to report is that credit card issuers have already figured out how to get around the new rules. Let us look at four ways they do this.

1. The new law says that issuers cannot raise the rates without 40 days notice. But, of course, there is a loophole. The rates don’t apply to variable rate cards (rates that float up and down).

So guess what? Credit card companies are moving more consumers into these cards whose rates will likely soar. It is estimated that variable rates cards will account for 75% of all cards in 2009 up from 65% in 2008. A September 2009 issue of BusinessWeek gave an example of a man in San Jose who was changed to a variable rate card and Barclaycards zoomed his rate to 26.99% from about 16%. He could have cancelled the account, but he was laid off from his job and depends on it. The man feels he’s being ripped off.

2. Starting in February, lenders won’t be able to charge consumers a penalty when they go over their credit limit.

But to make up for the lost revenue, there are new penalties being assessed. Some banks are assessing a level of $19 if a borrower doesn’t use the card for 12 months.

3. Citigroup and J.P. Morgan Chase now have special annual fees that target customers who pay off their balance and, therefore, don’t pay any interest. They are called “dead beats.”

4. Credit card companies are also imposing foreign transaction fees applied to all purchases made at companies outside the United States, even if they are purchased in dollars and not foreign currency.

5. Consumer advocates think that the issuers will dodge marketing guidelines, clamping down on selling cards to young adults. The rules prohibit issuers from giving out freebies to students on or near campus. But some issuers may set up shop a few blocks from school. Others may hit up parents in the hope of signing up their kids.

Be careful! Be careful! Be careful!

Chapter VII - Where Do We Go From Here?

INTRODUCTION:

It should be clear from everything said in the prior six chapters that we Americans have overspent, have become too dependent on that spending for our wellbeing and have, in some ways, succumbed to the dangers of consumerism and affluence. This simply means, not just wanting, but expecting more goods and more services year after year after year. The current economic downturn is not just a mere minor bump in the road. It is the major milestone in the last 100 years. America has lost its economic prominence and many, many of us Americans are hurting financially and emotionally.

We can seize the moment in this economic downturn to reorient our lives as individuals, as families and as a nation. This can be done in the following ways:

The question is where do we go from here? Based on the decisions we come up with, we need to work to change our families and ourselves in accord with this plan. To find an answer we have to engage in introspection.

The question we ask is the title of this book: How Does a Christian Family Profit from Tough Economic Times. It is my hope that you will choose one or all of the following in your decision making.

1. Live within your means.

The obvious meaning of this is that we have to sit down and figure out what changes we need to make in our lives so we are no longer regularly filled with anxiety regarding our debts and our bills. This includes not only tuition for our children. It includes payments on our house, payments for our car, payments for so many other things in our busy lives.

This requires an agreement among all family members. A concrete agreement as to the things that need to change.

Robert N. Bellah, the well known sociologist at University of California at Berkeley, says it this way: “If both parents are working, and perhaps working for excessive hours, not to meet the basic necessities of life but to pay for what they think is a preferred style of life, (because of the pressures of consumerism) family life can suffer as consequence.”

This is a nice way of saying that the job culture in our lives may be crowding out the family culture. Economic pressures that families face have to be considered in the light of the accommodations which families make to the allure of consumer goods which very suddenly become “needs.” This takes a lot of reflection.

The other facet of this is the spiritual side of our family life. If our religious and spiritual life have been eroded by materialism, we are neglecting the call to the evangelical spirit of poverty. You and I are neglecting self-discipline.

We need to slow down our lives so that we are not always in a hurry, not always in a rat race, not always on the treadmill. We have to take enough time to read. Take enough time to pray. Take enough time for wisdom, love and friendship.

2. Help our children do the same.

Introspection also needs to focus on the culture our children are being brought up in. Is it simply a consumer culture or is it a family culture? A consumer culture is profoundly destructive of family life. So we will need to teach our children self discipline, charity, empathy and all the other values that will help them neutralize the messages of advertising and marketing. Of course we have to model these values in our own lives as well.

Very sadly, a consumer culture says to our children that their identity is determined by what they have and what they buy. Very happily, a family culture of faith tells our children that their identity and ours is determined by who we are as a family and how we are related to God, our brothers, our sisters, our mom, our dad and our neighbors.

Consumer culture tells our children that buying is good and will make us happy. Our family culture says that buying needs to be moderated and will not make us happy for very long. What will make us happy for a long time is caring for each other as family and loving God. It even includes prayer and the sacraments.

3. Saving for rainy days.

Discernment is also needed to commit ourselves to saving for rainy days. The job culture surrounding adults says that the solution to life’s problems lies in spending and purchasing material things such as trips, vacations and a big house. Our family Christian culture says the solution to life’s problems is trusting in God, in each other and values and hard work and education.

Our job culture will say that a good life is a materially successful life. Our Christian family culture says a good life is a good family life and a life of virtue and service.

That involves saving for rainy days. Rainy days include sickness, accidents, loss of work and other things that suddenly befall us.

4. Pay down our credit cards and other debts.

Introspection will also call us to pay down our credit cards. Our children need to see us as a family working to pay down our credit cards every month. We need to think about “making our homes commerce free zones.” That phrase was coined by the Institute for American Values. That means making a decision as a family to limit our use of cell phones, texting, TV, Internet, video games, etc. That means actively resisting buying the latest items right away. It means we will stop allowing ourselves and our children to become walking billboards for advertisers. It means engaging in activities that are not media driven and instead include volunteering together, walking, hiking, engaging in sports activities, etc. Paying down our debts is not just a small item, it is a huge item.

5. Practice frugality and industry.

To sum it all up, we need to practice frugality and industry. This idea goes all the way back to Ben Franklin. Thomas Jefferson and George Washington are called the founders of political freedom in America. Ben Franklin is called the founder of economic freedom. He envisioned America as a place far different from across the ocean in Europe. It was to be a New World as compared to the Old World of Europe. In the Old World you could work all day every day, but as a serf or a peasant you usually couldn’t pull yourself up by your own hard work and diligence. You can in America with industry (hard work) and frugality (live within your means…help your children do the same…save for rainy days). Ben Franklin received much of his thought from Cotton Mather, the Puritan preacher of New England.

The idea was simple and straight forward, if you work hard, save up for rainy days and live within your means you could be, as a family, free from all the terrible anxieties and heavy loads that were a common lot imposed on the poor. He was not Scrooge, he believed a good life should come after you have saved, after you have worked hard as a reward. Ben Franklin believed we should sacrifice now for the freedom from worries about where our next meal was coming from. Consumer society believes that we should enjoy now and worry latter. Consumer thinking is something that has brought us to our current economic crisis.

Franklin also believed (we should think about this) that children should fulfill household roles with the expectation that they contribute to the family by what they do every day. Social scientists today warn that such simple things as thumb sucking, ADHD and many other maladies were close to nonexistent in families in Ben Franklin’s day when children had to contribute to the family well being with hard daily work in the home and on the farm. Are they on to something?

The practice of frugality and industry also have a larger purpose than the family. When citizens heed Ben Franklin’s wisdom, they pay their just debts, honor their contracts, keep their word, help each other in need, do not cheat each other and serve their country. This is called public virtue. And public virtue is absolutely essential for a democratic republic to flourish. In the 1830’s, Tocqueville pointed out that the American experiment was an affirmative answer to this question: Can a free people, self-governed, exist and prosper without a monarch?

The French commentator, Montesquieu, whose writings so influenced the founding fathers, was convinced that a democracy was the most desirable form of human association but also at the same time the least stable. As long as a democracy, he said, is animated by public virtue, it will flourish. But as soon as prosperity comes, public virtue tends to diminish and selfishness and greed take over. People don’t pay their bills, don’t honor their contracts, don’t keep their word, don’t help each other in need, and cheat each other and this at the highest level of commerce and finance and politics. They simply don’t serve their country, even ordinary citizens.

Does that sound like what we have been talking about through all these chapters regarding our economic collapse? Too much prosperity in Montesquieu’s eyes prompts temptations too strong for many to resist. In Montesquieu’s mind free virtuous people prosper. But then prosperity produces selfishness, greed and a laziness that affects the public business. Then they are no longer virtuous enough to govern themselves. There is a great deal of food for thought here.

Job culture and consumer culture say that the primary goal in life is to garner material possessions. Our family Christian life says that the primary goal is to love each other and bring each other help.

Our Christian way of life says material things are means to an end and not an end in themselves. Material surroundings must do what we want them to do instead of us doing what our material surroundings want us to do.

It should be very clear that just as we need to live more frugally, the poor need to be helped to live more humanly.

We (all of us including our politicians) must consistently reject the mantra: “I want it all. I want it now.” We must work hard to reject the greed of capitalist society, “the unquenchable thirst for temporal possessions.” In other words, more and more is not better and better. To say that another way, we Christians are not inclined to look with great favor on the worship of mammon.

We pursue the good life, even the prosperous life, but we put God first. We must refuse to abandon life at any stage of its development. We do not believe in socialism. We do not believe in unfettered capitalism.

Our hearts must be obedient to the Lord in terms of the use of money, material possessions and goals and dreams. The Lord intends to redeem the whole world, to redeem all of us as a people and even to redeem the economic realities of our lives.

In the past, the economics courses we took in universities were individualistic (how do I make a lot of money with little or not thought given to how my individualistic economic goals impact others, both near and far). Individualism was a characteristic of the Age of Enlightenment, but relationality in economics is what we need today. We need our economic and political leaders to think of the betterment of the worlds’ poor just as much as our betterment.

The Lord is our goal. Our real wealth is our family and relationships! Faith, hope and charity are our priceless possessions. Praise of God is our wealth. The whole Christ, head and body. We live in an increasingly pagan culture which needs to be Christianized. We need to integrate our religious values with our financial values and our community values and the time to begin is now.

Chapter VI - How Did We Get Into This Financial Mess?

INTRODUCTION:

There are lots of books and articles explaining the financial collapse, first in the banking system and then the failure of so many other firms resulting in loss of jobs, savings and even hope for the future. For you and me who read this, the crisis is found in the terrible financial damage done to your household and mine and to small and big businesses resulting from the housing collapse and the credit market collapse. The authors point out that it was America’s bankers and businessmen, on one hand, and our government failing to regulate these credit markets which has put the American model of free market capitalism under a cloud.

The financial system collapsed. The government regulators failed to curb widespread abuses and corruption. America has lost its economic primacy in the world, just as you and I have lost much in terms of jobs, savings and hope. This economic crisis is global and it will go on longer than most of us think. America has to now focus inward because of unemployment and all our troubles. And much of the world blames American financial excesses of our bankers for the world crisis, and rightly so, as well as our government’s failure to regulate and rightly so. The good will towards President Obama mitigates some of this, but not very much.

What we are trying to do here is to help you understand how we got into this mess because it will help you personally get out of this mess, get your spiritual priorities right, free you from anxieties, and help you vote right so that we can put into our government leaders who can help us move forward in a just and honest way. This is a gigantic task.

1. So let us begin with the question: How did all this trouble get started? Lots of people have written much, but perhaps the most insightful way to look at it is to read a book by award winning Financial Times journalist, Gillian Tett, entitled Fool’s Gold. The basic narrative outline written here is following that text. Paraphrase is sometimes used. The ethical analysis and spiritual advice is mine. It is highly recommended that you buy the text itself. It is such worthwhile reading. It tells the story of how it all started at the beginning with bankers at J.P. Morgan who were looking for new “products” to peddle to make more money (the profit motive) and how they came up with exotic financial products known as credit derivatives. We will see how derivatives involved currency trading at the start and then grew to just about every aspect of the business known across the globe. We will describe some of it here. It is important we understand the great banks and financial institutions of the world were involved: Chase, Citigroup, Bank of America, UBS, Deutsche Bank, Barclay’s Bank of London, Merrill Lynch, Lehman Brothers and insurance giants such as AIG and Fannie Mae and Freddie Mac and many others.

2. Gillian Tett points out that this economic collapse was not triggered by a recession or war or other events. This is the way it usually happens. It was self-inflicted by the banking community, starting in America, and the failure of our government oversight bodies to regulate those bankers. The blame cannot be put on just a very few bad, greedy, ugly individuals, although there were some of those! The blame must be put on the entire investment system, as well as the watchdog regulatory structures of government and lack of oversight, plus plenty of greedy bankers who sat in their silos and abandoned the public and private virtues of prudence, moderation, balance and any real concern for the common good. A huge ethical failing. Instead, they relied on complex mathematical models which were based on what they now call a “ridiculously limited set of data” and which, they held, were an infallible guide.

3. Now this is an important point. Because these things were so arcane and hard to understand, these financial gurus did what, in anthropology, is called exercising the function of elites. Tett says: “Elites try to maintain their power, not simply by garnering wealth, but also by dominating the mainstream ideologies, in terms of both what is said and what is not discussed.” Bankers sat in their silos. They said: we’ll make lots of money. Everything is OK. Don’t think anything is bad. And those elites dominated everyone below them so as not to ask questions. Regulators sat in their silos placing blind faith in the creed of risk dispersion. There is no need for more regulation, they said, and need for even less regulation. And anyone who disagreed with them was laughed to scorn. Congress sat in their silos. The whole financial community was in its own great big silo separated from the rest of society. Many smaller investment firms and trust funds cannot be blamed for believing the “big fish” would not lead them this far astray.

So let us start at the beginning.

4. In the early 1980s, J. P. Morgan, along with several other famous banks jumped into the new fangled derivatives field which then exploded rapidly. Some ten years later, by 1994, the total notional value of derivatives contracts on J. P. Morgan’s books was estimated to be 1.7 trillion in derivatives. These activities were generating half of the bank’s trading revenue. If you make .02% on each contract it is a small amount but it adds up to huge sums with great volume.

It is important to note that most members of the banking and investment world had absolutely no idea how derivatives were producing some phenomenal sums, let alone what so called swaps groups (another kind of derivative) actually did. Those who worked in the area intended to revel in its era of mystery. These bankers referred to their experiments as “innovation”, meaning the invention of new ways of generating returns. Peter Hancock, the leader of the group at J.P. Morgan, often said to his subordinates: “You will have to make at least half your revenues each year from a product which did not exist before.”

5. A derivative is, on the most basic level, a bet on the future value of an asset. It is a contract whose value derives from some other asset such as a bond, a stock or quantity of gold. Those who buy and sell derivatives are each making a bet on the future value of that asset. The bet can be one of two kinds…either a high risk long shot bet on price swings to make huge profits…or a way to protect yourself against undesirable price swings. There is nothing intrinsically wrong with derivatives if used prudently and regulated wisely.

Here’s an example Tett uses. Let’s say that on a particular day the pound to dollar exchange rate is such that one British pound buys $1.50. So Joe is going to make a trip from England to the United States in six months and he wants to be sure that he can buy dollars at that rate just before the trip. So he might enter into an agreement to exchange 1,000 pounds at a bank in six months time at $1.50, no matter what the actual exchange rate is then. And he agrees the trade must happen no matter what the rate of exchange at the time. That is a future. There is nothing wrong with futures if used prudently and regulated wisely.

Or he may agree to pay a fee (let’s say $25) to have the option to make the exchange at the $1.50 rate which he would decide not to exercise if the rate actually became more favorable.

Although the complex derivatives of the 1990’s were new, simpler versions of derivatives trading go all the way back to clay tablets from Mesopotamia in 1750 B.C., with futures and options trading. In the 12th and 13th century, English monasteries that raised sheep entered into futures contracts with foreign merchants to sell wool up to 20 years in advance…in the 17th century, Holland’s tulip prices began to rise substantially. The merchants frantically bought and sold tulip futures leading to a bubble that ended in a spectacular crash.

In 1849, the Chicago Board of Trade began to allow buying and selling of futures and options on wheat and corn, cattle and hogs, etc. Farmers often lock in a specific price for grain “for September delivery.”

6. What ushered in a bold new era of derivatives innovation was the idea to bring derivatives not just to commodities, (corn, beans, wool, livestock) but to currency trading, to homes, etc. The value of foreign currencies, (which had been pegged to the dollar) after World War II, became free floating. That led to unpredictable swings in exchange rates. Inflation in the U.S. peaked at 13.2% in 1981 and it made investors try to find ways to protect themselves from high interest rates.

The prime rate in the U.S. rose to 20% in June 1981. So now you could buy derivatives which offered you the right to purchase currencies as specific exchange rates in the future.

Peter Hancock’s group in the 1980’s at J. P. Morgan specialized in another creative version of derivatives known as “swaps.” Let’s take a simple example of two home owners, owner A and owner B. They both have a $500,000 ten year mortgage. And owner A has a fixed rate of 8% and owner B has a floating rate. If owner A thinks that rates are going to go down and he doesn’t want to pay 8% which is fixed and owner B thinks they are going to go up so he would like to have a fixed rate of 8%, they could swap their payments for a while or for as long as they agreed to.

Then take the case of IBM in 1979. They had lots of Swiss franks and Deutschmarks (they sold bonds in those currencies). And IBM didn’t need so many of those and needed a lot of cash in dollars. The World Bank said it would issue World Bank bonds in dollars, own the bonds, give the dollars and IBM would pay the obligations to bond holders and IBM would swap Franks and Deutschmarks to World Bank without having to sell them.

Note, too, that after the financial crash of 1929, bringing the Great Depression to America and the world, there was a popular backlash against Wall Street and the Glass Steagall Act was passed by Congress and signed into law forcing banks to split off their commercial banking business from the capital markets operation (trading of debt and equity securities…derivatives). Stern government regulation!

The crucial point about derivatives is that they can, on one hand, help investors reduce risk or they can create a great deal more risk. Everything depended on how they were used and the motives and skills of those who traded in them. So J.P. Morgan’s New York headquarters in the 1980’s could not (because of the Glass Steagall regulations) play capital markets but its London office could because England was not subject to Glass Steagall and had a more hands off attitude towards regulation. The London traders had greater power and freedom and they could make a lot of money fast, take far greater risks and they could walk if anything terrible happened. Few of the higher ups at Morgan knew how the swaps team trades worked.

Morgan was one of the very few banks with a top AAA rating and that assured clients that the bank could stand by its trades. By the early 1990s, the swaps department accounted for almost half the bank’s trading revenues.

7. The head of the swaps groups once explained to a reporter from Fortune that his group was like “the spaceship Galileo heading for Planet Jupiter.” “It would be something in which you would get beyond binary risk and into a combination of risks such as interest rates and currencies.” Hancock gave an example of an oil company which was afraid of oil prices dropping and interest rates rising. To hedge, it would buy an oil price floor and an interest rate cap…but maybe the company would like something a little cheaper: “In that case, we could do a contract that would pay out only if oil prices are low and interest rates are high at the same time.”

8. By the early 90’s, U.S. government bank regulators knew that many of their rules had been drafted before the explosion of derivatives innovation. They, for example, determined levels of reserves banks must have if they were engaging in derivatives activities. But the problem was the regulators couldn’t get good estimates of the risks involved and so many kept saying everything is fine. So their rules for levels of bank reserves were way too low.

Now there was an industry body to represent the swaps world and it was called the International Swaps and Derivatives Association. And the first thing the ISDA did was conduct a survey of the market. And in 1987, ISDA guessed the total volume of derivative contracts was $865 billion. That shocked western government officials. So in 1987, the U.S. Commodities Futures Trading Commission wanted to regulate interest rates and currency swaps in the same way that it monitored commodities derivatives. The ISDA lobbied Congress and won. So government regulation did not happen as it should be. A sad day.

It was a crazy period because the ISDA now said that the rules should be written by the industry itself and upheld by voluntary mutual accord. Alan Greenspan, the Chairman of the Federal Reserve, liked voluntariness because he truly believed that if everyone followed their own self-interest everything would go fine. He’s a big follower of Ann Rynd whose books were popular in the 1950s, recommending what she called the “virtue of selfishness.” He believed: if everybody is selfish, everything will work out well. I know that sounds dumb, but Alan Greenspan believed it and so did lots of others because it fit their purposes…make a lot of money and the heck with everybody else. That is a horrible lack of virtue.

Remember a basic rule of anthropology: elites gain and maintain power not only by money, but also by making sure their view (Greenspan and Bernanke) dominated and prevailed. So if you were at a lower level in the industry, you were told to keep your mouth shut or you would be in trouble.

9. By now all the great banks and stock market firms not only of America, but the world were caught up in the derivatives movement: Chase Manhattan, Citigroup, UBS, Deutsche Bank, Wells Fargo, Bank of America, Bear Stearns etc.

And do not forget about the mortgage market which became huge. The assumption of the elite was that home prices would continue to rise as they had, more or less, ever since World War II. We talked earlier in this series about the democratization of credit. Groups like ACORN and other well intentioned groups who wanted to help the poor thought it would be a good idea if the poor could borrow money and own a house. The problem was that to borrow, the money lenders had to become a lot less fussy about demanding that borrowers prove they had the income to repay the loans. The money lenders gave loans they knew they should not give. That is morally wrong because the poor get hurt even worse. Tett mentions that they even were offering “teaser” loans with very low initial rates (below 2.5%) and these rose in stages to be quite high, often well above 10%. Well, many of these families were taking out teaser loans and they could barely make the 2.5%, but neither they nor the lenders worried about the risk because it was assumed that they would simply refinance the loans at the end of the teaser rate period.

10. And they all assumed that the incredible rise in home prices would continue, when, lo and behold, in 2006 in Las Vegas and Miami and San Francisco and then Southern California, home prices stalled. And this began to trigger a wave of subprime defaults (people could not make their mortgage payments) and some began abandoning their mortgages when their house was worth less than they owed on the mortgage. Some banks then, interestingly enough, turned to the derivatives market to reduce their risk. They purchased credit default swaps which promised to redeem any default losses on the mortgage bonds. Tett points out that in January 2006, folks launched an index for tracking these offerings and their values. It was sort of like the Dow Jones and was called ABX. “Why didn’t someone (either regulators or people in the business) blow the whistle?” And the answer comes from anthropology. The elites gain and maintain power not only by money, but by making sure that their view dominated and prevailed. Their view was: this will all work very well. So be quiet!

11. In early 2006, small groups began spotting something odd: some of the data in the mortgage database suggested the pace of defaults on risky mortgages was starting to rise. This seemed strange and did not fit what they thought were the normal economic rules. At the same time, banks and other lenders were passing out lots and lots of mortgages which were becoming riskier and riskier. These loans were repackaged into more and more CDOs (collateralized debt obligations) in order to make up for declining profit margins. And these were bundled and the products were sold creating huge masses of super senior risk – and guess what. They brought insurance against the super-senior risk from places like AIG. Remember that in 2004, the U.S. Security and Exchange Commission’s five members voted unanimously to lift the leverage ratio control, namely, the controls on the amount of assets a brokerage house could hold on its balance sheet relative to its core equity. The UBS folks in Europe developed mathematical models that said super-senior would never lose more than 2% of its value, even in the worst cases. Nonsense! This defied all prudence and common sense. But remember what elites do!

In 2006, home prices across America started to slide. In October, the famous home builder, Kara Homes, filed for bankruptcy.

12. In June 2007, a crisis hit a hedge fund connected to Bear Stearns…J. P. Morgan now threatened to call in its loans. Disaster was near. In mid-July, another tsunami appeared as Deutsche Industrie Bank (IKB), a medium size lender in Dusseldorf, Germany, started to go under. Would anybody help supply new sources of funds? Nobody did until the German government stepped in. As with Bear Stearns bailout, this was only a temporary reprieve.

On August 6, 2007, American Home Mortgage Investment Corporation filed for bankruptcy. Now the commercial paper market was starting to get jittery.

13. Then the Bank of England, the Bank of Japan, the Central Bank of Canada and the Swiss National Bank started to also get jittery. The Federal Reserve kept making statements that the problems were “contained.” Remember what elites do. They control what people believe. Investors were dumping anything that might contain default risk. They were heading for the safest assets around. Countrywide, America’s largest independent mortgage lender, on August 15, 2007, said its rate of foreclosure on subprime loans was roaring upward. Now real trouble came as many banks stopped lending money to any other banks or institutions that looked at all risky.

14. On August 31, 2007, then President George Bush stood in the Rose Garden with Treasury Secretary Henry Paulson. Adjustable mortgage rates were climbing and defaults were rising enormously. Democratization of credit failed so many! The then President Bush tried to calm the nation saying: “This market has seen tremendous innovation in recent years, as new lending products made credit available to more people. For the most part, this has been a positive development…this has led some homeowners to take out loans larger than they could afford based on overly optimistic assumptions about the future performance of the housing market. Others may have been confused by the terms of their loan or misled by irresponsible lenders.” The President only offered some simple band-aid solutions. Then in September, in England, the fifth largest British lender called Northern Rock announced it had gone to the Bank of England to seek emergency support. Then on October 11, just as Citicorp and J. P. Morgan were trying to create a Superfund, the famous Moody’s cut its ratings on $32 billion worth of mortgage backed bonds which were issued in 2006 and had carried a medium risk rating. They said they might downgrade $20 billion more of mortgage backed bonds that carried a AAA stamp.

15. The entire credit structure was built on the guess that AAA was ultra-safe and AA almost rock solid. Now this was all crumbling.

At the beginning of 2008, UBS, Merrill Lynch and Citibank all reported huge write-downs on credit assets, totally about $53 billion just for those three banks.

Then Bear Stearns found itself in horrible shape and J. P. Morgan Chase cut a deal to buy Bear Stearns for $2 a share with the Federal Reserve taking $30 billion of Bear Stearns’ assets. Remember that in October of 2007, Bear Stearns stock had been trading around $130 a share. Timothy Geithner, New York Federal Reserve Chairman, pulled this deal off at $2 a share! He is now Secretary of Treasury in the Obama administration! Yes, Geithner was part of that elite!

In February 2008, AIG finally admitted it did not have the reserves it would need to meet claims. It announced $43 billion of write-downs of super-senior assets, even more than at Citicorp and UBS. Lehmann Brothers then collapsed on Sunday, September 11, 2008 and at the prospect of AIG collapsing, the money market panicked…Tett notes calmly: “The three events produced the perfect market storm.” The markets went into a freefall.

The next logical step, if this crash continued, was there would be no money coming out of ATM machines. All commerce would be brought to a standstill. On the 16th, the Federal Reserve said it would give an $85 billion loan to AIG in exchange for almost 80% share of its company. Note the Federal Reserve had just refused that aid to Lehmann Brothers which was now gone. On Monday, the 15th, just before AIG deal, Bank of America was pushed to buy, by the feds, Merrill Lynch. Finally, on October 13, 2008, Treasury Secretary Paulson called nine American bank heads into the U.S. Treasury and they were each given a piece of paper the feds demanded they sell shares of their bank to the government and they were forcefully told to sign. Secretary of Treasury Paulson said: take it or leave it. Either you accept voluntary infusion of federal funds or you’re out on a limb by yourself. They accepted the funds and the rest is history.

16. Commercial paper was drying up. Credit was drying up. ATMs would have dried up had the Federal government not stepped in.

17. Summary and Conclusions:

A. Many people have wondered how these very bright people trading in derivatives and making subprime mortgages and taking huge risks with other people’s monies…their conscience did not bother them for what they did was ruin million of Americans’ dreams and deflate America’s greatness in the eyes of the world…Remember, these young people were trained in some of our finest universities. They were told not to worry about moral principles which were all relative anyway. They possess bright intellects and can understand complex business transactions. They have mastery of high level mathematical formulas.

A big part of the answer why their conscience didn’t bother them lies in that basic principle of anthropology we have repeated over and over again: “Elites try to maintain their power not simply garnering wealth, but also by dominating the mainstream ideologies, in terms of both what is said and what is not discussed.” It is what the behaviorists call environmental conditioning and that is easy to understand. Most of us live in a bubble and what is inside the bubble conditions us to think the way we think, believe and act unless we are countercultural. For example, if you are a teenager and live in the bubble of MTV, rock stars, rappers, drugs, sex and alcohol, you are going to believe that is “the normal way of life.” To a teenager, you have to live that way. The elites in the teenage world maintain that supremacy.

To not believe what the elite says means you need to be slightly countercultural. A person with strong religious convictions and relationship to God and His people could overcome that environment, but others cannot.

If you live in a silo of bright banking people and your purpose is to make as much money as possible and the elites around you and above you make sure their view dominates and prevails (There is nothing to worry about. Everything is OK.) Then you will not realize that what you are doing is a violation of prudence, moderation, responsibility, balance and common sense. A violation of virtue! What you will not realize is that you are becoming very greedy and selfish and are going to harm others. What you need to overcome this silo effect is a Power greater than the power of the elites. Most traders and bankers had their private doubts, but they were swayed by environmental conditioning by the spirit of their organization. Or it was simply too complex to understand and you could not be reasonably expected to figure it out!

If you questioned the rightness of the thinking of the elite, in your bank or government agency, you would probably be fired or at least not promoted. All of this should provide business schools with the realization that there has to be an enormous effort made in ethical training, in neutralizing environmental conditioning and understanding anthropology required of students if this is not to happen again. Without virtue all ventures collapse.

B. Many of the banking, business and government elites believed in what Ann Rynd, as we saw above, called “the virtue of selfishness.” They believed that if anyone acts on self-interest everything will work out well. Alan Greenspan believed it and so many others did because it fit their purposes…that ethical theory has to be abandoned (namely, that all persons should seek their own self-interest and all would go well). It has to be abandoned immediately. It is wrong and destructive of human flourishing. It is based on the denial of original sin.

C. The bankers and investors in this drama often describe themselves as feeling invincible, charting new territory, applying new financial services without a touch of humility. They were suffering from what the Greeks called hubris or pride/arrogance. There is an old adage: Pride always comes before the fall and that certainly is true here.

What is hubris? It is the belief that you personally can do no wrong and (if you do) that nobody will challenge you. Remember the story of Darius, the great Persian King in the 5th century B.C. who, when Athens decided to stand up and declare its independence from him, Darius made up his mind to punish them, gathering a great Naval Armada and crossing over to Peloponnesia only to suffer great damage to his fleet as a result of a terrible storm. Darius is said to have taken out a huge whip and whipping the sea said to the god of the sea, Poseidon: “You will not interfere with my will.” Because of his pride, in 490 B.C., his army suffered a huge disaster at the battle of Marathon at the hands of the Athenians who chose freedom over tyranny. The Greeks said Darius lost because of hubris. (sign of pride/arrogance) The reason the financial world went wacko is also because of hubris on the part of these people who thought they were invincible.

That hubris, once again, develops through environmental conditioning. You can be blinded into taking terrible risks with no thought of harm to others because you are reinforced to believe that you are the vanguard of the future. Or if you are at a lower organizational level, you are filled with fear if you don’t go along with the elites. In the 21st century, environments are created with such power they can blind you to moral values at stake. The propaganda machine of Joseph Goebbels was so powerful in Nazi Germany that even good Christian people were blinded into accepting and cooperating with the Holocaust. The Nazis suffered from great hubris.

If, in the 1980’s onward, you belonged to the banking fraternity which is close knit which feels itself superior and invincible and has success after success after success, pretty soon it is blinding to those who are part of it. You may otherwise be good persons, but here are surrounded by leaders and coworkers who feel themselves invincible, a new breed, and clearly making huge sums of money. This is heady stuff and you would have to be greatly countercultural to be morally sensitive and courageous enough to stand up to this pressure!

Postscript: As stated in the beginning of this paper, we are basically following the marvelous book by Gillian Tett, Fool’s Gold (New York: Free Press, 2009) for the financial tale. The ethical part is my own. Buy Fool’s Gold. You’ll like it.

Chapter V - The Magnitude of Our Economic Crisis & the Moral & Religious Problems it Brought to Light

PART I – The Magnitude of the Economic Crisis

It is important for us common folk, you and me, religious and lay leaders to understand how in 2008-2009 the U.S. suddenly ceased to be the economic leader of the world. We are a democratic country and we have to make sure our officials will clean up this mess. They can only do this if we understand what happened. So let us begin.

In 1991, something unbelievable happened in world politics, namely, the Soviet Union collapsed. What Ronald Reagan called “the evil empire” fell in upon itself and its collapse was caused by the Russian government leaders themselves. In the year 2008, the United States suddenly ceased to be the economic leader of the world. What caused this great crash of 2008 and the loss of American’s leadership, as well as a geopolitical setback for the West? Basically, American bankers led the way by lack of public virtue, by greed and by acting like Dives. In addition, the American government officials failed to regulate as they should. This is a far greater event than has happened in America in at least a century and maybe more.




1. The American financial system is seen as having collapsed. The American government regulatory framework is seen as an enormous failure to curb widespread abuses and corruption. Much of the world looks at us in this fashion. Perhaps that is some of the reason the International Olympic Committee did not choose Chicago for the 2014 summer games.

2. People argue about what caused this crisis and mostly they say it was housing prices and the subprime mortgage market in the USA. Others say it in a different way, namely, that when you have very, very low interest rates and an awful lot of money available, the temptation is to make more and more loans to less and less credit worthy clients. Examples: you are a lending agent at a bank and you get paid on the basis of how many loans you make. So at this low interest rate, you can make more money by giving mortgages to people who can’t possibly pay them back. And you also collect a bigger bonus or perhaps a 10% cut.

When the mortgage rates started to rise, thousands and thousands of these borrowers could not afford the rise in variable rates with subsequent delinquencies.

3. Americans have lost one quarter of our net worth in just about a year and a half since June 30, 2007 and no one sees a return to where we were before. Why? Because the single largest asset of Americans is equity in their homes. Total home equity in the United States in its peak in 2006 was $13 trillion and has dropped to $8.8 trillion by mid-2008 and continued falling for some time. So many Americans have negative equity in their homes.

Retirement accounts are the largest household asset of Americans. These dropped by at least 22% from $10.3 trillion in 2006 to $8 trillion in mid-2008.
At the same time, savings and investment assets (apart from retirement savings) lost $1.2 trillion. Pension assets (apart from retirement savings) lost $1.2 trillion. Together these losses total a whopping $8.3 trillion. In other words, too many Americans have nothing saved for emergencies, large or small. And many retired people must return to work.

4. By November 2008, the S&P 500 was down 45% from its 2007 high.

5. This crisis reflects the greatest regulatory failure in modern history. Western capital markets will not return to full health for years. The U.S. financial system is seen by the world as having failed. This will stop the global shift towards economic deregulation.

6. The U. S. will remain the most powerful nation on earth for a while longer because its military strength alone ensures this. But America has lost its place as economic leader in the world.




1. The longstanding brief that everybody wins in a single world market is no longer widely held. Much of the world blames the U.S. financial excesses for the global recession. So the U.S. model of free market capitalism is out of favor.

2. The world’s three largest economies, U.S., European Union and Japan will not, it seems, be able to generate a normal cyclical recovery. The global expansion of goods, capital and jobs started reversing. The exports started falling sharply. The World Bank says exports from China, Japan, Mexico, Russia and the U.S. fell by 25% or more in the year ending 2008.

Capital flows were plunging. Emerging markets are projected to receive only $165 billion in net positive capital inflow in the year 2009, down from $461 billion in 2008.

3. Immigrant workers are now returning home in waves. Japan and Spain are offering them cash to leave. Malaysia is forcing them out.

4. Countries in Africa have been hardest hit. Democratic Congo, as well as the Central African Republic are in political chaos. Central African Republic cannot pay its civil servants. It is literally falling apart. The Democratic Congo will be soon be unable to import food and fuel, namely, essentials. A World Bank study estimates that 53 million people living in emerging markets will fall back into absolute poverty in 2009. Then Russia and Iran are also hurt very, very badly. Iran has been losing money on every barrel of oil it sells. Russia is too dependent on a single giant source of income…oil and gas. Its economy, too, is in trouble.

5. Only China has prevailed. China’s growth, we are told, did not diminish. It is becoming clear that the U.S./China relationship emerges as the most important bilateral one in the world. The two nations have very similar geopolitical interests. Neither China nor America wants Iran to acquire nuclear weapons. Neither wants Korea to become destabilized. Neither wants Pakistan to become a failed state.

SUMMARY: Free market capitalism, globalization and deregulation which had been rising for 30 years has now ended.



1. Free-market capitalism is in enormous decline.

2. In its place has come state capitalism, a system where the state functions as the leading economic actor and uses markets primarily for political gain.

For example, it has been said that the economic capital of the United States is no longer New York City, but is now Washington, D. C. And with that, comes the injection of politics into economic decisions. A bad deal!

3. State capitalism, it is pointed out, has four primary agencies:

(a) National oil corporations – the 13 largest oil companies in the world measured by their reserves are owned and operated by governments, not multinational corporations such as BP, Chevron, ExxonMobil, Shell or Total. These companies are: Saudi Arabia’s Saudi Aramco; the National Iranian Oil Company; Petróleos de Venezuela; S.A.; Russia’s Gazprom and Rosneft; the China National Petroleum Corporation; Malaysia’s Petronas and Brazil’s Petrobras. State owned companies control more than 75% of global oil reserves and production.

(b) State owned enterprises – Here governments don’t just regulate the market. These state owned enterprises help bolster political leaders. What are state owned enterprises? Think of Angola’s Endiama (diamonds), Azerbaijan’s AzerEnerji (electricity generation), Kazakhstan’s Kazatomprom (uranium), and Morocco’s Office Chérifien des Phosphates. Then also think of Russia’s fixed line telephone and arms-export monopolies. Think of China’s aluminum monopoly, power-transmission duopoly, major telecommunications companies and airlines. Think of India’s national railroad.

(c) In some developing countries, large companies remain in private hands, but rely on government patronage in the form of credit, contracts and subsidies. Here you have corruption, bribery and everything that happpens when you drive out competition. For example, in Russia any large business must have favorable relations with the state in order to succeed. National champions are controlled by a small group of oligarchs who are personally in favor with the Kremlin. The companies Norilsk Nickel (mining); Novolipetsk Steel and NMK Hlding (metallurgy); and Evraz, SeverStal and Metallionvest (steel) fall into this category. In China, the same applies.

Variations of the privately owned but government-favored national champions have cropped up elsewhere: Cevital (agroindustries) in Algeria, Vale (mining) in Brazil, Tata (cars, steel and chemicals) in India, Tnuva (meat and dairy) in Israel, Solidere (construction) in Lebanon, and the San Miguel Corporation (food and beverage) in the Phillipines.

(d) The task of financing these companies has fallen in part to Sovereign Wealth Funds (SWFS). These act as repositories for excess foreign currency earned from the export of commodities or manufactured goods. They are more than just bank accounts. They are state-owned investment funds with mixed portfolios of foreign currencies, government bonds, real estate, precious metals and a stake in lots of companies, foreign and domestic. The Kuwait Investment Authority, now the world’s fourth-largest SWF, was founded in 1953. But the term “sovereign wealth fund” was first coined in 2005, reflecting a recognition of these funds’ growing significance. Since then, several countries have joined the game: Dubai, Libya, Qatar, South Korea and Vietnam.

It is hard to argue with the view that all of this makes markets less competitive and less productive. Only free markets can produce durable prosperity. Please note that since the great collapse of 2008, governments of the world’s wealthiest countries are now intervening in their economies and taking ownership of private assets. The U.S. and European governments know that to maintain popular support they must promise to return these large enterprises and banks into private hands once they’ve been restored to health. Not so in other places.

We said above New York City was the world’s financial capital. It is now no longer even the financial capital of the United States. Washington is. Similar shift of economic responsibility is taking place throughout the world: from Shanghai to Beijing, from Dubai to Abu Dhabi, from Sydney to Canberra, from Säo Paulo to Brasilia, from Mumbai to New Delhi. And in London, Moscow and Paris, where finance and politics coexist there is the same shift occurring toward government.

The result: deep state intervention in the economy means a door is opening to bureaucratic ways to inefficiency and corruption. This is more likely to hold back growth.

Now there is much talk about “decoupling,” the process whereby emerging economies develop a domestic base to free them from dependence on consumer demand in the U.S. and Europe. Incidences of decoupling are found in Brazil, China, India and Russia.

PART II – The Spiritual Implications of Global Crisis




In the Catholic tradition, there was a Second Vatican Council in the early 1960’s. One of the documents was called “The Church in the Modern World.” And reflecting on Scripture, it says something very important for all of us.

“Christ’s redemptive work, while of itself directed toward the salvation of human beings involves also the renewal of the whole temporal order.”

This document insists that “the spiritual and temporal orders are so connected in the one plan of God that He, Himself, intends in Christ to appropriate the whole universe into a new creation, initially here on earth, fully on the last day.”

In other words, one of the spiritual messages we receive here is to try to integrate the following of Christ with wellbeing of the world’s economic systems and social systems and wellbeing of all human kind.

There was a lot of optimism in those early years when this document was written in 1964. Not so anymore! In that sense, the document (the Church in the Modern World) is outdated. It would be easy, but false to say that we each have to, in our own lives, simply become better followers of Christ. Of course, that is necessary. It is absolutely essential. There is nothing more important.

But, on the other hand, all the matters related to finances and economy are in trouble at a magnitude never seen in the history of the world. We see what happened when free market economy was joined with less government regulation and how the whole world was harmed. The development of economic theory in the last 20 years has been harmful to the human condition in so many ways which we are experiencing today. In 1964, no one had even thought of that happening.

We were moving toward globalization and it was thought that everyone would gain if we all went down that path. Not so.



On one hand, the ethical problems surrounding the economic collapse are so enormous that no one can get their hands totally around them at the present time. Theories are in conflict. Issues are extremely complex. Why didn’t economists foresee the financial meltdown? Economists live in silos which are ideological, regional, national and global. Yale University’s well known economist, Robert Schiller, thinks that the failure to foresee the financial meltdown was due to the economists themselves being afraid to speak up against the majority view. There is no one grand moral scheme that is concrete enough to be put into effect with very immediate results.

There are, however, very clear ethical or moral mandates which we should attend to right now, today, tomorrow and in the future.

The first moral mandate is to develop strategies to help economists and others in the financial industry overcome environmental conditioning and resist social manipulation. Many insightful people point to social manipulation or environmental conditioning as a principal reason for “going with the flow.” This conditioning was so strong, very few dared to do what they knew was ethically right.

The same quandary with regard to environmental conditioning affects other areas of life. We have all recognized, for example, the power of the social milieu of adolescents to achieve conformity. Too few kids feel capable of turning their backs on what we adults call political correctness.

Many also see the power which marketing has to change the thinking, even of adults and even values without our hardly being aware of it. And few of us, even here, have learned how to neutralize this.

Most of us have to see how important this is. It is an issue we used to call human respect. We need to see how it can impede our speaking out, especially in this issue of global economics and world politics. It is an urgent issue. We have pointed out how the principle of anthropology that the elite gain and maintain power by making sure their views prevail and others keep quiet.

The second moral mandate is that world leaders need to give great importance to and develop traditional public and private virtue. Most everyone will agree we have too many leaders of nations who are lacking in virtue, who are filled with bride, greed and arrogance. Many follow Machiavelli who said: a lie is only wrong when it does not succeed. And many others are simply blind to the realities. The call for virtue among national leaders in an international way would be enormously helpful.

Various great religions of the world including, especially Christianity, could help enormously by insisting traditional virtues and character count in every country and in every place.

And it isn’t just in the western world where this is needed. For example, in Zimbabwe, Robert Mugabe is apparently dictator for life. In Burma, the military junta has again silenced their Nobel Peace Prize political activist. Yes, democratic gains have been in Burundi, Liberia, Tanzania, Ghana, Botswana and Mozambique. But 15 heads of African nations have held power 15 years or more and 25-26 for at least ten years. And that just is Africa. Look at the other major areas of the world, as well.

The third moral mandate is for economic leaders to repent. Too many for too long in the last 30 or 40 years have believed that self-interest (selfishness) will promote the common good. We have already seen Alan Greenspan espouse this in the past and so many others. Emeritus professor Charles Wilbur at Notre Dame University comments: “even more encouraging is the growing recognition that economies require ethical behavior in addition to self-interest.” People are now saying that even Adam Smith is of the persuasion that individual greed cannot be the basis for social good.
The fourth moral mandate is for all of us to relearn the importance of justice in our own everyday lives. Justice is not the most we can for one another on this planet. It is the least! What kind of justice?

Justice is not the most we can do for one another on this planet. It is the least! What kind of justice?

First, justice between individuals which is contracts and promises. The 18th century French writer, Montesquieu, who so influenced America’s founding fathers, insisted that public virtue was the glue that would keep a republic flourishing and that the greatest temptation in a republic would be prosperity. People would become greedy. They would not observe their contracts. They would cheat each other and would not care about anyone but themselves. Alexis de Tocqueville, who came from France to America, observed and went home and reported on his observations. He wanted to see if citizens could live without a monarch and realized that for them to govern themselves required a great deal of self-discipline. Once again, public virtue and private virtue.

Then there is distributive justice - allocating goods in such a way that the minimum needs of as many people as possible are met and opportunities for as many people as possible to achieve human flourishing are the goals to be sought after. In the old days, this amounted to, and still does, the right to work, the right to own property, the right to vote, etc. But today it is far more complex than anyone could have ever realized. Free market capitalism is out and state capitalism is in. We then need to realize the real dangers of state capitalism: with its lack of competition, its tendency to bribes, corruption and undue influence.

And, thirdly, there is social justice is particularly important because it calls us to look beyond ourselves to the needs of our neighbors, namely, the common good. It calls on governments to move towards meeting the needs of all.

We have seen how well intentioned movements such as the democratization of credit can go array if there are not men and women of character.

This is simply a very brief outline of some of the things we need to do, some of the places we need to go. Perhaps it might be appropriate to conclude with some thoughts from Dietrich Bonhoeffer, the Lutheran pastor martyred by the Nazis in World War II. In 1938, he published a little work called The Cost of Discipleship. He talked about cheap grace and expensive grace. “Cheap grace is grace without discipleship, grace without the cross, grace without Jesus Christ, living and incarnate.”

Bonhoeffer could see the young man in every one in his time and might see the rich young man in each of us today when we refuse to be detached from possessions, when they become more important than character. Yes, we can remain in a cheap grace relationship with God, but it will only harm us and harm the common good. Bonhoeffer says: “He who loves God loves Him as Lord of the earth such as it is. He who loves the earth loves it as God’s earth. He who loves the Kingdom of Heaven loves it…as the Kingdom of God on earth.” In other words, we should use our material goods as God wants us to, namely, not our own but given only to us in stewardship for a short time. “Come Lord Jesus” into our lives, into our national economy and into our world.

Postscript: Much of the data in this chapter comes from three marvelous articles in the July/August 2009 issue of Foreign Affairs. They are: “The Great Crash, 2008” by Roger Altman, formerly U.S. Deputy Treasury Secretary in 1993-1994. The second is: “State Capitalism Comes of Age” by Ian Bremmer, President of Eurasia Group. The third article is: “Globalization in Retreat” also by Roger Altman. See also John Hughey, The Holy Use of Money (Garden City: Doubleday, 1986). Much of the data here is taken from these three articles. However, the moral reflections are my own.

Chapter Four - Ethical Boundaries Surrounding Wealth & Poverty - Final

The people who lived in this country before us for hundreds of years surrounded their lives with ethical boundaries around money, power and sex. They tried to steer a course between puritanical suppression of pleasure on one hand (being insensitive to the good things of life), and on the other hand, pagan indulgence (coming to wallow in materialism). Remember the ad for Chase Bank: “I want it all. I want it now.”

Our thoughts here focus on a middle ground between the two. We call it the right balance between the two extremes. We call it moderation. It is the right balance that puts the brakes on the downward drag of materialism. It is the right balance that calls us to be slightly countercultural in order to break the pattern of political correctness, to go against the pleas that “everybody has it” and “everybody else does it.”

There are many excellent books written on this subject. Jane Hammerslough has written a marvelous book Dematerializing – Taming the Power of Possessions (2001). There is also a marvelous anthology of ancient and modern voices raised in praise of simplicity edited by Goldian VandenBroeck entitled Less is More (1996). And then there is Duane Elgin’s Voluntary Simplicity – Toward a Way of Life That Is Outwardly Simple, Inwardly Rich (1993). All of these are very good. And even more important than these is a similar work by Peter Danner An Ethics for the Affluent (1980). His ideas are principally followed here.

1. What are the basic elements of balance between riches and poverty, the basic elements of the right balance?

a. These authors all point out many affluent Americans want too much and expect too much and that makes us very unhappy because in times of scarcity, such as now, we get frustrated. But even in times of great abundance, we feel an emptiness of material things.

b. In Danner’s view, the basic elements of balance or moderation are:

 Gaining control over our wants, especially our sensual appetites. (more economic goods)
 Gaining control over our appetite for gain. (more income, more wealth seeking)
 Gaining control over our appetite for power. (money brings power…a $100 bill is a magic piece of paper)
 Gaining control over our appetite for political correctness. (which brings a preference for prestige over truth and goodness)

In ancient and medieval times, things were much more clear and simple:

 In static economies of ancient and medieval times, extravagant living, time and again, involved depriving the poor of some means of livelihood. In economics, this is called a “zero sum game” where the pie is only so big. And you can only get a bigger piece from the pie by taking a piece from somebody else.
 Growing economies are not zero sum games. We have all experienced economic growth until recently.
 Today, control over the desire for power and political correctness is much more needed because of the strength of environmental reinforcement which is the power of the culture to influence us in ways we hardly even notice. This is a very important point.
 Let’s take the example of associative conditioning in the media changing people’s views. The first example of associative conditioning I can think of was in Hitler’s Germany where a Nazi propaganda machine cleverly would show a picture of Jews immediately followed by a picture of rats. If this was shown over and over again, as soon as you saw rats you thought of Jews and as soon as you saw Jews, you thought of rats.
 In our time, associative conditioning is very subtle. You see pictures of an extravagant lifestyle and happiness set side by side over and over again. So much so that as soon as you think of happiness, you see in your mind the picture of an extravagant lifestyle.
 They do the same with pictures of the Church in a negative way.
 They show pictures of dumb old men in the Church and right next to them is harsh, stupid morality.
 So when you think of morality, you think of dumb old men in the Church wearing funny looking hats and clothes.
 And when you think of the Church, you think of dumb old men demanding morality.

2. So we have to work on a right balance (or moderation) between puritanical suppression of pleasure and wallowing in materialism.

 A proper balance between the two can help us develop a moral compass and religious sensitivity.
 The gospel of the Lord calls us to seek first the kingdom of heaven. The gospel calls us to look at the lilies of the field which neither sow nor spin, yet our Heavenly Father closed them in glory in abundance.
 The birds of the air do not engage in commerce, yet our Heavenly Father feeds them.
 The presence of wealth is not an automatic sign of divine favor and yet there are preachers who claim just the opposite.
 Sensitivity to moral values comes from embracing the gospel and daily following the Lord.
 The gospel says we are to pray: Speak Lord, your servant is listening. An affluent person prays: Listen Lord, your servant is speaking.
 Look at the story of Dives and Lazarus in Luke’s Gospel. Dives did not kick old Lazarus. He did not spit on Lazarus. He did not make fun of Lazarus. He did not have Lazarus removed from his doorstep…Dives was condemned for none of these things. Then why was he condemned? Because he simply did not much even notice Lazarus. He simply accepted the world in which Lazarus existed. He just did not really care. He was indifferent. He was too busy with other things. The opposite of love in the gospels is not hate. It is simply not caring. (Remember in Gone with the Wind, Rhett Butler saying to Scarlet: “Frankly, my dear, I don’t give a….”) Indifference.

3. St. Theresa of Avila tells this story in The Interior Castle (the 3rd mansion) of a person quite affluent who loses some money on a bad investment. (It was not the subprime mortgage crisis, but it was something.) He is simply crushed by it. He is anxious, upset, angry and out of sorts. Theresa asks: how can the Lord possibly get through to that person when he is so wrapped up in himself? What should he do? And she answers: he should admit he has a neurotic attachment to his wealth. He must pray to the Lord to give him freedom in this area.

4. Are there such things as people who think they can buy love? The man who pays a prostitute knows he is really buying sex and not love, but for a few moments he fantasizes that he is buying love. The same is true with most people who are so starved for love that they try to buy it with gifts to their children, etc. Except for a few brief moments here and there, it is unlikely that they really believe they can buy the love they feel they so desperately need. Most people who are hungry for love have never tried hard to let the Lord love them and they feel unloved under any circumstances. They are willing to settle for being liked. They can buy attention, even admiration. Love buyers tend to spoil their children. They give into the wishes and desires of their children and buy them all sorts of things they don’t need. Love buyers get admiration and attention. But admiration and attention are only poor substitutes for real love and they are never quite satisfied. But many love buyers just keep trying.

5. In classical literature, there is the story of King Midas who asked the gods for a special gift. The gift? That whatever he touched would turn to gold. It was called “The Midas Touch.” The gods gave him the gift and he walked into the Great Hall for lunch and he picked up an apple and it turned to gold. And he picked up a roll and some roast beef and they both turned to gold. And he realized he could no longer eat anything…but then, much worse, his little daughter whom he loved so much came running in to see him and she ran into his arms and she turned to gold. His desire for gold sucked life right out of her. That’s a powerful story.

Chapter III - A Christian View of Scarcity and Plenty - Final

Even before the economic downturn so many Americans sensed something wrong with our consumer society. They often felt a sense of spiritual unease knowing, as they do, we are consuming too many of the world’s resources and sharing too little with those less fortunate.

But within the past several decades when they looked for ways to address this, their alternatives were too often inadequate to the task.

Some turned to Karl Marx’s withering critique of capitalism. Granted, he was writing of the early industrialization of his 19th century Europe, yet despite the ultimate failure of his program, he had many useful, critical insights about the false consciousness of the wealthy vis-à-vis the poor. His moral outrage at the exploitation of workers strikes a sympathetic cord in the hearts of many. But his central notion of class struggle has taught too many people to hate the rich. No just society can be built on that hatred. John Francis Kavanaugh in Following Christ in a Consumer Society (1982) uses a Marxist critique to help focus on the power of the gospel to transform the lives of consumers. Unfortunately, the Marxist critique is a turnoff to many so they miss the point of Kavanaugh’s, otherwise, very excellent critique of a consumer society.

Dorothy Day in her autobiography The Long Loneliness (1952) was a dedicated Marxist, but then became a Christian and she writes: “If I could have felt that Communism was the answer to my desire for a cause, a motive, a way to live in, I would have remained as I was. But I felt that only faith in Christ could give the answer. The Sermon on the Mount answered all the questions as to how to love God and one’s neighbor.”

Similarly, others looked for ways to address a consumer society in the writings of humanistic psychologists.

For example, Abraham Maslow was convinced that humanistic psychology was a perfect replacement for the materialism of the age. Many Christians embraced Maslow’s teaching without realizing he wanted humanistic psychology to also replace not just materialism but also even ecclesial institutions such as the Catholic Church. He writes in his diary of a talk he gave in 1962 at Sacred Heart College in Newton, Massachusetts. “They shouldn’t applaud me. They should attack me. If they were fully aware of what I was doing, they would.”

Or take for example Carl Rogers who started the human potential movement. In 1960 he published On Becoming a Person, popularizing the idea that to become a person, one has to find the real me and get rid of all the false me’s that socialization, including materialism, created. Very unfortunately, Rogers set aside the whole marvelous Christian tradition on scarcity and plenty. His work did not have the impact he thought it would, namely, a liberating impact and instead, more often than not, made simply a narcissistic impact. Too often in my view the Christian message in those days was wrapped in outmoded terminology and the wrapping was confused with the gift.

So let us turn now to the power and glory of the Lord’s way to deal with material goods in times of scarcity and in times of plenty.

The economic downturn has touched the lives of countless Americans. As I write this, there are six million workers who have lost their jobs. Countless retired persons have seen the funds they were counting on shrink by 30 or 40 or 50%. Or even more. Here at Boys Town, our graduates of last year (2008) are being rifted from $12 an hour jobs in nursing homes, telemarketing and so many other low end occupations. They struggled mightily to secure those $12 jobs and (together with the class of 2009) they can now only find $7 jobs.

Take the example of a friend of mine who was let go by downsizing, losing his $60,000 a year job. He has a wife who is a homemaker and two children, ages 10 and 16. He is in a state of shock. He is feeling helpless and he is just plain depressed. You can see the darkness descending on his life. Yes, his family right now is a dark place. There is lots of bitterness. There is lots of sadness. There is a feeling of being betrayed.

A 40-year-old lady delivered a flower from a local florist to us at Dowd Chapel yesterday. And I said: “I have never seen you before.” She told me she had lost her job so she has to deliver flowers for two days a week. “That way I will get a little money.” Then she shook her head and said: “Life just isn’t fair.” That is true, but it is not much of a consolation. She, too, is complaining. She seemed close to hopelessness, as she lamented: “I drive to the next place, deliver a lousy flower and then another lousy flower at the next place and get a lousy, measly salary.” She is close to losing hope.

Both the flower lady and my friend should start with the gentle realization that although the economic abundance they had was certainly better than not having it, yet at the same time, it did not bring them happiness. It brought convenience and simple solutions to their problems, but not happiness. The sadness they feel is all about having to live with less, not all about losing happiness. Remember that.

In addition, the flower lady and my friend need to realize that in some ways their lives were helped greatly by abundance. They had fun going out to dinner, they had fun buying a nice new car, they had fun going on good vacations, they had fun making happy memories. At the same time, the flower lady and my friend need to realize that in some ways our lives have been impoverished by abundance in comparison with the days when we were less affluent. How many times have you said to yourself as you walk through your home early in the morning before anyone is up and realize you have more of this world’s goods that you used to have, but aren’t any happier and, in some ways, you feel impoverished? How many have you said to yourself that your children have too much and are getting selfish? They do not know how to sacrifice. How many times have you said to yourself that you wish they could learn how to sacrifice? How many times have you thought to yourself that economic abundance has not brought you peace of mind, but pernicious debts rising faster than your income?

In some ways, we realize that affluence has done wonderful things, but in the same breath it has created an insecurity in the sense that the more income we have the more wants we have. It has created a much more complex, hectic life. It has created a different kind of insecurity, namely, in the sense that all of us complain that we are always in a hurry, always in a rat race and always on the treadmill. We complain we don’t have enough time to read, we don’t have enough time to pray, we don’t have enough wisdom, love and friendship. Despite all the goodness of God’s material creation, we know our affluence has also eroded parental authority in our families. We know that our kids’ culture is often a culture of money. It is what I call erosion caused by affluence. Rain is good for the crops, but if it rains too much or too hard there is erosion on the land.

It is now time to talk about the great spiritual gifts our Christian faith gives us that enable us to find happiness in good times and in bad, “for richer, for poorer.” The gift of faith is a pearl of great price. Let us go slowly here. Something very important, but subtle, gradually befalls us when we arise to the level of affluence that we had before the economic collapse. Notice how material possessions and economic wellbeing make us towering promises which they cannot keep, promises that riches will bring us happiness and satisfaction and self-fulfillment and riches cannot possibly do that.

Why? Because at the heart of all these material possessions, material gains, material success is the kind of emptiness of material things. Our Christian tradition calls it material emptiness or ontological poverty. It is not that material things are bad. They are not. They are God’s good creation. They are to be enjoyed. It is rather that material things and economic wellbeing can satisfy certain hungers, but they can never satisfy the deepest hungers of the human spirit. “Man does not live on bread alone.” There is a longing in the depths of each of our hearts which can never be satisfied by material goods or by a higher standard of living. St. Augustine said it well: “Our souls were made for thee, O God, and they will not rest until they rest in thee.” To rest in material goods or to embrace them too much brings the trivialization of life. Too many riches cannot bring about a rich life.

Christians through the centuries have asked what is the remedy for this emptiness that is at the heart of material things. And the answer is that only the evangelical spirit of poverty found in the gospels and in Jesus’ teaching can alone fill the material emptiness or ontological poverty. Yes, the evangelical spirit of poverty alone can bring meaning to the frustration that material goods generate. It alone can bring deep enjoyment for the good things of life. The gospel’s spirit of poverty alone can answer the question so often expressed by us: I have so much more than my grandparents or parents, but what good has it done me or what good has it done anyone else? It is not that material goods are bad. It is rather that they are pitched to us by a marketing world that entices and tempts us. It is a way to satisfy the artificial wants created by our culture. “If I only had a new car or a better home or a bigger salary, then I would really be happy.” And yet we know deep down that is not true, that after a few days our new car doesn’t bring us promised happiness and now we want something else. Yes, material goods generate more wants, more wants, more wants. Christian authors have often put it this way: affluence creates scarcity and that brings emptiness.

Affluence tempts us to believe if we love our children, we will give them the best, namely, more material things. But only materialism makes us believe that is the best. The best is really calling them to a life of virtue and moral greatness.

With the economic downturn, almost all of us realize that we are too far in debt and the more we have the more we spend, the more we worry and the deeper the debt piles up. Yes, we need the spirit of poverty to fill this emptiness.

In addition, we get hooked on material goods. They bring us less freedom, not more. Remember the ad for Chase Bank: I want it all. I want it now.

And if I want it now and want it all, I just may be tempted to buy too much on credit, to forget to save for rainy days. After all, only suckers do those things. And this attitude doesn’t just involve material goods. What happens in Vegas stays in Vegas. Only suckers believe otherwise. So we are tempted to cheat on other things, in marriage, in family, in business, in pleasure.

And now we come to a very hard saying. If you have been reading this so far, you have found me saying there have been people out there who are greedy and villains and rogues, both in government and in business. You and I did not create the subprime mortgage crisis, but you and I may fall into the trap of believing everything will be okay once blame is fixed and the villains exposed. But there is a problem in our heart, yours and mine, a big problem, namely, a lack of a gospel spirit of poverty.

If we look into the scriptures, we will see certain ideas about poverty:

 In the Old Testament in early Israel, the journey to the Promised Land by the Nomadic Hebrew people found everyone being, more or less, equally poor.
 On coming into the Promised Land and especially when Saul became king and others followed, there was an increase of wealth among the upper class and dire poverty elsewhere. Amos, the prophet, cries out against oppression of the poor, the denial of basic dignity to them, unjust demands for debt repayment. Other prophets followed suit. The Lord does not forget the cry of the poor.
 There is another theme in the Old Testament, namely, that poverty and disaster are the result of Israel’s unfaithfulness to the Lord.
 In the Wisdom literature, there is a middle state between excessive wealth and excessive want, a state most helpful for virtuous living. We should not have too much, less we be tempted to rely on ourselves and not on God and have too little and be tempted to curse God.
 The person with this spirit of poverty is one trusts the Lord in good times and in bad. This person furthers God’s holy purposes.

Many authors, when speaking of spiritual poverty, point to three steps that can be seen as spiritual poverty grows in our hearts to maturity. Let us look at the three steps in this process:
 In the first step (from Exodus to the prophets) the people of Israel are told that if they follow the covenant with their whole heart and soul God will literally bless Zion with material wellbeing. This is God’s promise to Israel and the promise is to the community, not to individuals. So if you are a person in the community who has more, then you have to share with those who have less. You are literally actively being God’s agent in bringing material wellbeing to those who have less. Over and over, we read in the Old Testament that those who have plenty should provide special help to the orphan and the widow. Sharing your material wealth with those who have less is part of Israel’s faithfulness to the covenant. Spiritual poverty is about what you do with your wealth.
 In the second step, spiritual poverty is interiorized. This is during the exile. In the exile in Babylon, the children of Israel underwent real true physical poverty. What did they do with it? They interiorized it by giving themselves to the will of God, patient in tribulation, trusting the Lord that He and His justice will someday rectify their plight.
 In the third step, we see the Son of God come down from heaven seeking and preferring poverty. This adds a new dimension to the interiorization of poverty, namely, you seek it and prefer it.

Jesus’ life was a song of praise to poverty. He was born in a stable. He grew up in obscurity. He was a village carpenter of no public account and in His ministry, He took, with gratitude, whatever people gave Him…water from a Samaritan woman at Jacob’s well, a fine meal from the rich man, Zacchaeus, a donkey from a stranger to ride into Jerusalem and, finally, a burial place in someone else’s tomb.

When asked what it was like to follow Him, He said: The birds of the air have their nests, foxes have their lair, but the Son of Man has no place to lay His head.”

And then there are those sayings of the Lord where Jesus warns us about how seductive wealth can be…“woe to you rich”…“woe to you who have your fill now”…“if you would be perfect, go sell what you have”…“seek first the kingdom of heaven”…prefer spiritual wealth over material wealth.

In the early Church, the apostles and their followers took Christ’s words as applying to them all. All said that the spirit of poverty…according to their circumstances…is an essential ingredient on the way to salvation. Yet remember they still kept their property. Jerusalem was unique in holding possessions in common and, even there, the surrender of private possessions was not mandatory.

There is also that marvelous idea coming from the gospels that we are not owners of the goods of this world, but only stewards. Those things have been given to us by God to use for the sake of the kingdom. We are caretakers of God’s goodness. God gave us these things to use for a while as good stewards. Wealth was for the good of all. It was a way to unite, not to divide.

In other words, what does the spirit of Christian poverty do for us?:
 The spirit of Christian poverty asks us to “consider the lilies of the field and the birds of the air.” It asks us to trust the goodness of God in all ways.
 Christian poverty asks us to be open to the needs of others. Dives’ sin was not that he mistreated Lazarus, but that he just did not notice him or even care.
 In other words, our desire for wealth has to be moderated by our willingness to share.
 The only things we ever keep are those we give away.

In summary, spiritual poverty gives us a number of important messages:
 Mother Teresa pointed out that the poor of the world have a sacramental meaning. Here, in the poor, we encounter Christ. The poor are those with physical needs and those with spiritual needs.
 Spiritual poverty cautions us about too many material goods that can corrode our souls and make our commitments difficult. The widow’s might is a powerful message.
 Genuine spiritual poverty can help us in our current economic crisis.

In other words, only the Christian spirit of poverty trusting deeply in God can calm the emptiness or restlessness that is produced in good economic times and in bad economic times. Our helping others can fill the emptiness that is at the heart of our material possessions.

In the end, let us compare this Christian spirit of poverty with two opposing views:
 First, let’s remember the Christian spirit of poverty trusts in the Lord in good times and in bad and never forgets the poor and is grateful for whatever God gives to use on our way to heaven.
 In contrast to this Christian view, a Marxist view is that we should envy and despise those who are rich. We should pull them down. We should reduce them to poverty. We should overtax them. There should be class warfare. We should hate them.
 Then there is the secular view that is so pervasive in our society today, namely, that money creates power. Here’s what one author has to say: “Like a king, a person with money is endowed with great power. But waving a handful of money in the air am otherwise a significant person can command others to wait on them to satisfy their every need and will, shine their shoes, clean their clothes, pour their wine, satisfy their needs and desires. A $50 bill can work magic in a restaurant, making a nonexistent table suddenly appear out of nowhere. A $100 bill can produce even more stunning results. Money clearly has a magical quality to it. It is power. It says: I can give whatever you need. Put your trust in me.”

Postscript: for further study, read A Good Life of St. Francis of Assisi, also John McKenzie’s, Dictionary of the Bible under the heading poverty or riches. See also Christopher Lasch’s Culture of Narcissism (1978). Also Jacques Ellul, The Technological Society (1964)