"Britain's real debt disaster"

Whenever people speak, as an example of evangelicals ‘picking and mixing’, of how the Church has given up on its opposition to usury without any real harm being done (so why don’t we ‘get real’ on ‘other’ issues?), I am minded to observe, firstly, that the current economic crisis was caused by money-lending and, secondly, that we are by no means out of the woods yet.

On the contrary, what we need right now is a healthy dose of the kind of reality provided by this article here.

As the headline say, “We are in danger of ignoring Britain’s real debt disaster”, and that debt disaster, as this blog has been saying for a long time, consists not just in national and institutional borrowing, but individuals who have also borrowed well beyond their means to repay.

Moreover, as the article goes on to observe, they are being encouraged to do so even further by economic pressures and government policies:

Alistair Darling duly obliged this week by removing stamp duty completely from all houses costing less than £250,000. It was almost certainly an astute political move. But then you notice that first-time buyers are currently borrowing an average of between four and five times their annual household income when, to be safe, that multiple should stay below three. You can see the strain. And when you recognise that the rise in interest rates which must, eventually, come would expose all those interest-only borrowers to sharp "rent" increases on undiminished debt, you can see the danger. Such borrowers are a different version of the "sub-prime" which devastated America. It would be much kinder to help them pay down debt quicker than to devise new, clever ways of inciting them, or new entrants, to borrow more.

What is needed is a new attitude — both to debt and to wealth. And this is a matter of morality and (that old favourite of Church campaigning) of justice:

It is wrong to go on presenting the bottom rung of the housing ladder as an essential mark of modern adulthood, like losing your virginity or passing your driving test. It is foolish for the Government to offer equity share to first-time buyers when the housing market is, in real terms, going down. As with endowment mortgages and private pensions in the past, this looks like mis-selling. Indeed, in relation to money, you could say that all our politics in the 21st century has been a form of mis-selling.

And, moreover, it requires a new attitude to life itself:

For half a century, we experienced the "revolution of rising expectations". That revolution went on for so long that the expectations outreached reality. The revolution of lowering expectations is only just beginning.

The problem is, our Western culture does not want to hear this. We regard increasing wealth, and widespread prosperity, as ‘normal’. Indeed, we think that these things can be achieved and maintained without too much effort on our part. But as the article observes,

... the history of the world is one in which most human beings have had a very hard time. A social order which produces steadily, genuinely growing prosperity for most citizens is therefore a great and rare achievement.

The Bible was right to frown on money lending for profit, and the Church was wrong to abandon its objection. (Investment was never the issue — the question was whether money itself could and should be treated as a commodity. So long as it is, there will be people greedy enough to lend to those who cannot afford to borrow, and those stupid, or desperate, enough to borrow what they cannot afford to repay.)

A friend of mine whose business it is to know about these things predicts that we are halfway through the economic crisis, and that the present sense of disaster averted is actually the calm before the second storm. If he is right, and if, as this article suggests, that storm brings rising interest rates (as must surely eventually happen), then we are in for not just difficult, but dangerous times:

Ministers, bankers, Parliament have all failed, while looking after themselves comfortably in the process. So the conditions are ripe for a new politics of grievance and anger. Which is where revolutions begin.

Watch this space.

John P Richardson
27 March 2010

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A Jubilee for the West?

I've just had an idea which has got to be worth a go.

The Jubilee Debt Campaign has long been pushing for the cancellation of debts owed by the Third World, for reasons outlined here.

However, it is now surely the case that countries like Great Britain owe (or will soon owe) sums that dwarf the debts of typical Third World nations. Moreover, they too owe this money to wealthy lenders in wealthy countries. Again, as in the Third World, it is the average citizen, not the super-wealthy minority, who will ultimately have to pay the interest and the capital of these loans and who will suffer the consequences of indebtedness entered into by their governments.

The solution, however, is obvious: extend the Jubilee to the West. Indeed, I am rather warming to the Jubilee Debt Campaign's proposal here:

9. How do we prevent future debt crises? We need economic justice - covering debt, trade, aid, tax, etc - and responsible financing in the future. There must be international action to ensure that we never return to a debt crisis like the one which has now been crushing poor countries for decades. After the 'clean slate' of cancellation of unjust ('illegitimate') and unpayable debts, this will mean firstly that there must be just trade rules, a just tax system, and sufficient, high-quality aid – with a bias towards grants not loans – so that countries are not forced back into indebtedness. It also means that any future loans should be given responsibly, on fair terms, and in a transparent way which is open to scrutiny by parliaments, media and citizens. Any loans given on unjust terms should be considered the responsibility of the creditor and therefore eligible for cancellation in future.

In fact, if we can combine the principles of the Jubilee Debt Campaign with the approach of our present government, everybody wins (almost)! We can borrow the money, return to full prosperity and not be saddled with endless repayments. Magic!

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The Debt Disaster: "Poo, meet fan. Fan, meet poo."

Lord, who may abide in your tent? Who may dwell on your holy hill? ... Those who do not lend money at interest, and do not take a bribe against the innocent. (Ps 15:1,5)

This link goes to my original article 'Losing Interest'.

"Central banks are trying to calm jitters by pouring billions of dollars into money markets to increase liquidity. Last week another $200 billion was dropped into the system. That was quickly swallowed up amidst screams for yet more emergency injections. Debt junkies, like heroin addicts, demand ever bigger fixes."

[...] For too long, those who warned that the borrowing bubble would burst with terrible consequences were dismissed as congenital gloomsters. Greedy lenders, their irresponsible customers and incompetent ministers formed an unholy alliance to perpetuate a myth: that consumers, companies and governments could keep spending more than they earned and suffer no penalty.

We heard new and intriguing justifications for excess. Banks seemed able to acquire rubbish and recycle it as triple-A securities. It was a sophisticated version of the second-hand shop that advertises: "We buy unwanted junk and sell valuable antiques." Instruments of financial leverage became so complicated that even those trading them did not fully understand how the system worked. All they cared about was the potency of magic that enabled welfare claimants to borrow five or six times the income they were not earning and still make the numbers add up.

So clever were the designers of this wizardry that, though it failed the common sense test, they were able to fool supervisors, credit committees, external auditors, shareholders and regulators - even themselves! Disbelief was suspended by all concerned. Read more

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The Debt Disaster: Rowan Williams questions 'loans at interest'

(See an update on this, 25th April 2008.)

In the Q&A after his famous 'Shari'ah' speech, RW was asked about the practice of usury. His answer was very similar to the things I've been saying about the subject (also search Debt Disaster on this blog for other posts in the same vein).

LP: Thank you. Another, another fairly down to earth. "Our existing world order is based upon usury with control by manipulation of rates of interest. In Islam this is not just illegal but sinful. How can this be reconciled with Christianity? And this Christianity also condemns the existing order as the law of Mammon."

RW: I've often been rather surprised by the ease with which the Christian church changed its mind about usury in the sixteenth century, without any very great public fuss. Martin Luther strongly disapproved of it; he was a good medieval Catholic in ail sorts of ways, and he disapproved of it like his medieval predecessors on the basis of the Bible, tradition and the authority of Aristotle. But within about fifty years of the beginning of the Reformation, virtually everybody had mysteriously and imperceptibly decided that there wasn't a problem.

Now, without going into details of the history of that fascinating issue, I think that in all seriousness what theologians and moralists have said about lending at interest in the modern economy, is simply to raise the question "Is this what is prohibited in Jewish scripture?" And they've answered on the whole, "No". And yet I have to say there remains, or should remain for the Christian moralist, a level of discomfort around this. Taking absolutely for granted the manipulation of rates of interest as the engine of an economy, ought to leave us with some unfinished moral business, let's say, and I believe that rather than, so to speak, address that head on, we need to look - and this has been said by many people - at what are the alternative protocols and ethical frameworks for banking that are around. And that is one reason why ! am personally go very interested in the ethics and practice of micro-credit as a way of addressing serious poverty.

Read the rest of the Q&A here.

Thanks to Peter Kirk for the tip.
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The Debt Disaster: Hopeless New Year?

Returning to a theme of earlier this year, I've been suggesting for some time that the Bible's injunctions against interest-bearing loans have a moral dimension which we are unwise to ignore. Over the 'festive season' the sub-prime mortgage disaster has failed to go away. Meanwhile, our own god of spending kicked in on Boxing Day, if the full car-parks at shopping centres were anything to go by.

Not surprisingly, articles in the press continue to warn of what is going to happen - and most people continue to ignore it.

From the Times:

Villains aplenty but few heroes in sad tale of debt tragedy
...there is little in the UK financial system so cynical and downright nasty as the US sub-prime mortgages that precipitated this crisis. Labelled Ninja mortgages – no income, no job, no assets – these were loans sold to poor Americans regardless of whether they could afford the repayments. Lenders did not care if they could meet the repayments. The whole idea was that the price of the properties would rise and that any repossession value would more than compensate for any bad debts.

Back home, while Northern Rock is proof that outwardly sophisticated financial engineering can bring down a company under the noses of the tripartite, it is difficult to envisage the sale of individual products as invidious as Ninja mortgages in the UK. Our home-grown scandalous offerings, such as split-capital investment trusts, were not callously designed using the premise that profits are best reaped from a built-in failure mechanism.

But there is no room in the current climate for complacency and there are areas of real concern; chiefly the sale of individual voluntary arrangements, a form of bankruptcy-lite, used by debtors as an alternative to insolvency. [...]

From the Guardian:

Shop today and pay tomorrow
By rights, this Christmas should not hold much seasonal cheer for consumers. There has been a credit crunch, a run on a bank and the housing market has finally come off the boil. No wonder a number of retailers have sounded fretful about the outlook for the all-important Christmas shopping season: sales yesterday were said to begin with heavy discounts to drag people through doors and on to websites. Shops always promise bargains, of course, but there are plenty of reasons for a debt-addicted and retail-obsessed nation to worry as economic times get tougher. Britain (perhaps unlike the United States) may not be about to enter a recession in 2008. But everyone, from the Bank of England down, fears that growth is going to slow, perhaps painfully.This has implications for the government as well as individuals. In November the current budget deficit was £9.1bn - a record, and well up on the same period in 2006. But families already saddled with big mortgages and stagnating incomes will also be hurt if growth slows and credit becomes harder to obtain. The annual Boxing Day shopping frenzy may leave a bigger headache than Christmas lunch. [...]

Discouraging Third World debt is something the churches have been doing for some time. It is high time we did the same nearer home.

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