The July 28th Newsweek has a Business Roundtable discussing "What Should Uncle Sam Do" in the economic crisis we are now facing.

One of best suggestions of many, is Robert Reich's who says:

"What worries me is the complete lack of accountability by Fannie's and Freddie's executives, as well as Wall Street invetment bankers also now being insured by taxpayers. We've created the worst form of socialized capitalism--These executives and bankers are among the best paid in all of coporate America. Their organizations are treated as if they're giant investor-driven private-sector entities as long as they're healthy. But when they start to go down the tubes they become pubic entities with public responsibilities and the rest of have to bail them out."

It's the "heads I win, tails you lose" philosophy that has allowed these huge financial companies to have it both ways.

Reich's proposal goes to heart of this when he proposes that: "(1) for the duration of the bailout, their top executives cannot receive total annual compensation higher than that received by the president of the United States, and (2) the government gets 5 percent of their current valuation as shares of stock (roughly representing the benefit to their shareholders of the federal insurance). If and when the entities become profitable again, taxpayers are thereby compensated for the risk they've taken on."

Another comment from Peter Wallison, general counsil for the Treasury and the White House in the Reagan administration says:

"With Fannie and Freddie successfully, if temporarily, tucked away, the greatest danger we face is failing to learn the lesson they teach--that government backing for a private, shareholder-owned company will inevitably come to a bad end. Government backing creates moral hazard, incuding lenders to shed the wariness they usually display in lending to an ordinary company; the eaiser money thus obtained, and the lack of market discipline, permits managements to take extraordinary risks in pursuit of extraordinary profits....these risks turn into losses that the taxpayers must absorb....[by] gambling with taxpayer money and growing flush with the lack of market discipline.

"Not to worry, we will be told. The Fed will be on watch. Is this not the same Fed that--together with its brother bank regulators--allowed the heavily regulated banks to fail in underwriting subprime loans and set up off-balance-sheet investment vehicles? Washington is a strange place; every time regulation fails, Congress gives us more of it."

Better advice has not yet been given. We, the poor taxpayers will ultimately pick up the bill so we should be vigilant in demanding that safeguards be put in place to prevent this from happening again.

But, then, seeing the financial debacles the leadership of the SDA church has repeatedly been involved in, it's the member in the pew who can be much more effective.

Elaine,
I agree...
The bailout of Fannie and Freddie and "Wall Street Investment Banks" that packaged these loans by the fed,treasury and congress is a travesty of the worst order. It rewards improper behavior and encourages lack of moral hazard and makes US Taxpayers responsible for the improper behavior of others. "Privatized profits and socialized losses." Watch as all unload the worst loans on the Gov't backed entities...some suggest the losses could reach 1 trillion $.
http://online.wsj.com/article/SB121694283773782871.html?mod=yahoo_buzz

David,

Can you show me where charging interest is unlawful in OT or NT scripture? Israel was not to charge interest to fellow Israelites ( I believe contemporary Jews limit this to the poor) but they could charge the foreigner interest and it was not cancelled along with debts after 7 yrs.

Most states presently have anti-usury laws that prohibit loans above a certain interest rate.

Why not a 7 yr. and 50 yr. release? Why not divide land among all Americans and return it every 50 yrs?

Regards,

pat

Islamic Banking

In a partnership or joint venture where money is lent, the creditor only provides the capital yet is guaranteed a fixed amount of profit. The debtor, however, puts in time and effort, but is made to bear the risk of loss. Muslim scholars argue that such practice is unjust.[17] As an alternative to usury, Islam strongly encourages charity and direct investment in which the debtor shares whatever profit or loss the business may incur.

I'm confused, what does high usury have to do with Freddie or Fannie. I had an adjustable rate mortgage I had to get out of because the bank took advantage at the end of the ARM to bump it the full two percentage points which I felt was not the understanding when I took it out.

If usury laws would bind banks to the going rate, say at the end of a contract without putting someone in an untenable situation, I'm for it. I understood the ARM would only be adjusted if certain government indices were at a certain level, then they could adjust a maximum of 2 points. They took advantage of the full two points irrespective of any index, fortunately, other lenders had fixed rates that allowed me to get out of the ARM.

I'm against usury by sheer definition, excessive interest rates. And personally, charging the worst credit score the most interest, in my opinion, isn't always fairest, say if someone lost their job due to no fault of their own.

Elaine:

Very interesting comments.

Pat:

I'm not arguing for a return to the specifics of OT law. Just that we use apply the principles to our present context and advocate, using secular arguments, for principles that are present in the Torah.

Douglas:

You'll have to catch the details of Gardner's argument in his video. But, obviously, the issue of high interest rate loans is bigger than this particular crisis.

Dave, isn't his name William Greider?

Douglas

Apologies everyone. Douglas is correct.

This is one area where true libertarians, fiscal conservatives and liberals agree. Corporate welfare is distasteful.

How is it, though that nobody is yelling "separation of church and state" though?
Are churches only welcome in the public arena if their views are acceptable to liberals?

Anon,

You say,
""How is it, though that nobody is yelling "separation of church and state" though?
Are churches only welcome in the public arena if their views are acceptable to liberals?"

I am glad others on occassion see this "mysterious" inconsistent thinking.

Socio-economic issues, foods, environment etc. are ok from a "religious viewpoint" if put forward through the "filter of the liberal church's" activity with the state.

Homosexual Marriage, Divorce,or other issues put forward by the "religious right" for consideration are always violation of "separation of church and state."

regards,

pat

Pat:

For the record, I made the point on another thread that if a church believes that homosexual marriage is wrong, it has the right to advocate against it, as long as it uses secular arguments. You can find such an argument, made by ethicist Margret Somerville, here.

I believe that going into the public square and saying, usury or homosexual marriage or war or abortion is against God's law, crosses that church/state line. That's why I set forth that I'm against high interest loans as opposed to usury. Anyone can agree with that, because, as Douglas pointed out, by definition they're too high.

http://apokalupto.blogspot.com/

David,

I too am against excessively high interest rate loans...but what is it 15,18,24%?

The poor or those wanting the loan may see it even there as good as they can't get money otherwise for a short term fix.

Perhaps I misread you to mean no interest is allowable and all is usury?...on this I am sorry.

Also the other issues were NOT refering to "you Specifically" but how often "in general" a "liberal conceived church/state agenda" is not a separation issue but those I mentioned are.

regards,

pat

Pat:

I don't think the church should be in the business of judging at which percentage point sin occurs. In think the purpose of the command against usury was to protect people against interminable indebtedness. So when we see this situation in our communities and nations, we can say that interest rates are too high.

As to the possibility of high interest, short term (payday) loans being of being of benefit to poor people, as you say, they're a short term fix, which makes them analogous to alcohol. Give wine to him that is perishing; it's a short term solution with bad long term consequences. I think payday loan outfits do more harm than good, sort of like liquor stores.

http://apokalupto.blogspot.com/

It was the expectation of receiving extremely high returns on money that led the hierarchy of the church into several pyramid schemes and "money-making" ventures that turned out to be great at losing money: tithe and offering monies, or those invested by members who, by believing the church's recommendation, they lost lots of money. The old adage: "If it's too good to be true, it usually is" was ignored or dismissed. These are examples of good stewardship?

David,

The problem is complex. Most states do have usury laws but they are not perfect either.

http://www.lectlaw.com/files/ban02.htm

pat

Pat:

Agreed.

http://apokalupto.blogspot.com/

The Ohio Conference recently collaborated as a "signatory" in support of legislature in Ohio to restrict payday lending. The bill was passsed and signed into law by our Governor in May of this year. Payday lending institutions were charging over 380% (yes, you read that right!) on loans. The new law limits the interest to 28% (still high, but certainly a lot better). There are other features of the law that are designed to make it difficult for people to get caught in a debt-cycle that they cannot get out of.
New initiatives are under way regarding what financial institutions can do with personal credit and credit cards.
While these are not national initiatives, they and others like them in other states, are beginning to pay attention to the issues of usury and related practices.

Raj Attiken

And you really have to watch your credit card bills very carefully. I have always paid mine in full each month, but missed the date by two days when I was in hospital. They not only charged $35+for late fee, but then added $8.35 as finance charge. After talking with several people at the bank, they eradicated the charges. So check them carefully, as the banks are sneaking in higher interest rates and all sorts of various charges.

That's great news Elder Attiken.

It's very fulfilling to see conference presidents taking a public stand on humanitarian issues such as this. I know that some Adventists in Oregon were also a part of Christian groups across the political continuum working at the state level to dial back predatory lending in their communities.

I recommend Matthew Lee's rip-roaring novel, Predatory Bender: America in the Aughts: A Story of Subprime Finance. It reads like Tom Wolfe's Bonfire of the Vanities except about suburban and urban average folks trying to make a buck off each other. He wrote it in 2003, back when most folks associated subprime with steak.

Now if the Adventist leadership would take vows of poverty, or at least to refrain from ever becoming involved in greedy money-making ventures, we could trust them. But they must first earn that trust, rather than blow it by repeatedly abusing their privilege.

While "good" SDAs are expected to give a minimum of 10% of their income, shouldn't the members require signed contracts that the leaders will never use members' tithe money in an effort to beat normal returns? The leaders were very usurious in their plans for making money with members' tithe.

What is unconscionable is the government's bailing out the huge banks and Fannie Mae & Freddie Mac. The theory, as George F. Will says in the July 28 Newsweek, is the doctrine of TBF:
too big to fail.

The little person who was gouged by a lending company is TSTN: Too small to notice. The large entities end up being rescued by the government; they keep the profits; we, the people, absorb the losses. It's keeping profits private, but socializing losses. Sounds like "heads I win, tails you lose."

David,

You stated the following regarding the wall of separation between church and state: "I believe that going into the public square and saying, usury or homosexual marriage or war or abortion is against God's law, crosses that church/state line."

I have to disagree. Let me quote what the First Amendment to the U.S. Constitution says first: "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances."

http://www.law.cornell.edu/constitution/constitution.billofrights.html

You have three elements in this document which I want to highlight: The establishment of religion, the free exercise thereof, and the freedom of speech.

Notice that if you prohibit the discusssion of religious beliefs in the public square, you are violating the "free exercise therof," and the "free speech."

The free exercise of religion coupled with the right to free speech protect my right to spread the Gospel, which is a mandate for all Christians.

If non-religious individuals have the right to share their views in the public square, so do those who are religious. What the establishment clause was intended for was to prevent the establishment of a particular brand of religion as it had been in England.

The original settlers of America were actually fleeing the religious persecution they had been the object of by the official Church of England, and they were determined to avoid the same mistake in the new country they were founding.

This is why we have public statements like "In God we Trust" , "God save America," "one nation under God," a reference to the Creator in our Declaration of Independence, the image of Moses holding the Decalogue in the walls of the U.S. Supreme Court, and the practice of having a religious invocation at the beginning of each session of the U.S. Congress.

It is unfair to deny religious people their right to freedom of speech, while granting free reign to those whose moral principles are totally irreligious. It is a matter of fair play, equity, and justice!

Look at that, the man blogs and preaches all in one weekend.

http://worthingtonsda.blogspot.com/2008/07/dr-raj-attiken.html

So, currently our economy is organized according to economic laws/understanding. And we already do a bad enough job of that, which is understandable, being as that no human (or group of humans) is clairvoyant, and economic decisions at the macro level are highly complex. But given the state of our economy compared to the rest of the world, I'd say we do a pretty good job, some might even argue, the best job of managing our economy from a capitalistic point of view.
The topics you bring up here, and the topics that other commentors bring up as well, may have solid biblical substance. But from a purely economical point of view, many of these views hold less substantial ground. The economical purist would say that there shouldn't even be usury laws at all (it sounds pretty libertarian as well). If I can loan someone money at 100% interest and they can still make a profit off of it, then it benefits us both, grows our economy, and the government shouldn't interfere.
The more "social" economist would argue that the government has to step in at the point where usury becomes detrimental to society. That's a pretty vague point to pin on a map. In basic economic terms, it would be the point where the likelihood of a loan at X% causing detriment to the economy is greater than the likelihood of the same loan being economically beneficial. For all their flaws, usury laws supposedly do this with consumer debt, and accredited investor laws essentially handle the same function in the investing world. There's also a fair case to be made that eliminating these laws, and promoting a more free, laissez-fair economic would go a long way in getting the average american consumer motivated to be more financially literate.
I personally agree that charging high interest rates should be illegal. Of course the definition of "high" is amgbiguous and by the nature of all economies "high" will always be a moving target. However, I'm curious as to specifically which interest loans you're referring to that are "high" and that we need to eliminate.
I find student loans as annoying as the next person, but I would not classify them as "high" interest. Particularly given the many recourses one has with student loans that aren't available with other forms of loans. I've been out of my MBA program for nearly a year now and I have yet to pay any money on my loans for various deferrment reasons, and that's proven very beneficial for me. My economics prof at Andrews consolidated his student loans at about 2% interest, which isn't even enough to compensate for inflation.
Payday loan rates are outrageously high, but the loans themselves are typically only for smaller amounts and supposedly only outstanding for a short amount of time. Restricting payday loan businesses to significantly lower interest rate is essentially saying you want to illegalize payday loan businesses, since they won't make enough to clear their overhead.
Fannie Mae and Freddie Mac have been around for decades, and have given thousands of mortgages to thousands of people, and made their shareholders a lot of money. A few years ago they happened to have some poor decision makers at their helm. No one complains about this until the economy/real estate markets cycle downward and suddenly financial institutions start writing down their assets. So who's to say that the bank is more liable for writing a subprime mortgage than the consumer who knowingly accepts it, and then later does not pay? What about other unrelated entities in the macro-environment that contributed to the economic downturn in the first place? To be blunt, this isn't the first time mortgage lenders have been scrutinized, nor will it be the last, nor is this the first industry that the government has bailed out, nor will it be the last. In fact, you could turn around and say that bailing out these financial institutions, who play a significant role in an sector of our economy, is a form of government-organized "helping our neighbors".
When used by financially savvy individuals and institutions, interest rates are a representation of the risk perceived by the lender measured against the reward the lender intends to receive. The minute you start legislating interest rates you start clouding the risk/reward relationship. The more types of loans you start regulating, the greater the economic impact will be.
I guess ultimately the question becomes a seperation of church/state issue. Obviously you as an individual can forgive your debtors whenever you wish, there's no law saying you can't decide to forgive someones debt to you, and I'm sure God appreciates it as well. If your research and beliefs indicate that the state should adopt usury laws reflective of laws in the Bible, then by all means you should vote accordingly. I personally am at a financial position where I have no interest in "high" interest rate debt, and I would likely vote to limit or eliminate institutions that issue these debts. But personally I'm very afraid of the government dictating interest rates to businesses, because I happen to believe that the government tends to be a very poor business decision maker. I'm not saying that religious beliefs should not play a role in how we make our decisions, but I'm personally very wary about the religious understanding of other individuals taking more presidence than economic understanding in issues of economics in public legislation.

Matt

Welcom Matthew, don't believe I've seen your name before.

"If I can loan someone money at 100% interest and they can still make a profit off of it, then it benefits us both, grows our economy, and the government shouldn't interfere." Maybe you know a life incident, or is all hypothetical?

Remove the "IF" and what then? If two people are willing to risk time or money, or some other contribution and it returns 100%, then both should profit equally. However, there are not a lot of ventures that are so structured, which is why we currently have limitations on interest on borrowing.

Welfare corporation is extended to the financial corporations that are "Too big to fail." IOW, the values they represent can be guaranteed by the government; but as we all know, it's the taxpayer who pays for everything. So, who's benefiting and who's getting screwed?

Admittedly, there have been lots of speculators in both the financial institutions an individuals who bought and flipped homes, hoping to make a bundle. However, the individuals needing a loan, should have been prevented from taking out sizes much too large for them to repay; plus, the ARM's which added more interest after a few years; and if anyone had an expensive illness or accident, foreclosure was the result. In past years, there was not the eagerness to give money for people who couldn't possibly keep up with the payments. The house next to me is now owned by Countrywide, which is owned by BofA. The more foreclosures affect every home owner who loses value.

The CEOs of these huge companies rewarded themselves huge salaries while they were going belly-up. Does the name Enron, and the S&L fiasco of the 80s ring a bell? Guess who always has to pay for such.

Hello Elaine,

Yes, this is the first time I've commented on this blog, though I've commented a few times on Dave's other one.

"Maybe you know a life incident, or is all hypothetical?"

I've never taken a loan at 100% interest, and with the business tools I have available to me at the moment I don't see that happening in the near future. My personal best in the stock market has been about 80% annualized yearly (or over 120% paper trading), though that was over the course of a few weeks. Given time those number level out, especially in the recent market conditions (ouch). But that's not anything to talk about, for example, there's been several investors I've read about who scored somewhere in the order of several thousand dollars on the dollar shorting Baidu (the Chinese version of Google). Any of these guys could have borrowed money at 100% interest and made out like bandits.

"If two people are willing to risk time or money, or some other contribution and it returns 100%, then both should profit equally."

That's an interesting concept, and I guess it depends on your point of view. In purely economical terms it's just not true. Every person has a different risk/reward perspective. Equality has nothing to do with it.

"Welfare corporation is extended to the financial corporations that are "Too big to fail." IOW, the values they represent can be guaranteed by the government; but as we all know, it's the taxpayer who pays for everything. So, who's benefiting and who's getting screwed?"

There's a lot of assumptions and vague terms in this statement. First of all, the term "too big to fail" may look nice in the media or in pop-business magazines, but no one in the business world or in economics uses it. These just too many examples to the contrary. Second, Fannie Mae and Freddie Mac guarantee mortgages, but they are not guaranteed by the government. The idea that Fannie Mae and Freddie Mac mortgages are government secured is a very mislead concept. Though they do operate under a much higher level of government interaction than most businesses, they are in fact shareholder-held firms. They are no more guaranteed government bailouts than any other firm. For example, I didn't hear many people complaining about government relief for the airline industry after 9-11, or for government relief for bond insurers like MBIA right now. Probably because people live in houses, not in airplanes or bonds.
As far as who gets screwed, I guess that depends on your point of view. Say the government decides to go the hardball route. That means that, for example, many of the airlines go into bankruptcy after 9-11, and travelers worldwide lose transportation options, either due to higher ticket prices, or no available routes at all. Or currently, mortgage guarantors go into bankruptcy, and you get the effect of not only billions of dollars simply vanishing from the economy in the form of write-downs that are irrecoverable, but also in the form of mortgages that don't get written because the mortgage guarantee market is less available. That in turn has an impact on real estate prices, and on personal wealth, as individuals who can no longer get mortgages end up renting, and paying for someone elses mortgage. That's all aside from the economic chaos that would likely ensue from the fact that major financial institutions were allowed to go belly up. So essentially the alternative is that everyone gets screwed, bigtime. Major corporations just have too much of an economic impact, on EVERYONE, to be ignored.

Further I guess we should define who actually "needs" a loan. Just because I "want" to buy a house doesn't mean I "need" a loan. In fact, it wasn't too many generations ago that in this very country, it was much more difficult to leverage big ticket items such as houses, much less credit cards, auto debt, or student loans. If you wanted these things, you saved for them and bought them. The extensive use of consumer debt that we take as status quo today is really a recent phenomenon. To reiterate, there was a life before mortgages, but economies back then were also much smaller. Personally I like the idea of being able to buy a house now, or go to school now, instead of saving for 30 years for each. But I also have to understand the risk/reward equation of the transaction, or I am not making a wise decision (what is typically called "due diligence" in the real estate world). It wasn't just house-flippers who used sub-prime mortgages.

It certainly is unethical of CEOs to accept enormous salaries if they make poor decisions. Of course, if we're going to sit here and play the blame game of who's actually responsible, this will turn into a very long blog.

The American tax payers and consumers are always the ones who pay for these blunders. And if we want to keep enjoying the same level of prosperity and utility that we now enjoy, I imagine we'll keep paying for it. It's certainly better than the alternative, at least in my view.

Really, the moral of the story is an ouch of prevention/pound of cure situation, or more specifically, hire the right decision makers so that the right decisions are made in the first place. Which of course is rather obvious.

Just checking in when I should be studying.

Elder Attiken's comment brought a huge smile to my face. Fantastic stuff!

Nic:

I'm not saying that proclaiming God's law in public violates the law or even should be illegal. I'm just saying that when we advocate for public policy on that basis alone we start down the road to persecution. Read up on the history of the Puritans left persecution and founded colonies in America and you'll find that, in many, their zeal for God's law in the public square led the start persecuting all over again.

http://apokalupto.blogspot.com/

Elaine,

I have been a Realtor for the last three decades. I have read your comments, and I agree with what you stated 100 percent. I would like to merely add something that so far no one has mentioned before.

I have noticed that many homeowners are opting for foreclosure for the simple reason that it makes more financial sense when real estate values are dropping at an alarming rate. I would bet that, if the situation were to reverse overnight, a great percentage of homeowners who are being foreclosed would suddenly miraculously find a way to make the high payments on their mortgage.

http://www.sdaforum.com

David,

I agree! Nevertheless, the fear of eventual persecution should not lead us to compromise on principles.

http://www.sdaforum.com

8.1 billion debt+ 16.7 billion cash flow pinch= 24.8 billion for a company with 32.8 billion in assests.

This is more of a forced cash flow problem than a general insolvency.

To secure that amount of assests for 1.9 billion was a good move for J.P. Morgan Chase.

A good lesson in liquidity for the rest of us.
Whenever our investments are in too long of a term to satisfy short term needs we find ourselves in the same situation.

That is why people invest in ladder bonds or CD's of staggered terms.