The Bible and the Financial Crisis in America
Twelve years ago we had the terrible news in the American financial markets that led to the world financial crisis of 2008-2010. The financial crisis in the U.S. was so deeply rooted in the international banking system that it affected the whole world! Many suspect that a second follow-on crisis is simply waiting to happen. Jewish traditional teaching has much to say regarding the proper management of finances. The 2008 crisis was related to the topic of usury or lending money at interest. As Messianic Jews we should teach the proper biblical perspective on lending. The present turmoil requires that we should speak out on this matter.
The Nature of the Crisis
One of the difficult patterns over the last twenty years has been the fluctuation in housing prices. This is obviously related to supply and demand. If the supply of houses is large and the demand low, then housing prices fall. People who own houses do not want to see this; they want their properties to appreciate. Prospective home buyers would like lower prices so they could afford to make a purchase. The contemporary market has required families to put two salaries together to afford housing prices (unlike 40 years ago when one salary would suffice). The prices continued to climb as more and more money is pumped into the system, chasing the commodity in an upward pricing spiral. People have been willing to pay.
Mortgage brokers and mortgage companies all make huge money by getting people to sign up for mortgages. To keep people buying in a highly charged market a new method of creative financing was invented – mortgages were offered to people who could not afford them! There were many variations but the basic outline is quite simple; a prospective buyer is offered a super low interest rate, often 1%. At this rate, a person can afford the payments. However, at the end of the first year the rate was adjusted to the standard rate of variable mortgages, or if the person had bad credit, to an even higher rate of interest. The incredulous dimension of this scheme is that the broker is fully aware that the borrower will not be able to pay.
Mortgage brokers foolishly justified their methods, assuming that because the housing prices are going up, the person who will not be able to make the new adjusted mortgage payment would be able to sell their house at a profit and the lender would then recover the loan. He can then make a new loan for the same property and make even more money. In some ways it is like a ponzi scheme, the difference being that the house appreciation is the assumed factor that will cover potential losses. Speculators who had no interest in home ownership added into this already toxic mix by purchasing properties assuming they could flip them at a profit in the ever rising housing market.
As reprehensible and irresponsible as this already was, the scheme became even worse. The market was so heated that mortgage brokers engaged in outright fraud and had people lie and put down false income figures to qualify for loans. The companies did not even seek verification of income from employers. These mortgages were then bundled as investments and sold as bonds. Investment banks and brokerages held and sold these toxic investments.
Eventually and inevitably the whole house of cards (pardon the pun) came crashing down, the housing bubble broke and millions of loans instantly went bad. Homeowners who bought into these bogus loans could not make their mortgage payments after their interest rate was normalized; neither could they sell the house to cover their loan. Therefore the company that held the mortgage could not recover their loss. Foreign banks had bought these securities en masse and as a result, world markets have been shaken. We were looking at over a trillion dollars in losses. I have never seen anything so widespread and so corrupt in my lifetime.
What Does The Bible Say?
The whole ugly mess is based on a deeply immoral violation of biblical standards. The Bible says:
If you lend money to one of my people among you who is needy, do not be like a money lender to him; you shall not charge him interest. (Exodus 22:25)
This verse has been the source of intensive reflection and debate in both Jewish and Christian social-ethical thinking. Generally, both Christian and Jewish ethics have taught that in a modern capitalistic society lending at interest, even to the poor, is not usury. Scholars have reasoned that the intent of the passage is that people in need not be put at risk of greater poverty.
In modern capitalistic society responsible lending can be a useful tool to lift people out of poverty. For example, a low interest mortgage may cost the same as rent. By offering a mortgage to a qualified recipient, the mortgagee pays the same amount as the equivalent rent and comes out ahead as the property appreciates over time. Also a business can be started through incorporation. The individual is not personally at risk but the loan enables him to make money and pay back the bank while making a sensible income. Lending is a key part of capital formation that enables modern societies to develop economically.
However, there must be clear rules to insure that loans are not predatory and do not unduly put needy people at risk. One requirement is that the interest must be low; the other obvious requirement is that the recipient of the loan must have sufficient means to pay off the loan. The system is advantageous when the loan will likely increase prosperity for the recipient and there are protections for business failure. Modern Jewish and Christian thinkers who take the Torah seriously have embraced these principles as being in accord with the command against usury (defined as predatory lending).
Rebellion Against God’s Law
The whole financial meltdown twelve years ago and the current threats today are a manifestation of rebellion against God’s Law. The needy were given loans they could not afford. Greed blinded financial institutions into believing that through housing speculators and re-sales, the party could go on forever. This should all have been illegal. As preposterous as the motives and faulty reasoning
that fueled this crisis have been, this was all perfectly legal.
How many businesses have failed due to the CoronaVirus crisis, government lock-downs, retail colapse and mass unemployment remains to be seen. How many of those business were under-financed with loans secured on their owners’ property is also currently an unknown. But with property prices falling, another criris in both personal and business finance worlds looms, fueled by a huge increase in government debt around the world, putting stress on the financial markets and pushing instability towards its limits.
So what is the point? Messianic Jews claim to take the Law seriously, but often our focus is not on the practical teaching of the Torah, but rather on our distinct Jewish life patterns. If we claim to take the Torah seriously we should be in the vanguard in teaching ethics, including personal ethics, civil law and business ethics. It all comes down to one command: “Love your neighbor as yourself.”
Generosity During a Time of Financial Crisis
Some believers have suffered in the economic downturn and have written to us that they have had to curtail their giving. Some ministries have said they are hurting due to a great fall off in giving. However, I have learned from my friend and partner Asher Intrater that in good times or bad we must keep up generous giving. Asher gives a generous percentage of funds they receive (33%); much more than a tithe of his personal and ministry funds. All of our ministries give away a good amount to support others. In the midst of this crisis, I want to urge our readers that generous giving is always the right response! It is the way of faith and assures us of God’s favor. Our prosperity after all, is a supernatural matter.