Never has a financial crisis focused so starkly on moral, ethical and even spiritual issues. The words used by commentators have run the gamut of emotions: greed, dishonesty and fear, panic replacing confidence, risk and hubris versus prudence, and faith in the banking system or lack of it. Never have the virtues of trust and integrity been more needed in the global economy.
The whole edifice was built on maximising profit, and a dishonest assessment of individual borrowers’ creditworthiness. It was bound to end in tears, and now millions pay the price in increased taxes and unemployment. Despite the pain, it may all be healthy in the long run. The crisis is a chance to re-examine fundamental motives; and to ask how capitalism at its best is supposed to work. Where is our faith place? In markets and profit? Or in something deeper?
I don’t think that unbridled capitalism exists anywhere – we are in a mixed economy and I think few people would want wholesale elimination of various consumer protection and other government involvements in the market.
That said, there is plenty of blame to go around. The investment whiz kids who produce nothing and turn a quick buck by passing around valueless paper, and those who hurl money at such in hopes of their own quick buck, are certainly worthy of critique. “Making money any way you can” went out when Nehemiah locked the Sabbath-traders out of Jerusalem.
But let’s not have any illusion about altruistic “public servants.” Because it is a mixed economy, government folks make money for themselves and shape policy to make money for their friends. And we have a hard time cutting out inefficient or even corrupt programs, in part, because of a bunch of people who would be unemployed with no place else to go.
Without getting too theoretical with this discussion, there is one simple remedy that should be applied to the whole concept of personal credit. This should be applied to both sides of the economy. There used to be usury laws in individual states that regulated how much interest can be charged. That went away when the credit card companies all moved to Delaware, etc. There should be Federally enforceable usury laws. Check cashing stores should be made illegal. If banks want to protect themselves from bad check cashing, they should be required to consider non-account holders by charging a reasonable fee to cover the cost of certifying the integrity of the check writer. This may require a reasonable, but short delay. Credit cards should only be first issued to people (especially young people) on a low balance limit trial basis. Interest fees should reflect the cost of money and not the cost of high risk. Let the borrowers establish their credit in incremental steps. This is really the basics. It regulates the borrower and the lender. Moving this concept up to larger credit issues like mortgages would have prevented the sub-prime scandal. This is a no brainer. It requires discipline for the borrower and fairness for the lender.