Hi Peter!

I read your article with interest and have a few quick thoughts:

1. I understand that bailing out the banks sounds like it’s giving money to institutions (and their shareholders etc), and depriving real people who need the money. However, the reason why governments are so desperate to save the banks is precisely because their failure will affect practically every real person in the country. If a major bank fails, the ordinary person who saves and keeps deposits with that bank loses his life savings. This means that people on the street who have done nothing to contribute to the crisis will suffer. Major collapses will mean that everybody in the country loses out. Major collapses in the US will also mean that people all over the world will lose out (because of confidence issues) and almost guarantee a Great Depression akin to 1929 when so many suffered. So there is a firm logic to bailing out the banks.

2. The ‘ordinary people with mortgage problems’ are actually partially blameworthy. It is true that the current crisis is mainly brought about by the greed of the finance industry. However, it couldn’t have reached this point without the cooperation of people willing to indebt themselves beyond a sustainable level. A responsible borrower would assess his situation and commit to a level of debt that is consummerate with his income/assets etc. An irresponsible borrower would not do so and borrow beyond his means. Many of the current people with mortgage problems have done precisely that (borrowed irresponsibly), partly urged I think by the consumerist culture of America. That is precisly why there were so many defaults on mortgages, which ultimately sparked the crisis. So to give money to ‘bail’ these mortgage borrowers out is akin to bailing out irresponsible, consumerist behaviour. There is a thus a good reason to ‘leave people in debt’ to continue to foster responsible borrowing behaviour than to reward irresponsible behaviour.

3. The banking system is seriously out of whack at the moment, because of greed. However, in its neutral form, I do not think the system is inherently oppressive. In fact, it is crucial to the economy running functionally, and hence for the normal life for the average person to remain. Because of the money economy we are in, there has to be a system where money is ‘stored well’, and funds can be pooled together for productive activity (in the sophisticated forms of shares and bonds now). The banking system provides a fundamental role in such a system. Otherwise, we would ‘retreat’ back into a barter trade system or a subsistence existence (which, whether they are better forms of existence, is debatable but another question all together). What is needed is a reform of the system, and possibly the failure of some banks for a warning, but not the collapse of the whole system.

I felt prompted to give this feedback not because I love the capitalist system! I worked for 3 over years in a bank and that gave me a good glimpse of how ungodly the whole system can be! But I was concerned that a fair Christian understanding of the crisis needs a fair view of the economy. And I think that a fair understanding is crucial in this time when Christians and non-Christians around us are looking for answers and we would want to give them as true an answer as possible, for a good Christian engagement with the world.

I hope the feedback is helpful and am happy to be corrected on any points.

Chew Chern

Chew Chern

In the interests of “good Christian engagement with the world”, let me challenge your comments…

If a major bank fails, the ordinary person who saves and keeps deposits with that bank loses his life savings.

But what our Russell (and Peter) were suggesting is that, instead of bailing out the people who should have known better, let’s protect the life savings of the people who entrusted their money to those people who should have known better. That is, instead of protecting the banks against failure which they brought on themselves, protect the consumers who had a reasonable expectation that their money was safe in a bank.

A responsible borrower would assess his situation and commit to a level of debt that is consummerate with his income/assets etc.

Sure, there may be some culpability on some of the borrowers. But my understanding is that many of the problem borrowers were very unsophisticated in their understanding of financial matters, and that in many cases the lending practices of the sub-prime lenders or their agents was fraudulent or at the very least extremely negligent. (Watch this episode of Four Corners and you’ll see the evidence of this.)

The culpability of the lenders and borrowers was not anywhere near equal, in my opinion.

The banking system is seriously out of whack at the moment, because of greed. However, in its neutral form, I do not think the system is inherently oppressive.

The problem is, as Christians, we know that the system will never be ‘neutral’, it will always be driven by greed, and the whole market is predicated on winners and losers. And the problem is, how do you ever mitigate the greed if those being greedy don’t ever feel the weight of the consequences of their own greedy folly?

Just some alternative thoughts.

Ian

Well, evidently there is more to learn about the banking system and the world economy than I learned on Jay Leno.
But—to bring the musing back to the topic that I may have even side-tracked myself from—doesn’t anyone wonder about the rhetoric that is flying around at the moment? That we can’t let the banks fail, because the whole world as we know it will come crashing down. But, hang on, I thought it was God that upheld the world by his word of power (Heb. 1:3). When did the banks take over his gig? Isn’t this pseudo-god-like status of the banks a cause for concern? Doesn’t this sound like they have become part of the ‘principalities and powers’ that now keep everyone enslaved?? Just an innocent question from a non-economist.