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Usury and the financial crisis

Re: Usury and the financial crisis

Postby nomad » 04 May 2009, 14:35

I think part of it is that being part of a group gives you a certain amount of anonymity. Similar to the way people will do things in a riot that they would never do by themselves, either because they feel they can get away with it or because they are caught up in the flow of the general groupthink. When you are part of a corporation and don't necessarily see directly the actions, or when you think of it as the corporation acting, even though you are making the decisions, it's easier to ignore the morality and rationalize your part in it. And then I'm sure some people just do what they are taught as "the way we do business" without realizing the potential consequences.
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Re: Usury and the financial crisis

Postby Coyote Goodfellow » 06 May 2009, 05:20

Nomad wrote
I think part of it is that being part of a group gives you a certain amount of anonymity. Similar to the way people will do things in a riot that they would never do by themselves, either because they feel they can get away with it or because they are caught up in the flow of the general groupthink. When you are part of a corporation and don't necessarily see directly the actions, or when you think of it as the corporation acting, even though you are making the decisions, it's easier to ignore the morality and rationalize your part in it. And then I'm sure some people just do what they are taught as "the way we do business" without realizing the potential consequences.

I remember reading something about the Gaussian Cupula Formula which allowed Investment banks to trade securities by greatly simplifying the math. Everyone sort of knew it was cutting corners, but no one is really in a position to say "hold on" we've gone too far. The thing is in a large corporation almost no one is in a position to think everything through, you just sort of follow procedures--which works well, until it doesn't. And of course in most large workplaces rules often sort of evolve in ways which may create all sorts of incentives distinct from what the people in charge think they are creating.

I think this crisis is somewhat of a reminder of why prohibitions on usury were traditionally considered so important. I'm in China, where things don't seem to be that bad. I read one suggestion that that one reason may because they have preserved the distinction between investment and commercial banks--meaning certain types of temptations do not exist. This was erased in the US when Glass-Steagall was repealed in '99.

A couple of years ago a discussion on this board got me to investigate Biblical references to usury--and learned that usury was one of those things, like homosexuality, which universally existed in all cultures, and was universally condemned by moral philosophers. Until John Calvin did word-based analysis and argued that the practice being condemned in the Old Testament was "biting" and distinguished it from all forms of lending money at interest. He argued that it should be permissible, as long as people were trying to keep their interactions consistent with the Golden Rule. And as other people have pointed out, large portions of the banking and mortgage sectors do fall afoul not just of the Medieval prohibitions of lending money at interest, but even of Calvin's Reformation argument that it be permitted to people seeking to comply with the golden rule. I think these periodic crises can help remind us that those Old Testament prohibitions were not purely benighted, but rooted in cultural observations about how society functions. And I sort of hold with the Glass-Steagall argument that limited lending money at interest is not a threat to and can actually help the production economy. It's when the investment bankers start acting as if the things they do in Cities like New York were the main event, as if the products they're selling are as important as the ones created by folks in farms and factories that things go awry. They end up encouraging people who would not otherwise have gotten involved to do so. And I think when you erase the boundary between commercial and investment banking you've crossed a line--where the people with the largest pools of money interact only with each other, and don't even think about the economy which produces food and housing, the things really necessary for the continuation of human life.
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Re: Usury and the financial crisis

Postby Karen » 08 May 2009, 13:46

I just read this, which relates to the discussion: http://theolog.org/2009/05/preaching-ethics-in-recession.html

Until after the Reformation, Christians considered borrowing money acceptable, but charging interest was a sin. When Calvin allowed that you can rent money just like anything else, he maintained that there's a line between just interest and usury. No such thing, say present-day American financiers. They'll charge 15 percent for your first month's unpaid card debt and up to 30 percent before you know it.

This leads us to "just price," the oldest idea in Christian economic ethics. Modern capitalism finds the concept absurd, dictating instead that one is to buy cheap and sell dear, as dear as the market permits. There is no such thing as charging—or earning—too much. As for low-paid workers, they're on their own. (My greed vs. your need? That's old stuff too.)
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Re: Usury and the financial crisis

Postby Bluegoat » 10 May 2009, 10:35

Karen wrote:I just read this, which relates to the discussion: http://theolog.org/2009/05/preaching-ethics-in-recession.html

Until after the Reformation, Christians considered borrowing money acceptable, but charging interest was a sin. When Calvin allowed that you can rent money just like anything else, he maintained that there's a line between just interest and usury. No such thing, say present-day American financiers. They'll charge 15 percent for your first month's unpaid card debt and up to 30 percent before you know it.

This leads us to "just price," the oldest idea in Christian economic ethics. Modern capitalism finds the concept absurd, dictating instead that one is to buy cheap and sell dear, as dear as the market permits. There is no such thing as charging—or earning—too much. As for low-paid workers, they're on their own. (My greed vs. your need? That's old stuff too.)


So we can blame it all on Calvin! :wink:
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Re: Usury and the financial crisis

Postby Coyote Goodfellow » 11 May 2009, 03:09

Bluegoat wrote
So we can blame it all on Calvin! :wink:


I think we can trace many of the differences between the medieval economy and our present-day economy to Calvin and the acceptance of his arguments--even by people who never heard of him. Calvin opened a door--but he still thought people on the other side should obey the golden rule. The problem, as with everything else, is people who listen to what he said about lending money at interest being ok, but ignored what he said about a just rate of interest. Just has become "what the market will bear," or based on the herd around you--not self-examination. On the other hand, this crisis may force people to rethink economics so that things are more in line with Calvin's original vision.
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Re: Usury and the financial crisis

Postby postodave » 11 May 2009, 20:36

Bearing in mind that I'm not an economist it seems to me that what Calvin was doing was to ask how you apply the spirit of the law in a changed situation because applying the letter only would be mere casuistry. If you go back to the medieval situation you had a predominantly rural economy much as you did in the OT but you also had an approach to land ownership which was very different to the OT jubilee laws. The monasteries which were the medieval equivalent of multinationals were theoretically committed to poverty but owned vast tracts of land (did I really quote mpathg there) and therefore wealth. The guilds protected the middle class craftsman and helped enforce the idea of a just price for the skilled. Money lending at interest was possible if you made use of a Jewish banker. Technological advances forced the pace of change; from the iron plough to the enclosures the countryside was changing. New technology destroyed the power of the guilds but put nothing in its place to protect the workers in the new industrial context until the triumph of trade unionism centuries later. Could industrialism have developed without capitalism? It seems unlikely. Could the old agricultural system with its built in inefficiencies have fed the growing population? The changes took centuries and keeping a part of old testament law in place in the midst of changes that took centuries would have made little sense; surely it would be the triumph not of scripture as spiritual truth but as ideology. To insist on keeping that one law in place, unless as a part of consistent and flexible economic thinking would be little short of superstition.

Just a thought - open to correction by wiser heads.
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