Tuesday, September 30, 2008
Russ Powell asks great questions about the "authentically Catholic approach" to the current financial crisis. I'd love to hear more responses to these questions, too.
Unfortunately, I don't think the Cathechism or any encyclical gives us a formula for the "proper approach to government intervention" in this crisis. But there are two general concepts of Catholic Social Thought that I'm not hearing much about in any of the discussion of this mess, through the din of all the finger-pointing and politicking.
One is "stewardship." Clearly, one of the reasons for this crisis is a lack of any sense of responsibility for the financial resources that were being entrusted to the institutions generating all of these enormous profits over the past few decades. In the world of real-old fashioned banks (the ones who were, to a large extent, making the home mortgage loans), some small degree of stewardship was traditionally been imposed by law, through the federal deposit insurance system. Every institution that takes federally-insured deposits has to pay high regulatory costs in return for the "privilege" of keeping its depositors funds safe with the extra security of federal insurance deposits. Traditionally, this operated as both a check on the bank's lending activities and, I think, in some measure a psychological check. In my experience, banks were on some level keenly aware of their responsibilities to depositors -- it was the reason and justification for extensive regulation, regulation that was considered to be worth the cost. I think that this sense of "stewardship", as attenuated as it was, disappeared, though, with the advent of securitization. Through securitization, the primary source of funding for banks' lending became Wall Street, the stock market. I think it's difficult to retain a sense of responsibility for "stewardship" of funding that is coming from a source that's based on speculation and risk-taking.
The other party (or parties) that I think failed to take seriously their responsibility as stewards is Congress. In 1999, they enacted the Gramm-Leach-Bliley Act, breaking down the barriers between traditional banking, investment banking, and insurance. I certainly don't know enough about economics to know whether it was that change in the markets that caused this crisis. (I know that most historians of the Great Depression now refute the "common wisdom" of many years that suggested that it was the intermingling of banking & investment banking that caused that Depression.) I do know, however, that Gramm-Leach-Bliley was NOT passed by Congress because of reasoned deliberation about what would be good for the economy. It was passed because the banking world (which is one of, if not the, largest source of campaign contributions for ALL of Congress, regardless of party affiliation) forced its hand -- most dramatically through the acquisition by Citicorp (then a bank holding company) of Travellers Group (an insurance conglomorate). (Yes, the same Citicorp that is taking advantage of the current crisis to buy Wachovia, with FDIC assistance.) And I also know that that landmark legislation did NOT include any thoughtful measures to structure a regulatory scheme that actually made sense for the conglomerates of banks (regulated largely through federal laws), investment banks (largely unregulated, except through the device of market transparency), and insurance companies (regulated largely through state laws). And I do believe that the lack of thoughtful regulation facilitated the activities of the market leading to our current crisis. I attribute this to a lack sense of "stewardship" by Congress, in this case, stewardship over our laws. Congress back in 1999 simply lacked the will to do the truly difficult work of setting up a responsible regulatory structure to accommodate the changes made by Gramm-Leach-Bliley. What I'm hearing and seeing about this current debate does not give me any confidence that things have changed much. Again, we're seeing Congress responding in a rush to deal with a crisis created by market behavior, and we're seeing almost no serious discussion about creating a rational, responsible regulatory structure to accommodate the changes that are being made.
The second concept from Catholic Social Thought that I'm not hearing much about in the current debate is "solidarity." Specifically (to borrow a phrase I've heard before in the context of environmental stewardship), intergenerational solidarity. Russ Powell alluded to this already -- we simply cannot ignore the impact of the massive amounts of public debt being considered in the context of this bailout on future generations. It's more than just an irresponsible putting off of the consequences to some future date to deal with a short-term crisis. It's a lack of solidarity with those who come after us -- both future generations, and future administrations, for the sake of looking like we're "doing something" dramatic.
Of course, I have absolutely no idea whether Paulson's right -- that failing to act now would have disastrous consequences. I do think, though, that acting without taking seriously the responsibilities of stewardship and solidarity cannot serve the "common good" in the long run.