This is a response to Chris and Davey, from the recent economics post…
Chris wrote:
The poor deserve our compassion, not our scorn. They deserve our charity, not the short end of the capitalistic stick. That poor folks got loans is the one bright spot in this whole despicable mess.
For the record, I don’t believe that Card is blaming the poor. To read his article that way seems unfair. Perhaps blaming the Democrats (as he does) is also unfair, but why jump all over him for talking about unwise loans to the poor?
Contra Chris and Davey, I think his point is an astute one. You both assume that if someone is criticizing loans given to the poor, then they’re obviously doing that with unbiblical, elitist, “he doesn’t want the poor to be blessed” motives. This is not always so.
It is not a bright spot that the poor got loans out of this. As Proverbs teach us, loans enslave. The fact that many poor people got loans probably means that many poor people are now in worse shape than they were before. That sure isn’t compassion.
To emphasize what I said before, we need to give the poor people real help. Not try and get them caught up with our lifestyles. I told it this way to Davey—if you meet a starving former prisoner, giving him a steak dinner will likely hurt him more than it will help. You have to give him what he needs, not simply what you yourself might want. The same thing applies to the poor around us.
Chris, if credit is the real problem, then in what way are we pointing fingers at the poor people by suggesting that giving them loans that they can’t repay is a problem? Try for a minute to read that sentence without reading anything into it. In fact, I’ll make it easy for you: I am not saying that they shouldn’t be helped, or that being poor is their own fault, or that they don’t deserve a house. I’m just suggesting that such loans may hurt and devastate instead of helping.
Thoughts?
Frank,
I think I agree insomuch as usury is wrong. And our banking system is built on usury, and couldn’t exist without it. So, yes, to a certain extent, “including” the poor in that system is doing them a disservice. But the way I look at it, we can’t afford to be so idealistic just yet. I would love to see usury done away with. But in the meanwhile, personally speaking, I want to own a house for my family, sooner rather than later. And since I have no massive inheritance in store, I will need to take a mortgage loan at some point. I hope and plan to have money for a downpayment to do this. Those poorer than me may not have even this ability. So, I don’t think the impulse to offer the poor a means to buy a house is inherently wrong. Sure, CRA may have left loopholes thru which the bank exploited the poor and made them worse off. But does this mean we abandon our impulse to help those worse off than ourselves? We can’t just say, be warmed and filled, and not do anything.
The thing is, I’m uncomfortable with the idea that we should withhold a helping hand until we’re entirely sure that things will work out all right in the end. Mercy to some extent must be blind. It has to be to serve those who are often ugly and smelly and repulsive to our “better” sensitivities. No?
Just seems like Christ never attaches strings to his offers of compassion. And isn’t it possible that your example of the starving prisoner may himself be Christ to us? And if so, wouldn’t we want to hear, “For I was hungry and you gave me food… I was in prison and you visited me”?
Just wondering out loud…
Either I was unclear, or you’re again reading into what I wrote. I was not suggesting that we abandon the poor, nor that starving people should not to be fed and that prisoners should be left to themselves.
The implications of my “starving POW” example should speak for themselves: such a person needs appropriate food, not an enormous steak dinner. Such a person needs to be helped in such a way as to build up their strength and their bodies so that one day they can truly enjoy a steak dinner.
To again emphasize: In no way am I suggesting that we should withhold a helping hand. I’m appalled by the thought. What I am suggesting is that we need to rethink the way we help the poor. In fact, to be more proactive, we need to do more than bemoan what Republicans do or Democrats do. We need to get off our asses and actually propose and try other ways of helping these people, instead of self-righteously playing the condemnation game.
A couple of points:
I am not saying card is blaming the poor, per se. But Card is blaming those who wanted to extend loans to minorities and the poor. The practice of doing so is bad capitalism. I think it speaks volumes about capitalism, because any system that can be blown to smithereens by charity is not a system I want to defend.
I agree with you when you say that debt enslaves. But I also agree with Davey when he says that it’s a little more complicated than that. We can take the axe to that particular tree, but there’s still a forest of trees to fell before we’ll get anywhere useful.
I see it as a problem of cultural sin. Easy debt is a form of inflation. It drives up prices. Real Estate prices will generally follow what an average person can afford. As our culture has gotten more and more comfortable with debt, the average person has had to take greater and greater risks (and thus pay greater and greater interest to their debtors) in order to participate in average society.
This point is illustrated by California. In California, Option ARM loans were common. They allow something called negative amortization, which means that your payment is based off of some very low interest payment (usually 1% or 2%), and the remainder (the additional 5% or 6%), is merely added onto your outstanding balance. Every month, you owe more and more to the bank. This seems Ok when your house price is constantly increasing, but is really an unwise practice in the long run.
As more and more people took these loans, prices skyrocketed. You could purchase a house at a 2% interest rate – a third of conventional lending – and thus could afford three times as much house. This increased the pool of buyers, which increased competition, which drove house prices up, which increased supply (through new building), which lowered prices and attracted more buyers, who sought more and more exotic loans and took on more and more risk, which drove prices even higher, and on and on it went.
Meanwhile, inflation occurred in other sectors of the economy. Inflation punishes saving, because every second a dollar is not spent it is losing value. It is better to spend that money, leveraged with debt, especially when appreciation is outperforming interest rates. As the years passed, every dollar that was saved was less useful for purchasing a house than it was the month earlier.
Imagine a renter trying to save for a downpayment. As he is saving, housing prices are skyrocketing. His dollars represent a smaller and smaller downpayment percentage as he waits. Not only that, but those saved dollars are become less valuable in the economy overall. Plus, because housing prices are increasing, rents are increasing commensurately.
Homeownership isn’t just about The American Dream. A whole host of benefits come with it. As you pay your mortgage, you gain equity and thus part of your mortgage goes to increasing your own wealth. You are a full participant in the appreciating housing values. You are able to deduct any mortgage interest on your taxes, further mitigating the costs of owning a mortgage. A renter has reduced property, reduced freedoms, and his rents go to lining the pockets of his landlord rather than building an inheritance for his children. Rent, indeed, is a form of slavery to the landlord and state.
So, back to cultural sin.
It’s not like increasing house prices, soaring inflation, and a brisk lending market are any excuse to take out a stupid loan. But by not taking risk, you are settling for a surer form of punishment. We’re all doing this, by the way. When our parents bought homes, they likely paid less than 100,000 dollars, had sky-high interest rates, and often took out loans of 15-year terms. That is no longer possible in most cases. Easy credit has led to higher prices, which have necessitated longer loan terms and riskier interest rate schemes. We are all damned if we do, and damned if we don’t. Good, honest people are losing their shirts in this mess too, as well as bad, dishonest investors and lenders. As far as I understand it, RE speculators are losing far more money in far greater numbers than poor folks living under subprime liens. When I say “it’s complicated,” it is precisely for this reason: we were all pretty much screwed, and at least some poor folks weren’t screwed for a season. And as this all unfolds, there are still some poor folks who have worked hard, invested wisely, and are still holding on to subprime mortgages, successfully refiing out of them (I’ve done several), and have pulled themselves up by their new, large, government-issued bootstraps. That’s a triumph amidst this crisis, if you ask me.
It is a mess, utterly and completely.
As a parting comment, we need to be sure we are getting our terms straight. “Subprime” is a term indicating a credit score of less than 620, or 600 in certain cases. This low credit score is directly correlated with poor credit history. I am not suggesting that we lend to people who have demonstrated an inability to repay.
But “subprime” is used in the greater uneducated cultural discussion to refer to loans given to poor folks and minorities. Those loans are actually usually subsidized with taxpayer money (to replace downpayment or hedge against risk of default), administered by HUD or FHA, and are underperforming but not causing the crisis. The government placed price ceilings on the properties these loans could purchase, so it’s less like giving a POW a steak and more like giving a bum a deli sandwich and a cup of coffee.
People are getting mixed up about this, and it is obscuring our discussion. Subprime loans were extended by private lenders, sold to private investors, and given to high-risk borrowers who had a demonstrated record of credit difficulty, or who had a profound level of risk (investors who are highly leveraged are an example). These loans were incredibly lucrative, and usually purchased by those drunk on credit, profit, and capitalism.
Poor people and minorities were exploited by the subprime system, but not by design. These demographics are usually less educated about finances, and could be hoodwinked into a subprime loan by disingenuous lenders. In many cases (over 80%, by some counts), these folks would have qualified for conventional lending or safer, governmentally backed loans. I’ve seen a few of these situations myself. This I find to be abhorrent, and certainly not a bright spot at all.
But to identify compassion for the poor and a desire to expand their property ownership, the value of their spent dollars, and their dignity as the cause of all of this mess is compulsive, ignorant, and cruel. Card may not have done this, but others have, especially those than run in conservative Christian circles.
When the choice is between putting your money at risk or letting the government and greater culture do it for you, how do you decide? Is voluntary or involuntary slavery the greater evil?
Wow. I’m long winded.
RE: “How do you decide?”
We choose neither! Third ways all around.