Sins of the Wallet

Moral Dimensions of the Economic Crisis: A Register Symposium

Economic hard times are always times of soul-searching, and the global economic crisis even brought a response from Pope Benedict XVI, who said on Oct. 6 that the crisis shows the importance of building our lives on the firm foundation of the word of God. “We see it now in the fall of the great banks,” the Pope said. “This money disappears; it is nothing — and in the same way, all these things, which lack a true reality to depend on, and are elements of a second order.” The Register felt it was important to look at the moral dimensions of the economic downturn and asked several prominent Catholic thinkers, “What sins got us into this mess, and what virtues are required to get us out of it?” Their thoughts follow.

Essays by:

Carl Anderson, supreme knight of the Knights of Columbus.

Father Robert Sirico, president of the Acton Institute for the Study of Religion and Liberty in Grand Rapids, Mich.

Frank J. Hanna, CEO of Hanna Capital, LLC, in Atlanta.

Mark and Louise Zwick, editors of the Houston Catholic Worker.

Father Allen B. Moran, assistant professor of economics at Providence College in Rhode Island (web only).

George Schwartz, president of Schwartz Investment Counsel Inc. in Bloomfield Hills, Mich., which serves as adviser to the Ave Maria Mutual Funds (web only).

National Examination of Conscience

By Carl Anderson

Government action and hundreds of billions of federal tax dollars may well stop the collapse of the American financial system. However, what will be much harder to restore will be America’s confidence.

Here we might consider the example of Nelson Mandela and the solution he created for South Africa in 1995. His country had only recently abolished its system of racial “apartheid.” It was a country suffering great divisions and filled with mistrust.

As president, Mandela’s solution was to create a reconciliation commission, which would admit the mistakes of the past in order that his deeply-divided country could move forward. The reconciliation legislation — enshrined in South Africa’s constitution — stated: “These [issues] can now be addressed on the basis that there is a need for understanding but not for vengeance, a need for reparation but not for retaliation.”

We have seen quite the opposite so far in response to the economic crisis. While many have been quick to assign blame — often for political gain — few have accepted any responsibility.

What we need is a candid admission that the fault lies not just in one place, but in many. Call it a national examination of conscience.

Didn’t everyone who got a subprime mortgage sign a federally mandated form stating that all the terms of their new mortgage had been disclosed and that they understood them?

Didn’t those who developed the financial products based upon this subprime paper understand the risk involved?

And if the CEOs whose investment departments gobbled them up did not understand what was happening, can the same be said for their CFOs or VPs of investment?

And what of the journalists and pundits at our best business periodicals and networks?

What of the Federal Reserve? And the congressional oversight committees? And the Securities and Exchange Commission?

The current system depends upon the exercise of moral responsibility at many levels, and there was a collective failure.

Small wonder that a recent poll commissioned by the Knights of Columbus found that more than 70% of the American public and American Catholics think that our nation’s moral compass is pointing in the wrong direction. What the American people see — and many of our leaders do not — is a need for a new paradigm of values-based leadership.

In my book A Civilization of Love, I proposed Pope John Paul II’s idea of a civilization of love as an operating principle for society. In such a society, when there is an injury, love demands honesty, admission, forgiveness and reconciliation — and more than a little humility as the foundation to recovery.

This is what must now happen here in the United States.

We have seen a beginning with former Federal Reserve Chairman Alan Greenspan admitting an imperfect understanding of the market. He is one man, and his admission was certainly limited, but it was a start. Catholics understand that cultures, like individuals, can be sinful. And just as individuals are in need of conversion, so are cultures.

This is not merely a matter of greater government oversight and regulation. Something more elemental is required: the courage to exemplify a greater moral leadership in our financial and economic structure. Unless all of those responsible, at every level, have the moral courage to admit personal responsibility for both the problem and the solution, there will be no lasting financial or political remedy.

Carl Anderson is supreme knight

of the Knights of Columbus.

The Moral Dimension of the Market Meltdown

By Father Robert A. Sirico

It is not an ethical function of the state to intervene in the financial markets with public money in order to rescue the concerned companies.

What happened here is that large market players with close relations with the Federal Reserve and Treasury Department were able to prevail. It is true that everyone is affected when large institutions are in trouble and the contagion of the bust is real. At the same time, everyone is also badly affected by policies that take resources from the private economy to bail out special interests.

 There is also the very important question of whether such stabilization policies actually work to achieve their aims. We live in an age of science in which such empirical matters are supposed to impact the debate. Well, it is fact that the historical record shows no case of large-scale stabilization attempts actually achieving their aims. It didn’t work in 1930s America or 1990s Japan.

On the other hand, there is a long record of economic busts working themselves out peacefully after liquidation. I think we need to look more carefully at this record before plunging into expensive and unworkable legislation.

I’m not sure that any aspect of Catholic social teaching can be cited in the defense of such large-scale bailouts that jeopardize even larger sectors of society. During a crisis, there is a tendency to turn toward state power to provide us with answers.

We will all regret this.

We need to use this time to pull back and remember what is truly important, which is not wealth but prayer, detachment and redemption. Paper profits evaporate, but institutions like the family and Church and disciplines like charity and prayer and critical rights and freedoms have lasting value.

This crisis is not a failure of the truth of freedom, but a failure of many forms of deception. If we cling to what is true, we will make it through.

Father Robert Sirico is president of the

Acton Institute for the Study of Religion and

Liberty in Grand Rapids, Michigan.

A Failure to Face Reality

By Frank J. Hanna

Sometimes facing reality is difficult. Our current global financial crisis is one of those times. So here are some realities.

This mess is not a dream; it is really happening. It is tragic, for it represents a lack of collective prudence and an indulgence of collective materialism. We are all tempted to point a finger at some villain who can then serve as a scapegoat for our problems. Our problems, however, were not created by one person, industry, government or community.

In this country, our total amount of debt, as a percentage of our national income, rose from a range of 100% to 150% during the years 1950 to 1980, then to 180% by the year 2000, and to 375% by the year 2007. This amount of spending on ourselves (whether the government was spending it, corporations were spending it, or families were spending it, in the end, the “stuff” that was bought was used by one of us) cannot be sustained. Just like when any family lives beyond its means for a number of years and it takes a number of years to get things back in order, so, too, will it take a number of years for our country to get things back in order. And some countries are much worse off than ours.

Another fact we have learned as this crisis has spread is that we are all much more connected than we might have previously imagined. What happens with the meltdown of the currency in Iceland can actually affect whether someone can buy a car on credit in Iowa, and thus we are, whether we like it or not, dependent on one another. So what should we do?

Well, we repent.

I don’t mean with sackcloth and ashes, but we reorient ourselves toward reality. And Pope Benedict XVI recently gave us a wonderful lodestar for this reorientation. Just a few weeks ago, at the opening of the Synod on the Word of God, he quoted the Gospel about the man who built on sand and the one who built on rock.

“We can see this now with the fall of large banks: this money disappears, it is nothing,” he said. “And thus, all things, which seem to be the true realities we can count on, are only realities of a secondary order. The one who builds his life on these realities, on matter, on success, on appearances, builds upon sand. Only the word of God is the foundation of all reality; it is as stable as the heavens, and more than the heavens, it is reality.”

Then we seek to cultivate two virtues that do not get a lot of attention these days: prudence and temperance, which the Church for centuries has recognized as being two of the four cardinal virtues. Prudence is the practice of seeing reality as it truly is, without escapism, and then acting with wisdom in light of that reality — something so many failed to do as this crisis developed. And temperance is a virtue of self-control, whereby we keep rein over our desires, such that we don’t indulge them in a way that harms ourselves or others.

Each of us, in our own little worlds, cannot “fix” the global financial crisis; but we can reorient ourselves to God, and we can work to exercise prudence and temperance and serve as a living example to others.

Frank J. Hanna is the author of What Your Money Means: And How to Use It Well (Crossroad, 2008).

‘The Logic of the Market Is Unacceptable’

By Mark and Louise Zwick

God brought Dorothy Day and Peter Maurin together to form the Catholic Worker movement at a time when the world was facing an economic crash similar to today’s. They critiqued robber barons, banks, the financial system and the free market ideology known in their time as laissez-faire capitalism. They did not look to socialism as a solution, but were able to develop an alternative based on the Gospel, Catholic social teaching and the lives of the saints.

There is a disconnect for Catholics between the word of the Gospel and the economic culture. Speaking at the recent synod, Pope Benedict XVI reminded us that the word of God is the true reality, that the disappearance of hope along with the money was the result of building our lives on sand.

Jesus said his Gospel is not about building bigger barns (or bigger banks). It is about giving rather than receiving.

The economy that is collapsing has been based on “barn building” and on individual and corporate self-interest. Its marks have included a scandalous divide between salaries of CEOs and workers in their companies around the world, and deregulation and privatization have left the market to wolves. Banks have pursued reckless policies that benefit only themselves. People are owned by their credit cards and by debt at exorbitant interest rates. Environmental concerns have been sacrificed. The media, which might inform the citizenry, are a part of the conglomerates.

We oppose abortion. However, our culture countenances every form of self-indulgence and then expects average people to practice heroic virtue in carrying a child in difficult circumstances.

Some have sadly been patriots-in-arms in promoting the machinations of the worst of the marketeers, attempting to equate Catholic ethics with no-limits capitalism. But a few days ago, the Vatican spoke, in the person of Cardinal Renato Martino, president of the Pontifical Council for Justice and Peace: “The logic of the market up to now has been that of maximum earnings, of making investments to obtain the greatest possible profit. And this, according to the social teaching of the Church, is immoral.”

Less publicized than bank and business failures is the human suffering that has come from turning everything into a for-profit business, from medicine to privatized prisons. Measuring everything by an ambiguous figure called the GDP (gross domestic product) and “growth” is not a human measure at all.

International trade agreements which benefit the United States have increased poverty in countries to the south and pushed people to migrate. Attacks in recent years blaming immigrants for our economic problems not only were untrue, but outright calumny. The raids on businesses, the imprisonment of immigrants, and the cruel, hurtful laws against them passed in many states are destroying lives and families — not helping the economy.

The government’s response to the crisis has been to enrich the very people and institutions that caused the problem in the first place and to continue the same approach: “What is needed is more of the same: more free market, more free trade, more credit for lending at interest.”

Dorothy Day criticized the appeal to acquisitiveness that dominates advertisement in our culture: “There have been many sins against the poor which cry out to high heaven for vengeance. The one listed as one of the seven deadly sins is depriving the laborer of his share. There is another one, that is, instilling in him the paltry desires to satisfy that for which he must sell his liberty and his honor ... newspapers, radios, television, and battalions of advertising people [woe to that generation] deliberately stimulate his desires ...”

For believers, our economics has been upside down. More of the same is not the answer. We would do better with the logic of the Gospel, Catholic social teaching and the lives of the saints.

Mark and Louise Zwick edit the

Houston Catholic Worker.

Economic Hope

By Father Allen B. Moran, O.P.

The term “economics” comes from the Greek word oikonomia, which defines the activity of the manager of a household. He had to administer the limited goods at his disposal, making decisions on what was to be planted, who was to work where and for how long and how many of the household resources would go to meet which needs. In modern economic textbooks, students learn how the market distributes scarce resources among an infinite array of wants.

Here the consumer is always seeking to get the most “bang for the buck,” to maximize his or her happiness through consuming the goods and services that produce the most happiness, subject to the constraints of the budget at hand. If the budget declines, the consumer suffers. If there is hope from this point of view, it comes solely from attaining and mastering more and more material possessions. This outlook, obviously, is oblivious to the communitarian aspect of human existence.

As the financial crisis is wreaking havoc on the savings of countless households, many people are angry and scared. Fear and panic have punished stock markets before. Eight years ago new Internet firms that had popped up overnight and had attracted hundreds of millions of dollars in investment went belly up, and the stock market went through huge swings. At the time, I was working for a prestigious investment bank. Each Monday the CEO would address the entire bank on a conference call and lay out the bank’s outlook for the coming week and months ahead. One day during the crisis, the CEO remarked how his wife had grown quite fearful that their personal wealth was at risk and that the family could end up “in the poor house.”


That same week, when I attended Mass at my parish, I heard that our choir director had just been fired from her job as a paralegal six months before qualifying for retirement. She had been abandoned by her husband several years earlier and was already having to scrape to make ends meet. Here she was, engulfed by economic uncertainty, with no prospects for a new job, a rent she could no longer afford, and no obvious way out. The striking difference between my friend in the choir and my CEO was how each dealt with the loss.

The CEO, whose personal wealth was certainly substantial, seemed imprisoned by his possessions. The choir director, who had very few financial resources, exuded hope and confidence that God was with her, even amid the economic turmoil and uncertainty of the day. And she still had her greatest possession, while my boss could never be fully guaranteed or protected, she had hope; he had panic and fear. These circumstances were a catalyst in my own embrace of religious life.

There is certainly a place for savings and prudent planning in the Christian life. This is not to be confused with being solicitous, that is, overly anxious about worldly belongings or the future. Since the life of Christian virtue is one governed by prudence and directed toward charity, there is certainly a domain for prudent planning. Certain necessities require planning and savings, such as the down payment on the family home. So how do we know when we have crossed the line from prudent planning to solicitousness?

The answer may lie in how disturbed we are by financial loss. Avarice has a blinding quality to it, making those overly attached to riches oblivious to the real God-given priorities of life. Slowly or quickly, everything is compromised to hang onto possessions — truth, honor, trust, even the life of innocents.

Our Lord warns his disciples to avoid covetousness of material goods, because a person’s life does not consist in the abundance of possessions, but in the storing up of treasures in heaven.

Father Allen B. Moran is assistant professor of economics at Providence College in Rhode Island.

This Too Will Pass

By George Schwartz

The global credit crunch has been well reported and discussed widely. Suffice it to say, the crisis is real; it’s scary, but it too will pass.

The cause of the crisis sweeping through the financial industry is a deflating residential real estate bubble. Home buyers over-extended themselves by taking on too much debt during the mania, while Wall Street overextended itself buying, packaging and reselling that debt. This worked to everyone’s advantage as long as real estate prices were going up. But when real estate prices dropped, the leverage was enough to sink many homeowners and financial institutions.

Now the country has embarked upon a great deleveraging of balance sheets. Painful as it is, I believe the long-term effect for both the economy and investors will be positive.

There are many signs that the worst of the damage to the capital markets is over. In my 40 years in the investment counsel profession, I’ve seen many recessions and bear markets. That old cliché is true: “It’s always darkest just before the dawn.” Dawn will come, and the U.S. economy will again prosper. Cycles such as the current one have a way of flushing out excesses in the system, cleansing errant behavior, and forcing a deleveraging process, which after a period of pain prepares the economy for a fresh resurgence.

Greed got the country into this mess. Following the burst of the tech stock bubble in 2000, the Federal Reserve drove down the federal funds rate to 1% for over one and a half years. This created essentially free money and spurred another speculative bubble: housing. People attempting to live beyond their means (is that greed?) took out mortgages they couldn’t afford to pay back — sometimes at 100% of the inflated house price. Materialism was in full bloom. The bigger the house, the better.

Then the banks sold the mortgages to Wall Street investment bankers, who repackaged them into mortgage-backed securities and spread the debt so far and wide, no one knew where the risk resided.

When housing prices fell, the wheels came off. The financial excesses and greed throughout the system were manifest.

All the while, Fannie Mae and Freddie Mac, with their patron saint, Congressman Barney Frank, sucked up mortgages from Wall Street and banks with ungodly amounts of borrowed money — all supposedly enabling greater home ownership, but actually creating a massive bubble, ensnaring people who should have been renting. Not everyone can or should be a homeowner.

What virtues will lead us out of this mess of excesses? No doubt, humility and thriftiness and prudence may return to our lexicon. Humility must return, because the wild time is over. Recession is here; the pain is real. It will take time and hard work to heal, but capitalism is still the best economic system, having created more freedom, wealth, prosperity and happiness than any other system in the history of the world.

George Schwartz is president of Schwartz Investment Counsel Inc. in Bloomfield Hills, Michigan, which serves as adviser to the Ave Maria Mutual Funds.