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Spiritual Lessons from the Financial Crisis

September 29, 2008

Whenever bad things happen, it is a good idea to see what lessons we can learn from them. After all, if God is trying to teach us something, and we don’t get the point, he may “turn up the volume” next time. As serious as the current crisis is, I don’t even want to imagine what an amplified version of the lesson might be. So let’s see what we can learn from this.

Moth and rust destroy

Home prices were rising. They had always risen, and everyone thought they always would rise. In fact, we bet the farm on it. But we were wrong. When economic conditions changed, housing prices fell and adjustable mortgage rates rose. People could not afford the higher mortgage payments, but they could not afford to sell because the house was now worth less than they owed. Foreclosures followed, dumping more and more discounted houses on the market, further suppressing prices. Moth and rust destroyed the phantom equity. Some would say that thieves stole it.

The core of the American Dream is home ownership. But the dream is misplaced. Rather than dreaming of a home in this world, we should be dreaming of a home in the next.

The slavery of debt

America is addicted and enslaved to debt, both on the individual level and on the national level. Debt is relentless and merciless. In pursuit of the American Dream, many people took on more debt than they could repay.

A family that requires two incomes to pay the bills faces more than twice the risk of bankruptcy of a one-income family. If either income is lost, the bills cannot be paid. A couple living on a single income might lose that income, but there are two people who can go out and seek employment to replace the lost income. So the two-income family has twice the risk of losing income, and fewer options if the risk is realized. Yet, too often they commit both incomes to buy “the house of their dreams” which eventually turns into a nightmare.

Peace or wealth?

Congress and the financial system have encouraged people to buy houses they could not afford. Good intentions aside, many of those people have been made miserable by the unintended consequences of excessive debt. Ask someone who has faced foreclosure whether they are better off today than they were before they bought that home. Whoever encouraged them in that was not doing them a favor.

Profiting from the poor

Profiting from the misfortune of the poor is evil. Tempting people to spend more than they can afford is not compassionate. Far from it. Woe to those who profited by strapping low income families with debt they could not pay.

Pay what you owe

The root of the financial crisis is undisciplined borrowing. Americans need to get out of debt. That is easier said than done. Many people need outside help to get their finances under control. The most effective program I know to help people eliminate their debt comes from Dave Ramsey. If you are having trouble paying your bills, please consider going through his program. It really can change your life!

The inside of the cup

During the 1990’s, Congress began to force banks to make risky loans through the Community Reinvestment Act, in order to promote home ownership among lower income households. At first, the banks strongly resisted the idea of lending money to borrowers who could not meet traditional standards. But then they found a way to make a lot of money at it. By bundling the risky mortgages into Mortgage Backed Securities (MBS), they put a prettier face on the risky debt. Those MBS could then be sold under the pretense of being a sound investment. The MBS looked pretty on the outside. But on the inside, they were full of mortgages that were at risk of default at the first sign of financial turbulence. For awhile the MBS seemed fine when housing prices were consistently increasing. But when the housing prices started to fall, the risks in those MBS became intolerable. Suddenly, many borrowers owed more than their houses were worth, and so the lenders were not adequately protected. Now nobody wanted to own those MBS, and the value plummeted. Now, nobody except the taxpayers is willing to buy the MBS. I wonder how many taxpayers are willing.

No matter how you remix a bundle of bad debt, it is still bad debt. Money loaned that will not be paid back is still a loss.

Confessing and denying guilt

Nobody wants to admit responsibility for the financial crisis. But acknowledging that you have a problem is the first step toward recovery. Once the politics fade away, I think historians will assign significant responsibility to Congress for causing this crisis, and for neglecting the warning signs. We have them on tape. They need to face their mistake so they do not make it again… or else we need to replace them.

Conclusions

Over the past 13 years, the politics of “affordable housing” have created an American Nightmare, first for the borrowers, then for the lenders… then for everyone who might need to borrow… and finally for everyone in an economy addicted to borrowing. When nobody is willing to lend, such an economy comes to a halt. This economic crisis is fundamentally a spiritual problem. It is a natural consequence of envy, greed, and materialism — the addiction to consuming today what we won’t pay for until tomorrow. Christians should know better than to live on borrowed money. I hope we are learning our lesson!

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