At the heart of our present crisis is the simple issue of lending money to folks whose credit history and ability to repay said loans was dubious at best, i.e., subprime mortgages. This was compounded by the institutionalization of these defective lending practices through government-backed guarantees issued by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that played a critical role in the current crisis.
I don’t claim to be a financial expert or economist; however, economics are not so much the source of this debacle as is a fundamental shift in values, namely, away from the historic Christian virtue of thrift. A concept that is almost anathema today, thrift exalts the prudent use of money and goods. If you look carefully you will see that the same “values” present in the subprime mortgage crisis are institutionalized throughout America’s current economic structure.
Historically, Americans were supported by a large number of institutions that encouraged savings and judicious spending. Local retail banks, credit unions, building and loan associations, savings and loans, savers’ clubs, and the like represented a cooperative, nonprofit banking tradition designed to serve the small saver. These institutions represented a pro-thrift sector of the financial service industry, which offered small, short-term loans to creditworthy Americans. In addition to encouraging savings, these institutions were also governed by strict rules for lending that limited the amount of debt consumers could carry.
If you wanted to buy a home, you had to first accumulate savings, apply to a local lender, document your creditworthiness, subject yourself to the bank’s scrutiny, and usually make a down payment. The federal government set limits on interest charges and, as social historian Barbara Dafoe Whitehead points out, “some forms of thriftlessness were outlawed entirely. Lotteries were illegal in all states, [and] usury laws prohibited predatory interest rates…” (Barbara Dafoe Whitehead, “A Nation in Debt: How we killed thrift, enthroned loan sharks and undermined American prosperity,” The American Interest Online, September 28, 2008). Whitehead observes, these “authoritative institutions play a role in guiding individual choices and in setting cultural norms” (Ibid.).
By contrast, the pro-thrift institutions of the past have been increasingly supplanted by new “authoritative institutions…setting cultural norms” that encourage thriftlessness. Instead of institutions committed to the principles of thrift, the market is now flooded with predatory institutions and parasites who prey on the naïve, desperate, and irresponsible, such as “subprime credit card issuers, mortgage brokers, rent-to-own merchants, payday lenders, auto title lenders, tax refund lenders, private student-loan companies, franchise tax preparers, check cashing outlets and the state lottery” (Ibid.). God, who has compassion on the poor, calls this “oppression” and describes it as an “abomination” (see Ezek. 18:13).
The average American today is bombarded by a large number of institutions (and messages) that actually discourage savings and promote impulsive, often foolish, spending, contributing to the highest level of consumer debt in history.
As to the scale of this problem, “there are more than a billion [credit] cards in the hands of U.S. consumers” (Ibid., emphasis mine). Between 1989 and 2001, “credit card debt almost tripled, from $238 billion to $692 billion” with much of that coming from young, unemployed college students, “56 percent” of whom “have four or more cards” (Ibid.). Opportunistic payday lenders provide “fast cash” to more than 15 million lower income wage-earners each month at the equivalent annual percentage rate of 300 to 400 percent.
Since 1973, there has been a 500 percent increase in per capita spending on state lotteries—taking in more than $57 billion in 2006. Studies demonstrate that low-income households spend the most, as a percentage of their total income (approximately $645 annually), on lottery tickets. Dr. Whitehead reported that the Tax Foundation estimated “that if that household were to invest the same amount in stocks every year for forty years, it could expect to have $87,191 [in 2006 dollars]” (Ibid.).
A major factor in the proliferation of these modern day moneychangers was the deregulation of interest rates—a violation of consciously Christian financial principles. In 1965, every state had usury limits on consumer loans. Since then, “seven states have completely deregulated interest rates…and at least 35 states allow lenders to charge the equivalent of more than 300 percent APR on a typical payday loan.” In short, “state usury limits have increased from 36 percent in 1965 to 521 percent in 2007” (Ibid.).
With such extraordinary profits available (and now legal), everyone from payday lenders to major credit card companies saw the potential in supplanting the virtue of thrift with the promise of instant gratification through debt. And many Americans, who are equally culpable, bought it hook, line, and sinker! “Borrow today what you do not have to buy what you cannot afford” became the mantra of the consumer culture replacing the old adage, “neither a borrower nor a lender be.”
Here again, the church has an opportunity to bear witness to life under the reign of God by living free from bondage to excessive consumption and consumer debt. Tragically, too many Christians are driven by the same idolatry that propels so many Americans into excessive consumption and debt.
© 2008 by S. Michael Craven
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S. Michael Craven is the President of the Center for Christ & Culture. Michael is the author of Uncompromised Faith, published by Navpress and scheduled for release January 2009. (You can preorder your copy today on Amazon.com.) Michael's ministry is dedicated to renewal within the Church and works to equip Christians with an intelligent and thoroughly Christian approach to matters of culture in order to demonstrate the relevance of Christianity to all of life. For more information on the Center for Christ & Culture, the teaching ministry of S. Michael Craven, visit: www.battlefortruth.org
Michael lives in the Dallas area with his wife Carol and their three children.
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