Daily Breakfast 550 – Catholics and the Economy
In this show: what does the Catholic Church have to say about the current global financial crisis? We dive into the Compendium of the Social Doctrine of the Catholic Church to find out! Plus: a review of the movie Fireproof. Don’t forget to nominate the SQPN shows for the 2008 Podcast Awards: today is the last day!
Links:
- The Compendium of the Social Doctrine of the Church about the international financial system
- Fireproof behind the scenes
- Nominate SQPN shows for the 2008 Podcast Awards!
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That economic document of the Church makes very good sense. We do need more regulation. The bottom line of this economic crisis is greed and the reason we are having such a problem passing the measures we need to get out of it is more greed. Politicians are so afraid of doing the right thing because they may not get re-elected that it’s really disgusting. We have lost sight of what’s really important.
thanks for the info in the reporting the inapporopriate stuff – will do. I was reading along with you on the Vatican site. That is really some document! From the way these economic events are playing out it is a powerful, inspired document indeed.
Hi Father,
Did you ever get any viral Catholic video ideas? Here are my (poorly thought out) ideas. Have you seen the “I’m a Marvel and I’m a DC” youtube videos? My favorite is this one: http://www.youtube.com/watch?v=u-DpANYoLKQ&feature=related
We could do something like that with saint statues.
Here’s my other (even worse) idea – we could show skynet sending back a Terminator to try to prevent Catholicism. Hmmm, not sure how to do that in a video meeting – maybe a bunch of robots around a conference table brainstorming?
Good luck!!
Thank you for addressing this issue, Father Roderick. The Church has a good handle on things as usual.
I would add something that CNN wouldn’t be emphasizing-Our wonderful US Congress had a part to play in the mortgage problem. They wanted more poor folks to be able to have houses and changed the regulations governing mortgages, so people who could not afford homes got them. Now they have been loudly denouncing Wall Street…
One would think that banks had more sense than to give money to people who couldn’t pay it back. In the end the banks gambled and lost. I hope Congress doesn’t vote to “save” the banks who deserve to be replaced in free market fashion.
Of course it is the contents of an individual-morality, etc-that will have the final effect on things. The Church must be heard! and the truth will be broadcast on the Daily Breakfast.
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o Paul S. — congress made it legal. The banks made it profitable for the brokers to sell the mortgage products to those who could not afford them as well as those who did not understand (or were told) the ramifications of the products that were so flexible, people were financially strangled by them.
Is is not a lack of regulation that this financial problem began. Nor was this problem started because there was a failure of the
Free Market. It began becuase politics were inserted into the Free Market eliminating risk from unsound loan decisions. The solution US is proposing does not eliminate this factor so it will happend again.
The US Congress required the banking industry to increase their loans to people who would not normally qualify for them, the poor. Then the GSE’s would buy up these loans from the Banks (5 Trillion USD’s worth). Regulators saw problems with this policy and went to Congress to warn them to take corrective action. Time after time they were beaten back by Congress to take corrective action because solutions conflicted with their goals to provide home ownership to the poor.
Under Congress’s pressure, the GSE’s Fannie Mae and Freddie Mac created investment instruments that bought up these unsound loans For many years the US Regulators (OPHEA) have not only warned of the systemic consequences of financial turmoil at a housing government-sponsored enterprise (GSE) but also put forward thoughtful plans to reduce the risk that either Fannie Mae or Freddie Mac would encounter such difficulties. As an example, the US President publicly called for GSE reform 17 times in 2008 alone before Congress acted.
Unfortunately, these warnings went unheeded, as all repeated attempts to reform the supervision of these entities were thwarted by the legislative maneuvering of those who emphatically denied there were problems.
As long as we allow politics to be inserted into the Free Market, we will continue to suffer these problems.
Eric, I agree the solution the U.S. Congress and U.S. Senate are proposing does not eliminate the risk that it could happen again.
But I do not understand your comment …
“It began becuase politics were inserted into the Free Market eliminating risk from unsound loan decisions.”
It’s also difficult to reconcile what you mean by your comments that appear to be in disagreement …
1. “It is not a lack of regulation that this financial problem began.”
2. “Regulators saw problems with this policy and went to Congress to warn them to take corrective action.”
In basic financial rationale it is my judgment … there is no problem taking on riskier investments if (1) you can afford to lose your money and (2) if you are being compensated with a higher return on a higher risk investment.
Thus higher risk mortgagors would have to pay a higher interest rate for their home loans. This is fair and it still allows high risk mortgagors to try to achieve the dream of homeownership.
One question becomes … should we put regulations in place to protect unsophisticated borrowers from making decisions that they really shouldn’t make?
Another problem that I suspect has happened is in the secondary market and the derivative loans.
I plan to look into it further and will likely publish an article about my findings.
In trying to create a world and a society based on love and sharing, is it the place of the governments to handle the sharing part? Should that generosity be provided by the private individuals who through free will choose to give it?
Also frustrating is the constant conflict between choosing the party that supports the Catholic view of defense of life and the party that supports the Catholic view of social justice and care for the less fortunate. You pretty much cannot find them in the same candidate.
Fr. Roderick–
Have you checked out the works of Thomas E Woods Jr.?
He has written many books about economics and has covered quite extensively the history of the church and its impact on everyday thinking. You can check out his book: “The Church and the Market: A Catholic Defense of the Free Economy.” For some information about that book you can go here.
Also, his book How the Catholic Church Built Western Civilization, was very good too.
I like his writings quite a bit since it blends my libertarian, austrian economic thinking, but includes the church as well.
Jon
Jim,
There was/is a lot of mortgage regulation issue to begin with (just look at all the legal paperwork you have to sign when you get a mortgage to acknowledge every term and condition!). In the end, Congress refused to listen or heed many regulator warnings over the years. Yes, compounding the issue is that each loan was leveraged via the derivative market — perhaps at a 30 to 1 ratio! Essentially, GSE’s generated the market feeling that the government would likely bail them out, thereby mitigating any risks during their tenure. It did not help matters that the Federal Reserve continued a loose monetary policy to keep interest rates low, unlike the EU.
I believe that the problem was initiated by the meddling and, yes, greed for power of the US Legislature itself. If the banks had been left alone, without this political and socio-economic meddling, they would not have executed these risky loans. Ironically, housing prices would have gone up far less, thereby allowing poorer people to afford these lower priced homes regardless. Yes, as Congress is now still in charge to ensure the prosperity of Americans rather than to promote it, this situation will continue. Our children will now pay for our selfishness.
@Jomichael, I am also conflicted between the two parties. As a nurse who works with poor clientele, I know we have a desperate need to reform our health system and the Republican party just isn’t interested, other than piddly financial rebates for superexpensive health insurance. On the other hand, we need to help defend the unborn, and when Supreme Court Justices need to be appointed, I want a Republican there to appoint someone of a more conservative slant.
On the economic front, personally I focus on getting out of debt. I am thankful that I have a job that is very much in demand-I will always have work like it or not- and I pray that I remain healthy enough to continue to do it.
Excellent show, Fr Roderick. I had no idea the Church had so much insight on economic matters
Hello Eric,
The follow-up e-mail helps me better understand some of the comments.
But there are some lingering questions.
Your comment “I believe that the problem was initiated by the meddling and, yes, greed for power of the US Legislature itself.” suggests you are in favor of a “laissez-faire” approach.
The comment “Congress refused to listen or heed many regulator warnings over the years.” suggests you believe the government needs to regulate more. (the opposite of laissez faire)
The comment “It did not help matters that the Federal Reserve continued a loose monetary policy to keep interest rates low, unlike the EU.” also suggests that the lack of federal control in the market (laissez-faire) is the culprit.
What am I misunderstanding?
The other thing I noted was the “paperwork” when you sign a mortgage … which is intended to protect the consumer/mortgagor in the primary market rather than the investor in the secondary market.
It’s my take that the consumer protection paperwork from the primary mortgage market is not too important to the investors wheeling and dealing in the secondary mortgage market with derivatives?
My limited economic studies suggested that laissez-faire contributed to the U.S. crash in the 1920s.
Perhaps the problem lies in the way the “open market” created convoluted investments where low risk mortgages and high risk mortgages were bundled together and initially misunderstood by investors (or perhaps misrepresented by people selling the investments as securities guaranteed by the U.S. government).
It seems to me that as investors in the secondary market became better informed on what were in the bundles and derivatives, nobody wanted them. The investment banks were then left holding these undesirabe investment products that also tied up their liquidity.
Now the U.S. tax payers have to step up and by the investments nobody wants (or fully understands) inorder to provide the liquidity for the poor decisions made by the people that bundled the assets and offered derivatives that nobody wants. This will take quite some time to work through because the bundled assets are difficult to unwind once they are bundled together.
This is where I think the flashlight needs to be pointed.
I believe tighter rules would be appropriate in the the way the mortgage backed securities are bundled together … then diced, sliced, and represented to potential buyers (including overseas investors that may not fully grasp the nuances in the English language jargon).
Dear Father, I love your podcasts and I got one video of Portugal but can’t seen to find anymore of them. please tell me what I need to do. And can I get to listen to your program on my radio in the USA. On the computer it doen’t come in smooth. The podcasts are best. Thankyou and God Bless you for all you are doing.