The Credit Crunch

The credit crunch offers the church an unprecedented opportunity.
For the first time in a generation there is, within the political, regulatory and financial community, real interest in discussing the best principles upon which to base national and international business.

We have been here before. The Rowntrees, Cadburys, Frys, Colemans, Barclays, Buxtons, Thomas Cooks and others of years gone by changed business in their generation by tackling similar issues to those faced today. They left a lasting legacy, and we can do the same.
The City of London has significant influence around the world in terms of setting financial best practice. This means that there is an opportunity not merely to set a new national course, but also a new international course, for a global financial community that has learnt some important lessons about both its technical competence and its character:

• Free equity and debt capital markets do not work perfectly, and in particular do not necessarily self-correct.
• Increased regulation may be called for, but regulation alone is not sufficient.
• The financial community is more prone to temptation than had previously been thought.
• The financial community is not as clever as had previously been thought.

It is these realisations that are causing the financial community to look for answers. There are huge financial incentives to find them.

Contrary to populist fulminations, the reality is that the level of honesty in the City (certainly if one defines that as compliance with law) is high, and probably substantially higher than in other business spheres. The banking and financial services industries are the most highly regulated markets in the world, and practices that are commonplace in other markets have long been prohibited.

There was no appreciation in the City that sub-prime mortgages had been sold in the US through sharp practice, and the asset price bubble, risky bank business models and highly leveraged transactions that have wreaked such havoc occurred through no breach of regulation.

So what went wrong?
After all, business and finance, both in the UK and in the US, are not short of Christians.
Some conclusions that can be drawn are as follows:

• Neither the City nor Wall Street were the primary cause of the problem, although they fanned the flames, and sub-prime mortgages merely pricked the bubble.
• The problem stemmed in reality from a financial imbalance between the West, principally the US, and the rest of the world, principally China. Chinese manufactured goods, sold to the West, resulted in substantial Chinese savings. These savings were borrowed by financial institutions in the West and then on-lent to Western businesses and consumers, who spent the money on houses, other assets and consumer goods. This in turn caused an upwards spiral in Western asset prices, as more and more money chased a limited supply of assets.
• So we all caused the problem, particularly through our personal addiction to debt, materialism and consumption.
• It was the collapse of this upwards spiral that caused the financial institutions such substantial difficulties, partly because they had over-lent, partly because they had lent long (eg 20 year mortgages) and borrowed short (eg deposits repayable on demand) and partly because the transactions between the institutions had become so complex that it was unclear who remained creditworthy.
• Additionally, within the financial community, gearing levels had reached unsustainable levels in order to seek ever-increasing returns on equity. The City had also become over-focussed on short-term profit at the expense of risk management and long-term investment.
• As regards the City, it has become clear that it is dangerous to rely on regulation as the only restraint on conduct or conscience. A major contributing factor to the credit crunch, at least within the City, was an absence of positive values determining personal and business behaviour.
• It is not enough to operate honestly within a system which, like all man-made systems, is inevitably fallen. We need to evaluate the system and improve its values, as well as looking more critically at our own personal choices.
• However, some cautionary notes:
• This absence of positive values in the financial sector is a symptom of the broader values dilemma present in contemporary Western culture. We will struggle with the former as long as that broader dilemma remains.

For example, it can be confusing to many who are not Christians to equate values with morality, even though within the church we may believe that the two are often synonymous. Many would find it confusing were we to call something immoral that is permissible within a highly regulated market. We also need to be careful about judging those who have been educated in something of a moral vacuum. If a car driver who has never seen or heard of black ice has an accident in winter, whilst driving within the speed limit, and injures a child, who is to blame?

• The structure of the banking and financial markets are complex, and the transactions within it equally so. This often calls for nuanced judgement calls to be made between a variety of issues and the balancing of one set of competing duties against another. It is difficult to discern the moral issues involved. It can be even more difficult to weigh the competing issues once they have been identified.
• The whole gamut of human weakness has contributed to the credit crunch. This includes much that is morally culpable, but also much that is not. Simple lack of knowledge and foresight has been a major factor.
• Filling the values gap is not the only answer on offer, and many will not see it as the solution. We will need to compete with the other remedies on offer.
• I would suggest that we need to do three things:
• First, rediscover God's values in the areas of economics, business, personal finance and consumption.
• Second, rediscover our confidence in these values as being best for us, our neighbours and our children.
• Third, find the right 'voice' to communicate these values - a voice that offers life and not condemnation.

God's values for business of course include putting service of others before self, restraint, justice, respect for others, trust, rest and reflection, sufficiency, honesty, stewardship, truthfulness, responsibility and community. These values are no less valid or important when one moves from the personal to the business sphere, but they can be more complex to apply.
In rediscovering God's values for business, we will also need to reinforce a positive view of the role of business in fulfilling the Genesis mandate, providing human dignity, improving welfare and alleviating poverty.

We need to celebrate business for the common good.

I welcome the motion carried by Synod on 'Faith, Work and Economic Life' in July 2008 affirming work as a spiritual activity and requesting the Mission and Public Affairs Council to provide support in this area.

As churches, we certainly need to encourage and equip those who work in the world to think Biblically about what they do and the system in which they work. We need constantly to guard against the risk of increasing the tension that individual Christians can feel about being in the world, thus causing withdrawal rather than engagement. Let us make disciples who, like Zaccheus, can return to a fallen system, in the full knowledge of its shortcomings, and then do the same job as before but differently.

I would, however, encourage a move to lift the horizon of the church's contribution beyond work and so as to include business. It is as important that we celebrate business as a spiritual activity as it is that we celebrate work.

Much attention has already been given by a number of organisations to personal issues within the sphere of work, and that focus is welcome. Ongoing caution is needed to ensure that the focus does not set up false choices between personal holiness and work.
Far less attention has, however, been given developing a robust and relevant theology for finance and business as practiced now. There is a feeling that ethics has failed to keep up with modern medicine. The feeling is the same in relation to modern finance.
However, the debate is not just about ethics. We need to offer life, not just set controls, through our confidence that God's values in the long run bring blessing, prosperity and freedom.

In these days of international finance and global business, who is the neighbour of a screen based-trader? When should a fund manager not maximise the profit of a pension scheme on which you rely for your old age? How far should a bank be its brother's keeper? What are the moral issues raised by a residential mortgage-backed securitisation? When does enough become too much? When is it my duty not to enforce a debt? When is leverage irresponsible? When is speculation wrong? How far is it legitimate to utilise limited liability between consenting adults? Can hedge funds be good? What should I learn from the Old Testament ban on charging interest? And how do I inspire a sceptical audience with God's values once I have found them? These are only the beginnings of the questions that need to be addressed.
The City is looking for answers. A partnership is needed between business and the church based on dialogue not declaration. Neither has the answers without the other.
To quote 'Faith, Work and Economic Life', itself quoting Archbishop William Temple from 1942:
"Nine-tenths of the work of the church in the world is done by Christian people fulfilling responsibilities and performing tasks which in themselves are not part of the official system of the church at all..."
The City desperately needs the vision, support, values, wisdom, humour, creativity and imagination of the church, as well as its uncomfortable plumb lines. With that support, alongside prayer and the Holy Spirit, those Christians and others of goodwill who work in business and finance can assist in forging a better future, both nationally and internationally.

James Featherby is a partner of a large international City law firm, where he has worked for over 25 years, and a Fellow of the London Institute for Contemporary Christianity.

 

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