October 30, 2014

Prophet Jim Wallis Explains the Doctrine of Coercive Repentance

More Wallis dressing redistributionism in Christian garb.

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By John Couretas. Source: Acton Institute

Jim Wallis

Jim Wallis

In a new column on Sojourners, Prophet Jim Wallis reveals that Wall Street financiers are coming to him for confession, sometimes skulking along darkened streets to hide their shame:

Some come like Nicodemus – a religious leader who came to talk to Jesus in private – at night. Many have felt remorseful about what happened on Wall Street and how it has hurt so many people. They describe the behavior in their profession with words such as “greedy,” “risky,” or “reckless.” These business and banking leaders do feel sorry, but repentance means that remorse must be coupled with a change in the behaviors that led to the problems.

The Prophet, who can read their very thoughts (”repentance and accountability were far from their minds”), bids them to change their ways and reminds them about God and Mammon. But it is not so much a conversion of hearts and minds Wallis is asking for, as it is the divine wrath of Washington regulators. His three-point plan (emphasis mine):

First, provide transparency and accountability. Given the human condition and the many temptations of money, we need transparency and accountability in financial markets and instruments, including high-risk and questionable ones such as the now infamous “derivatives.” To protect the common good, we need to enact greater regulation and oversight of all elements of the banking industry.

Second, provide consumer protection. Any pastor can now tell you stories of how parishioners were mistreated, cheated, and damaged by current banking practices. Many clergy strongly favor protecting consumers from predatory financial practices. They want a strong independent Consumer Finance Protection Agency, with jurisdiction and enforcement power over all companies in the financial sector, in order to protect people from fraudulent, misleading, and abusive practices.

Third, limit size and risk, so banks are no longer too big to fail – and are bailed out at public expense. This means setting limits on the size of financial institutions and the risks they can take. Ban bank ownership of private investment funds, and establish an orderly process to dissolve a failing bank, in order to avoid future taxpayer bailouts. Give a stronger voice to shareholders and investors in institutional practices and policies – including determining the executive compensation of companies, and the now infamous bank executive bonuses.

A much more intelligent and balanced analysis of the financial crisis was published yesterday by Russ Roberts, a professor of economics at George Mason University and a scholar at the Mercatus Center. Note the complete lack of cheap moralizing that informs so much of Wallis’ economic “analysis.” This is from the introduction to Roberts’ “Gambling with Other People’s Money”:

Beginning in the mid-1990s, home prices in many American cities began a decade-long climb that proved to be an irresistible opportunity for investors. Along the way, a lot of people made a great deal of money. But by the end of the first decade of the twenty-first century, too many of these investments turned out to be much riskier than many people had thought. Homeowners lost their houses, financial institutions imploded, and the entire financial system was in turmoil.

How did this happen? Whose fault was it? Some blame capitalism for being inherently unstable. Some blame Wall Street for its greed, hubris, and stupidity. But greed, hubris, and stupidity are always with us. What changed in recent years that created such a destructive set of decisions that culminated in the collapse of the housing market and the financial system?

In this paper, I argue that public-policy decisions have perverted the incentives that naturally create stability in financial markets and the market for housing. Over the last three decades, government policy has coddled creditors, reducing the risk they face from financing bad investments. Not surprisingly, this encouraged risky investments financed by borrowed money. The increasing use of debt mixed with housing policy, monetary policy, and tax policy crippled the housing market and the financial sector. Wall Street is not blameless in this debacle. It lobbied for the policy decisions that created the mess.

In the United States we like to believe we are a capitalist society based on individual responsibility. But we are what we do. Not what we say we are. Not what we wish to be. But what we do. And what we do in the United States is make it easy to gamble with other people’s money—particularly borrowed money—by making sure that almost everybody who makes bad loans gets his money back anyway. The financial crisis of 2008 was a natural result of these perverse incentives. We must return to the natural incentives of profit and loss if we want to prevent future crises.

Guess who picked up the tab for this party? Yes, taxpayers:

An unpleasant but unavoidable conclusion of this paper is that Wall Street was (and remains) a giant government-sanctioned Ponzi scheme. Homebuyers borrowed money from lenders who got their money from Fannie Mae, Freddie Mac, and banks that borrowed money from investors who expected to be reimbursed by the politicians who took that money from taxpayers. Almost everyone made money from this deal except the group left holding the bag—the taxpayers. There is an old saying in poker: If you don’t know who the sucker is at the table, it’s probably you. We are the suckers. And most of us didn’t even know we were sitting at the table.

Many people have placed the current mess at the doorstep of capitalism. But Milton Friedman liked to point out that capitalism is a profit and loss system. The profits encourage risk-taking. The losses encourage prudence. Government policies have made too many markets one-sided. Because of implicit government guarantees, the gains were private and the losses were public. The policies allowed people to gamble with other people’s money, and by rescuing the creditors of Fannie Mae, Freddie Mac, Bear Stearns, AIG, Merrill Lynch, and others, policy makers have further weakened the natural restraints of the profit and loss system. This isn’t capitalism—it is crony capitalism.

An apology for Mammon? Hardly:

– Stop enabling obscene transfers of wealth. In this crisis, average Americans have sent hundreds of billions of dollars to some of the richest people in human history. This has been done over and over again in the name of avoiding a crisis, akin to putting out every forest fire. But this only postpones the day of reckoning. Eventually a conflagration comes along that consumes everything. The better the citizenry understands this reality, the better the chance that political incentives will change. If people don’t understand it, the political incentives will stay in place. Economists play an important role in how people perceive what has happened. We should stop being the enablers of such obscene transfers of wealth by claiming they are necessary for stability.

– Excoriate, condemn, and call to account rather than praise and honor policy makers who make creditors and lenders whole. Zero cents on the dollar for bankrupt bets made by lenders and creditors would be ideal, but it is unlikely to be a credible promise. So let’s start more modestly. A ceiling of 50 cents on the dollar for creditors and lenders when the institutions they fund become insolvent is a natural place to start. Even this may be too difficult for politicians to stomach. But economists should be able to support such a move and preach its virtues.

– Rescuing rich people from the consequences of their decisions with money coming from average Americans is bad for democracy. It is bad for democracy because the Fed and the Treasury are spending trillions of dollars of taxpayer money with very little accountability or transparency. It’s bad for democracy because it means that some people have to live with the consequences of their decisions while others get rescued. That in turn creates a very destructive feedback loop of rent seeking, where losers seek government help after the fact rather than making careful decisions before the fact.

Read the entire report at the Mercatus Center.

Read the entire article on the Acton Institute website (new window will open). Reprinted with permission.

Comments

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    Geo Michalopulos says:

    What about all the government bureaucrats and Congressmen who forced banks to make improvident loans? Did any of these bozos come to the Prophet Wallis (Peace Be Upon Him) begging forgiveness? How about Janet Reno who fried 50 kids in Waco? Or George Tenet who assured everybody that Saddam’s WMD were a “slam dunk”?

    Earlier I said that Wallis was a fool and/or a liar. Now we know that because he thinks he can read people’s hearts that he’s a blasphemer as well.

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    Fr. Johannes Jacobse says:

    Wallis is a 1960’s holdover, still holding on to the promises of redistributionism that were popular back then and has not learned anything new along the way. He’s a special favorite of religious professionals who don’t understand the economics behind his moralistic pronouncements. They listen to the pronouncements, hear that they are roughly congruent with moral imperatives of the Gospel (Wallis borrows the Christian vocabulary to dress redistributionism in Christian garb), and then erroneously conclude that his economic ideas are sound.

    Wallis and cohorts were uncontrollably giddy when Obama got elected (see video below) thinking that their time had finally come. Now that it looks like the Obama administration is on a crash and burn trajectory (the administration’s debt accrual portends a great slavery down the road), the pronouncements get more thunderous (Wall Street, Repent!) on the one hand while the moralistic appeals for civility (by which he hopes to silence the growing criticism) increase on the other. The truth is that his ideas have been tested and found wanting.

    BTW, his certitude about redistributionism is even greater than his certitude about global warming (“…we must act, and act now!”).

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    cynthia curran says:

    Well, Wallis doesn’t use non-biblical Christian or Jewish literture seriously unless it fits his agenda. For example, he likes to use the church fathers to support a pacifists military position from some passages from them since the new testment doesn’t really support a pacifists position. But doesn’t like the fathers when they disagree with other things he believes in. Take the testment of Gad. Probably not written by Gad but talks about the other famous sin of envy. It states that for the poor man, if he is free from envy, he pleaseth the Lord in all things and is blessed beyond all men because he doesn’t not have the travail of vain men. And even if a man gains by evil be not jealious but wait for the end of the Lord. Such men even if govenments or soceties do not always punish their wrong doing God does. Wallis on the other hand, seems to think that governments are responsible mainly for punishing greed.

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    cynthia curran says:

    Well, I’m not putting down those that voted for Obama but Obama christianity seems to be a very liberal liberation theology protestiansim that has poor historial analysis. The Roman Empire or Italisns represent white oppression against black Judea according to Rev Wright. Actually, Jews by Jesus’s time probably did not have much black afrcian ancestry from anicent Nubia or Metriot. Nor of course was Jesus as light as North European paintings but he is a semitic whose dna is across between asian and africian not full africian. Rev Wright was a poor historian, and I’m one while mainly self-taught on Roman history could not understand academia support so much of a man whose ex-pastor Wright preach poor history.

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