Pope Francis Sheds Light on Contemptible Things

Purgatory is the natural residence of financiers. Pope Francis endeavors to fix it.

When the bonds that tie debtors and creditors, banks and businesses, workers and firms are in place and upheld, it is like a cheap man’s paradise. Okay, maybe not paradise, but at least things muddle through well enough. It certainly isn’t hell, because there is still hope. In default, the worst is over. It takes more than financial ruin to extinguish hope entirely. The hope is not in achieving the impossible, but a hope in discovering some new mode of existence that redefines the self in an altered world.

It certainly isn’t easy. Just ask the Greeks or anyone else which through ill-fortune or bad choices has to redefine their lives and make their way. The thinking is that debtors are the injured innocent and bear all the loss. Debtors aren’t the only ones who take the pain. Nobody cares if a creditor goes out of business and his family starves—because hey, bankers are evil. It’s all due to the failings on the part of the creditor. This is the purgatory of the banker.

I have to say now because if I don’t, the opposite will be inferred by many: it is not all the debtors fault. It is the fault of both parties. A solution means shared sacrifice. Everyone has to take a bite of the sandwich.

It was only a matter of time before the Pope has weighed in on the financial crisis of 2008. This pope loves to shed light on contemptible things. In his encyclical Laudato Si, he talks about the destruction of the earth and the need for a transformation of man’s mode of being in a world careening toward catastrophic environmental change. That means changing man. And capitalism. And bankers.

To this last point: the assessment of Laudato Si is that governments’ responses to the crisis made things worse:

“Saving banks at any cost, making the public pay the price, foregoing a firm commitment to reviewing and reforming the entire system, only reaffirms the absolute power of a financial system, a power which has no future and will only give rise to new crises after a slow, costly and only apparent recovery.”

The matter is subtle. Banks have always acted irresponsibly at times. And having a government looking into the matter does not necessarily mean it cares to do the right thing, even if it knows the right way. Think about it: the swift, reliable payments system on which consumers and businesses and even governments depend are a private sector creation. The credit-scoring techniques that expanded lending and at least contribute to the goals of keeping the economy on a stable footing while enabling growth were implemented in the private sector. New crises are the inevitable product of recovery, growth, and the satisfaction of human wants.

Government did some good things to arrest the collapse, but has no intellectual capacity to review and reform the system in a positive way. Systemic reform requires failure. Failure allows trial and error to reward and punish. Failure also requires pain. And that means more than just banks. Changing the financial system, to sever its connection to absolute power means shared sacrifice. Central banks have taken a path—I suspect due to the established process of offering high-paying private sector jobs in exchange for service in the public sector—that mitigate failure instead.

“Economic (sic) powers continue to justify the current global system where priority tends to be given to speculation and the pursuit of financial gain, which fail to take the context into account, let alone the effects on human dignity and the natural environment… To ensure economic freedom from which all can effectively benefit, restraints occasionally have to be imposed on those possessing greater resources and financial power.”

This is standard thinking: a diminishment of the beneficial role that speculation and pursuit of financial gain plays, and a strong belief that there is a better restraint on things run amok than failure. On cue, the approach has been to add a myriad of check lists onto the daily operation of financing—scarcely before Basel III is put to bed, there is talk of Basel IV. These checklists merely reinforce the need for liquid and safe government securities as an even larger percentage of total assets on book. This is an absolute dead end. Taking risk on firms and families is the way to growth and increased incomes, not by buying into government largesse. It’s like giving the economy Mountain Dew and Ruffles for lunch and supper instead of meat and vegetables. In the late 2008 my uncle said, “The world isn’t going to end. This is just a way to let the government get a bigger cut of the action.” God bless Uncle Larry. He was right.

"The financial crisis of 2007-08 provided an opportunity to develop a new economy, more attentive to ethical principles, and new ways of regulating speculative financial practices and virtual wealth. But the response to the crisis did not include rethinking the outdated criteria which continue to rule the world.”

Unless the nature of the human being can be changed, I’m not convinced there is an alternative. I guess the essence of man is the point. If man is essentially good then it is only a matter of education and checklist steerage for societal progress to come about. If society need only prevent ignorance and maintain a laissez faire attitude then he can freely achieve the good, and no real thought need be given to planning and leading man to his spiritual potential. So Basel III or IV or MMCCXIII is good enough to solve the imminent crises of the day. This is of course crap.

If man is by nature not good, just a venal beast that is only good at eating and rutting, then planning is useless because no plan can lead to anything better than eating and rutting. It requires some external force to bring about social good. Government ain’t it. Such a belief makes men passive and at the mercy of authoritarian coercion.

Man is neither good nor evil. Rather good and evil are both human qualities and man has the freedom to actualize either good or evil.

I am sympathetic to Pope Francis and his mission of changing the world for the better. No doubt it is served best by putting man in touch with the divine. I’m sure not going to say that finance and banking put man in touch with the divine. No one in their right mind would say that. Finance is a tool developed through purely human agency to assist in changing the world. The human being is endowed with a capacity for self-expression that imparts meaning on the world—it makes our world. The world is intelligible only thanks to certain adaptive conditions we impose on it. Every obstacle, major downturn, and roadblock is met by revision and flux. We are wildly ingenious when we need to be.

I don’t think Pope Francis thinks it is changing things for the better. Laudato Si is a reprieve from the meta-jaded dialogue about secular macro trends in markets these days. We now have a chance to talk about finance in a deeper way. We haven’t been unable to do it since Lloyd Blankfein said he was doing God’s work.


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