Tuesday, October 14, 2008

Rabbis for Obama only half right.

Time Magazine
The Financial Crisis: What Would the Talmud Do?
By David Van Biema Friday, Oct. 10, 2008

...In an article to appear shortly in a book from Oxford University Press, Aaron Levine, chair of the economics department at a respected New York college opens with the assertion: "The current downturn is the first post World War II recession that has its roots in widespread moral failure." It's an interesting, if debatable contention, but equally interesting is the authorities Levine cites as he makes his argument: the Jewish torah, the mishna (transcribed oral law), talmud, the work of medieval jurists like Maimonides, and host of rabbinical opinions (responsas) ever since. Levine is an Orthodox rabbi as well as a prof, and his institution is Yeshiva University. The book is titled Judaism and Economics; and his article's title is "The Recession of 2008: The Moral Factor — A Jewish Law Analysis."

...Here are some of the ancient principles they feel are applicable to today's bad news

•Bamboozling the "Blind"
Much Jewish ethical thought flows out of Leviticus 19:14, which reads "Thou shalt not curse the deaf, nor put a stumbling-block before the blind." From an early date, rabbis expanded this into a general prohibition on bad advice. In time, it became part of the language specifically regarding loans, mostly regarding the need for witnesses. But Diamond says it now applies to the whole loan debacle and "any expert who tells someone who probably shouldn't take out a mortgage 'you'll be able to do it, no problem.'" There are a lot of financially "blind" people out there, and a lot of people mis-advised them.

•Hidden Flaws and the "Reasonable Man"
Medieval jurists like Maimonides identified a more specific kind of bad advice. They tackled the idea of the "hidden flaw," which, Levine points out, leads directly to a demand for fiscal disclosure. "If you sell an animal, you had to disclose to the buyer what the hidden flaw is," he explains. Not only that: "the disclosure has to be made so that a 'reasonable,' or average man can decide" whether to buy. Once again, almost the entire chain of transactors in the mortgage crisis is guilty: predatory brokers for not alerting working-class borrowers to the fine print; middle-men selling mortgage debt to investment banks sliced and diced into "tranches" that obscure their riskiness; bankers who used hard-to-fathom financial instruments that leave ultimate responsibility for a loan a mystery even to experts. Like many observers, Levine is particularly exercized about credit default swaps, a largely unregulated field since 2000.) And anyone who willfully ignored the fact that real estate prices must eventually come down.

•The Bath House Rule
An extension of the disclosure concern, Diamond reports, was explored by Jews through the unexpected vehicle of marriage law. The tractate Ketubot in the Mishna dictates that a betrothal is valid only if the bride-to-be has no hidden blemishes that would have disqualified the match, had they been public. However, there is a heavy responsibility on the groom: if he has relatives who could have observed the disfigurement by checking out his fiance in the womens' bath but neglected to do have them do so, he can't complain. This suggests (feminist complaints notwithstanding) that culpability in sub-prime crisis does not lie solely on the mortgage broker who glided over the fact that payments ballooned in the third year; but also on the buyer who happily neglected to read the fine print: : "Ignorance of the facts is no defense," Diamond says.

•Morals of the Mark-Up
Leviticus 25 of the Bible explains that you cannot charge the same price for land that is about to become useless (in this case, by reverting to its original tribal ownership) as for a parcel that still has decades of use left. Rabbinic tradition, says Diamond, interpreted that as a check on price-gouging and ruled that nobody should charge more than one-sixth above market value for anything.

...The question these days, he says, is not whether Jews can be induced to be more ethical than the market, but whether the market can be made more ethical. "I think classic rabbinic tradition is certainly pro-regulatory," he says. Meanwhile, Yeshiva's Levine calls in his journal article for what he describes as "an incentive structure in the workplace that would dissuade people from wrongdoing." He gets quite specific, imagining a "carrot and stick" arrangement. One stick would be an expansion of the Sarbanes-Oxley Act of 2002, which mandated greater accountability for CEOs of publicly-owned companies, among other things.

Sarbanes-Oxley is not popular among free-market advocates. "I know," says Levine, "people involved in all this will say that they wanted to maximize shareholder value." But he thinks that today's capitalism needs to be a little more bounded in order to protect the possible victims of its excesses. That term includes the poor man who mistakenly takes an impossible mortgage. But increasingly it may mean all of us. In regulating, says the rabbi-economist, "we have to imitate God, in the way He shows compassion and mercy when he deals with mankind."

Conspicuously absent from the Professor's list is the fact that Hashem requires all debt to be forgiven every seventh year, as is laid out clearly and unequivocally in the written Torah. The reason he omits it, of course, is that the Rabbis have refused to implement it and given themselves authority to legislate it away.

Even if you take the most unlikely interpretation - that a debt can only be 7 years long instead of all debts regardless of when they were instituted being released every sabbath year - that still puts quite a crimp on both lenders ability to extract interest from their victims forever and a crimp on borrower's ability to borrow more than they can afford to pay off in a reasonable amount of time. Both of those things "interfere" with "free market economics" but that was the entire idea from the start. Hashem decided to have a blanket amnesty to free people from debt every seventh year because people need to be freed from it - it is slavery, pure and simple.

If we had been following that rule today, no mortgage would last longer than seven years, price inflation of homes could not have occurred, and nobody without a good down-payment and a steady, living wage job could qualify for a mortgage. Those are not bad things, those are good things.

And speaking of interest, you'll notice he also omits to mention that Hashem requires all of us to not charge interest to our fellow Jews. In fact, lending money at interest to our fellow co-religionists is mentioned specifically as being prohibited in the written Torah. If Jewish families had been able to borrow from zero-interest savings and loan societies for their mortgages, not a single Jewish family would be having to rent or losing their homes.

So, yes - let's return to the Torah way of doing financial things. ALL of the Torah way of doing financial things. That is what will preserve our economic well-being, not being a "Rabbi for Obama."

1 comment:

Ron Robins said...

Ethics and good human behaviouor are cannot be legislated. It simply represents the collective consciousness of society. What needs to happen is for society to recognize that inner spiritual development takes precedence over other forms of education.

Now wth reference to ethics in business and investing, I believe that when we invest in a company, or many companies in the case of a mutual fund, we share in the responsibility for the activities of those companies as well as participate in the outcomes of their corporate activities. So, anyone valuing their personal or spiritual growth has to take these things into account when investing.

Also, if everyone invests according to their personal values, then, since so many of our core values are alike — and are supportive of higher ideals — that in the long run, only companies employing these higher values will truly prosper. And there is real evidence of this now.

I advocate, write and teach on the subject of personal values based investing -- and have a popular website that has unique information which might interest you. It includes the latest global socially responsible investing news and research. My site is at www.investingforthesoul.com

Best wishes, Ron Robins