The Difference Between Moral Hazard and God’s Grace

28 04 2011

 

If corporations are considered to have most of the same rights as humans should they also be entitled to Grace?

Last summer the Supreme Court decided that corporations had the right to make unlimited contributions to political candidates.  For a number of years labor unions have also been able to make contributions to political campaigns.  This ruling is just another incident where the law has held that corporations have many of the same rights and responsibilities of humans.  Proponents of corporate personhood believe that corporations, as associations of shareholders, were intended by the founders and framers to enjoy many, if not all, of the same rights as would the shareholders acting individually, such as the right to lobby the government, the right to due process and compensation before being deprived of property, and the right, as legal entities, to speak freely. All of these rights have been upheld by theU.S.courts.  On the other hand those same shareholders, employees, and officers have limited liability from suits and actions.  In fact, one reason for incorporating is to limit the liability of those in this corporate association.  This convergence makes me wonder if there is a relationship between what has come to be called Moral Hazard and God’s Grace. With the financial crisis that we’ve experienced in the past two years there’s been a lot of discussion about Moral Hazard.  Massive bailout of banks, insurance companies, and the auto industry have made many wonder who’s responsible for this crisis and that not only should the corporations be punished, but also that individuals within those corporations should have accountability for their imprudent decisions.  So, what is Moral Hazard?

Moral hazard occurs when a party insulated from risk behaves differently than it would behave if it were fully exposed to the risk.  Moral hazard arises because an individual or institution does not take the full consequences and responsibilities of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to hold some responsibility for the consequences of those actions. For example, a person with insurance against automobile theft may be less cautious about locking his or her car, because the negative consequences of vehicle theft are (partially) the responsibility of the insurance company. (Wikipedia)

 CITI bank is a good example of Moral Hazard occurring over and over because no accountability or responsibility is taken for imprudent, unethical or criminal actions. Citibank was started in 1812 and has been bailed out successive times in its history.  
  In the latest financial crisis other banks and two of our major auto companies were determined to be too big to fail. It was believed that for them to fail would have more far reaching and long term disastrous effects.

So, is forgiveness of debt and poor judgment by corporations, their officials and shareholders sufficient to create situations where we bestow corporate grace on them? 

Biblical Grace can be explained by the following scripture:

Eph 2:4,5, 8-10 (NIV) But because of his great love for us, God, who is rich in mercy, made us alive with Christ even when we were dead in transgressions–it is by grace you have been saved. For it is by grace you have been saved, through faith–and this not from yourselves, it is the gift of God–not by works, so that no one can boast. For we are God’s workmanship, created in Christ Jesus to do good works, which God prepared in advance for us to do.

Somehow it seems a bit ludicrous for me to suggest that God can forgive a corporation even though it’s easy to see how an individual can be guilty of Moral Hazard.  So, what happens when a powerful corporation creates a situation like we faced in the 2008 financial meltdown?  In this case there’s a lot of blaming, hearings and promises of new legislation to remedy the problem.  Occasionally there are a few people who are tried and put in jail, but often after the furor dies down, nothing substantive happens and we’re off and running to our next crisis.  And if you saw the congressional hearings those with the power who were complicit in the crisis didn’t even make an apology.  In many cases the buck was passed to someone else including the government and congress.  Contrast this to the CEO of Toyota who came to the congressional hearing and took full personal responsibility for his company’s lax engineering of the gas throttle installation. 

To me Moral Hazard is tantamount to what Dietrich Bonheoffer called cheap grace.  Cheap grace is the grace we bestow on ourselves. Cheap grace is the preaching of forgiveness without requiring repentance, baptism without church discipline, Communion without confession…. Cheap grace is grace without discipleship, grace without the cross, grace without Jesus Christ, living and incarnate.  Grace without accountability or responsibility.  So, it’s no surprise that as a society whether it’s in business, labor or government we see the equivalent of Cheap Grace.  And it’s no wonder that individuals and other institutions practice a lot of cheap grace.  Whether it’s about being responsible for children we produce, or holding the sanctity of marriage intact or working for an organic and wholesome community, we often seem to think we can leave it to someone else.   We abdicate responsibility and want to blame others or expect to get off Scott free.

On the other hand Bonheoffer also talks about costly grace.  In his case he was talking about the costly grace of standing up against the Nazi’s in Germanyand finally dying in a concentration camp for his actions. As he put it so well, costly grace is the gospel which must be sought again and again and again, the gift which must be asked for, the door at which a man must knock. Such grace is costly because it calls us to follow, and it is grace because it calls us to follow Jesus Christ. It is costly because it costs a man his life, and it is grace because it gives a man the only true life. It is costly because it condemns sin, and grace because it justifies the sinner. Above all, it is costly because it cost God the life of his Son: “ye were bought at a price,” and what has cost God much cannot be cheap for us. Above all, it is grace because God did not reckon his Son too dear a price to pay for our life, but delivered him up for us. Costly grace is the Incarnation of God.

Can we call ourselves to accountability?  Can we call our institutions to accountability?  The price is high and it’s hard to go it alone like Bonheoffer did.  As persons involved with our faith communities we can work together to hold ourselves and our institutions accountable and embrace Grace as the Incarnation of God.


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Gotcha

1 07 2010

 

Last week we had our Food  For Thought luncheon meeting on ethics at Christ Church Cathedral.  Treebeard’s food is great and even though we didn’t have a big crowd, we had some great conversation on covenant and business ethics. (by the way you’re invited)  Bob Thurmond the program director of the Cathedral Justice Project was talking about how American business seems to have evolved to companies trying to make contracts so onerous that the best description for them is “gotchas”.  I can personally attest to the complexity of real estate contracts that twenty or thirty years ago were much simpler than today.  In spite of that complexity as a nation we’ve experienced the biggest housing meltdown in U.S. history.  It raises the question of why should contracts so complex if they’re not worth the paper they’re written on.  In addition to the housing bubble numerous large commercial properties have been foreclosed on, some of them with billion dollar values.  I realize that we live in a much more complex world and that we all have to deal with more regulation, whether it’s environmental, financial regulation, safety, or a myriad of other regulations that make everyone want to CYA. 

 I’m not so naïve that I believe that we’re going to turn the ship around in a hurry, if ever.  But Bob began talking about the difference in American and Japanese business.  This really picked my interest in as much as I have been involved in the martial arts for fifty years and have come to appreciate much about the Japanese culture, while at the same time being mystified by it.  For Americans, including myself, the Japanese ethic is quite enigmatic.  On the one hand it is very focused on the group and the needs of the group.   On the other hand it is very hierarchical with deference made to those who are older or who have a higher rank in the social order.  I particularly like the “older” concept.  Dr. W. Edward Deming helped revolutionize Japanese manufacturing with what he called “quality circles” or Kaizen.  These are small groups in a manufacturing plant who meet formally and give suggestions on ways to improve production, safety and other issues to improve the company.  It’s purpose is to generate and implement employee ideas.  Now, here is the interesting part.  The employees don’t get bonuses for their suggestions.  The suggestions may result in changes in the plant itself that make employees work environment better but the primary focus in on the organization.  Deming’s ideas have been replicated in the U.S. but with a lesser degree of success since in Japan there was not the monetary incentive to improve. 

 This is just one difference in Japanese business and culture.  This does not mean that Japanese business and culture do not have flaws.  Over the years there have been numerous scandals in both government and business.  But often the outcome is much different than in the U.S.   Whereas in the U.S. the CEO who’s caught in a indiscretion may try to blame others or claim ignorance.  But in Japan, the hierarchy runs in both directions.  I may be low in the totem pole, but the Sensei (big guy) is responsible for all the people below him and the consequences that are created under his watch. He is the one that is expected to “fall on his sword” if things go wrong and in the old days that was literally what was expected of him. 

 Compare some of what CEO Akei Toyoda and others said in testimony before congress:

 ”Especially, I would like to extend my condolences to the members of the Saylor family, for the accident in San Diego,” said Toyoda in his testimony. “I would like to send my prayers again, and I will do everything in my power to ensure that such a tragedy never happens again.

“Since last June, when I first took office, I have personally placed the highest priority on improving quality over quantity, and I have shared that direction with our stakeholders. As you well know, I am the grandson of the founder, and all the Toyota vehicles bear my name. For me, when the cars are damaged, it is as though I am as well.”

And here is a statement made by a key company executive James Press:

“Toyoda is dealing with two big problems. He only took control of the company last year. The vast majority of decisions that are connected with the recall were made by a previous regime. On Feb. 23, Automotive News published part of an e-mail from former Toyota Motor Sales President James Press, who also became the first American to serve on Toyota’s management board in Japan before he left in 2007.  Press called the management that preceded Toyoda “pirates.”

“The root cause of their problems is that the company was hijacked, some years ago, by anti-family, financially oriented pirates,” Press said, referring to the company’s move away from Toyoda family leadership over the past decade. “They didn’t have the character necessary to maintain a customer-first focus. Akio [Toyoda] does,” Press told Automotive News. Press left Toyota to be vice chairman of Chrysler, a post he left last November.”

Can you imagine an American or British CEO making statements such as this (will BP be the exception).

 Japanese business and culture are changing to conform to the ‘gotcha’ philosophy in individualism and lack of personal accountability. The Toyoda story is a case in point.  But maybe we can take some lessons from the Japanese.  Loyalty and honor are important to the working of a society.  In Japan the expectation is that every person will play their part in making things work.  And if you don’t play your role the whole system will fail.  It is not only a dishonor to you and your family but also to your ancestors who still have a place in your life and the life of the society. 

 The question that I grapple with is can we as Christians mediate those differences between the good things about our culture and the good things about the Japanese culture.  Being honorable and loyal to one another is important but if we fail, do we have to “fall on our sword”.  Or can we hold ourselves and others accountable and admit our shortcomings while at the same time practicing “grace”?  Can we acknowledge that the group is important but the individual still has a part in making the system work and allowing freedom to prevail?  What do you think?


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Just Walk Away

13 05 2010

 

 

Houston has been fortunate in that it’s not had the same foreclosure problems that other parts of the country have had.  Last Sunday Sixty Minutes aired a segment about people in Phoenix, AZ whose homes had dropped more than fifty per cent in value and in some cases even if they could afford to pay the mortgage, they were letting the homes go into foreclosure.  Yes, there credit would be hurt for several years but they had gotten to the point where they believed that the best course for them, was to walk away.  Several of those interviewed said that they had gotten past the shame of foreclosure and dealt with the realization that their neighbors would be angry with them.  They none the less saw foreclosure as the best course of action in their self interest.  The program went even further to point out several very large commercial foreclosures around the country that went into the billions of dollars.  Several credit counselors interviewed, stated that many large companies did what was expedient in their self interest.  Not only did some companies let real estate go, but laid off large numbers of workers, and even took bankruptcy while at the same time giving executives large bonuses.  The message seemed to be, “if the big guys can do it, then why can’t I?” 

 Having personally gone through bankruptcy in 1988, I know the shame and guilt associated with such a drastic measure.  I remember the words of my grandmother and father who both went through the depression and survived telling me how terrible it was to take bankruptcy and that it should be avoided at all costs.  Fortunately, we were able to pay our debts in full and survive for another day and the properties that had created the problems for us in the first place finally came into their own and now are solid investments. 

 Even though that experience was traumatic, we just didn’t walk away, even though we wanted to.  What we’re seeing today has affected the entire economy and could have far reaching and additional systemic risks for the future.  It’s not just the structural effects of foreclosures and bankruptcy that are at stake here.  It’s also the ethical issues involved and the far reaching implications of our actions.  When we enter into contracts, does it really matter whether we adhere to those contracts?  Does a promise to pay really mean anything?

 We are all part of a dramatically changing economic and social system that most often does not live up to the virtues and ethics of trust, honor and loyalty.  I contend that we’re all a part of that system and that we are complicit in its very nature.  In reading the Romans 3 passage, Paul points out that the mere fact that we are human makes us complicit in the events and the sinfulness of the world.  But Paul goes on the further state in Romans 3:23-ff, “God sacrificed Jesus on the altar of the world to clear that world of sin.  Having faith in him sets us clear.  God decided on this course of action in full view of the public—to set the world in the clear with himself through the sacrifice of Jesus, ….God sets things right.  He also makes it possible for us to live in the rightness.”   (Peterson)   Does our being spiritually set free also pertain to our debt and the other promises we make in life?  Is not fulfilling our covenants with one another, what Paul is talking about?  I don’t think so.  I think what he is saying is about our relationship with God, ourselves and others.  We don’t just exist in a vacuum.  In making commitments, we need to be aware of the consequences of our actions, while at the same time knowing that even in our failures, we are still loved unconditionally by God.   In the case of the economic meltdown, millions of people around the world are affected by our imprudent actions.  Someone in our life taught us about fulfilling our promises and to be sure we were making the right decision in the first place.  My grandmother who grew up dirt poor and went through the depression always told me to never go into debt.  My father on the other hand said, “if you’re going into debt borrow enough so if you get into trouble, the banker won’t want to foreclose on you.”  In a weird sort of way they were both right.  Not only do we need to be ethical and trustworthy in our dealings but we need   to teach our children about financial and relational responsibility—that it’s just not about “me”, and that we should put off our desire for instant gratification.  One of the most influential persons in the area of personal financial responsibility is Dave Ramsey and his Financial Peace University.  His message is simple—there’s no sin in not trying to keep up with the Jones.  Live within your means.  Thousands of people have successfully taken his course and are living lives that are more meaningful and fulfilling.  And where does he preach this message?  Many of these courses are taught in churches since what he talks about is financial responsibility but also addresses our basic values and the way we see ourselves. 

Getting our own financial and spiritual life in order is one way to begin changing the dominant culture of excess and instant gratification.  But it’s not popular in all circles.  Living within your means is almost unpatriotic.  Shortly after 9/11 President Bush told everyone to go out and buy something.  As if, that would fix things. “Consumerism infantilizes us, alienates us from one another, and makes us apathetic as citizens. What’s ironic is that even if you base human worth not on social responsibility but on individual happiness, consumerism still fails us. A consumer economy only works if consumption of goods provides only temporary pleasure. That is, if happiness is infinitely deferred, so that buyers continue to buy more and more goods and services. By definition, the consumer can never be satisfied, at rest or happy. Which means she will always feel lacking ”  (Philly online LLC, 2008)   A sense of economic salvation and coming to grips with the realization that our value is not tied up in what have or own,  eases our feelings of inadequacy brought on by being held hostage to the temporal, that does not free us but enslaves us.   Being dominated by this false culture of consumerism is a personal thing where we live in a bubble that supposedly protects us from the forces of evil and humanity.  But God continues to challenges us to live in openness and freedom to God’s loving grace.


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Who Will You Trust

10 01 2010

  In a recent PBS program entitled “The Emotional Self—Family, Friends and Lovers” several studies were sited concerning children’s bonding to caregivers being crucial for future relationships with others.  In particular several studies of children raised in Russian orphanages where the children received little adult holding and love, showed that the children had great difficulty in developing a trust in others as well as a disassociation with the world in general.  In other words, there was little interaction and trust.  One of the themes in previous articles is that there is a mutual relationship and understanding of what ethical standards will be followed by each party or the society will be bound.  Morality is just that—a moral compass, whereas ethics is more systemic and may not always reflect the morality of groups within the culture.  The program went on to say that humans are hard wired to connect.  Ethics is one way a society in general defines the standards by which we will connect. Ethics is one way that we define our roles in these trust relationships.  If trust does not exist, it is difficult to relate.

Think about when you were in elementary school.  If a group of you were playing kickball and someone broke a rule, if would often result in either some of the players leaving the game or the ostracizing of one of the players or someone picking up their ball, leaving, thereby breaking up the game.  The infraction was a breach of the implied ethics of the game.  If you can remember being a part of something like this, you may also remember how you felt.  For me, it was a feeling of betrayal by the person who broke the rule.  I may not have totally broke off the friendship, but at least I did not allow myself to be put in the same vulnerable situation.  I also learned some empathy for others who suffered injustice.  Unfortunately, not all children internalize these experiences and generalize them to their relationships with others. Trust is learned from birth.  In a healthy human relationship, I learn that when I cry someone would come to feed me, change me or meet my need to be held and comforted.  I came to trust that those needs would be met by my mother or father.  As I became older I became either trustful or distrustful of other people in my life to be consistent and trustworthy.  Hopefully, I also learn that it’s okay not to be the center of the universe and that others rights and feelings are important, not only for them, but for me too.

 But along the way, we all have to recognize that we are not the center of the universe and that we don’t make all the rules.  I am not entitled to do things only my way.  As a result I have to adhere to the standards of others.  Some people, throughout their whole life, feel entitled to doing things their way and that ethics, morals, and laws only pertain to other.  They have no covenant with others.  They may adhere to the rules for a while until they decide for whatever reason that those rules are not in their interest, so they set up their own rules, which most often are about them and them alone.  Whether this action is a result of too much permissiveness in childhood or an anomaly in hardwiring or a lack of bonding in early development is not clear, but the way we are raised and nurtured plays a part in the way we respond to the rules and conventions of the culture. 

 This is why it is so important to both nurture children to trust in the world through the love of parents and caregivers, but to also teach children beginning at an early age, the difference in right and wrong, the reciprocal nature of relationships, and to empathize with others  and how to evaluate ethical dichotomies. As we become adults, we have the opportunity to develop deeper and more intense relationships.  The same principles will apply as with children.  How do I share, how do I get my own needs met, and what role does empathy play in these relationships.

 Childhood family relationships are one way that we learn these roles.  School is another. And our faith traditions are another.  To me our faith traditions are a method that in today’s pluralistic society is of utmost importance; to be able to see that God is both a loving God and that God has laws, that if broken result in consequences.  These consequences are not acts of punishment, but that come about as a result of our own actions in a universe of natural laws.  These natural laws are not just physical laws.  They are also laws of relationships.   We don’t always understand these laws but ut none the less, we are bound by them. 

 But even when we break God’s laws we can live in the assurance that through grace we can start over in our quest for connection.  We do not have to be bound by the act; that God is always with us and loves us unconditionally.  That’s a difficult concept for us all.  Again, remember when you were a small child and you did something that you shouldn’t have.  When scolded by your parent you might have said, “mama, you don’t love me anymore.”  And if your mother were a wise mother she might have responded, “no honey, I’ll always love you.  I just don’t like what you did.”  That affirmation has to be repeated over and over so that we see the conceptual dissonance between love and non love. 

 The reinforcement of unconditional love helps us understand that there are things that are constant. Within the world of the moral and ethical constants are important, even though we may not fully understand them.  When, at our core we have these constants it gives us a grounding that makes connecting to one another and to ethical standards easier, even if the constants sometimes seem blurry.  Concepts such as empathy, rationality, and justice override and over shadow more mundane acts of purification and outward adherence.  Jesus said in Matt. 23: 25-26 “Woe to you, teachers of the law and Pharisees, you hypocrites!  You clean the outside of the cup and dish, but inside they are full of greed and self-indulgence.  Blind Pharisee!  First clean the inside of the cup and dish, and then the outside also will be clean.”  Ethics is more than a set of rigid rules.  Ethics and morality reside in the core of our being.


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