Ethical Houston

Romans 3:  Peterson Version

“‘There’s nobody living right, not even one, nobody who knows the score, nobody alert for God.  They’ve all taken the wrong turn; they’ve all wandered down blind alleys.  No one’s living right; I can’t find a single one.  Their throats are gaping graves, their tongues slick as mud slides.  Every word they speak is tinged with poison.  They open their mouths and pollute the air.  They race for the honor of sinner of the year, litter the land with heartbreak and ruin, don’t know the first thing about living with others.  They never give God the time of day.’

This makes it clear, doesn’t it, that whatever is written in these Scriptures is not what God says about others but to us whom these Scriptures were addressed in the first place!  And it’s clear enough, isn’t it, that we’re sinners, every one of us, in the same sinking boat with everybody else?  Our involvement with God’s revelation doesn’t put us right with God.  What it does is force us to face our complicity in everyone else’s sin.”

 The current economic problems have resulted in both consternation and real economic hardships to most Americans.  As some of you might have done, I watched a good bit of the Senate hearings on the role that Goldman Sachs might have played in the debacle.  But after all the dust settled, it seemed to me that even though GS acted unethically, they were not guilty of anything criminal (at least for now).  GS was a major player in the financial world when the house of cards fell, but they were only one player in the tragic game that ensued.  The final judgment is not in, but my guess is that not much will come of those hearings other than to further cloudy the water and create more consternation among Americans.  I decided to try and give a time line and the factors leading up to the meltdown and in particular to the sub-prime issue.  The history of the evolution of this situation goes back to 1938 when   Fannie Mae and later when Freddie Mac the quasi governmental agencies that bought loans from approved mortgage sellers were created to help low and moderate income families purchase homes.  So, here goes:

In 1938, as a result of the depression, Congress passed a bill to help people achieve the American dream of home ownership using the pass through vehicle Fannie Mae.  Fannie Mae buys loans from approved mortgage sellers, for a fee, and that carries Fannie Mae’s guarantee of timely payment of interest and principal. Fannie Mae may also securitize mortgages from its own loan portfolio and sells the resultant mortgage-backed security to investors in the   secondary mortgage market with a guarantee that the stated principal and interest payments will be timely passed through to the investor. By purchasing the mortgages, Fannie Mae and Freddie Mac provide banks and other financial institutions with fresh money to make new loans. This gives the United States housing and credit markets flexibility and liquidity.

1. Starting in 1993 the Clinton administration pressured Fannie Mae to make more loans to minorities and neighborhoods that were underserved in the loan market due to banks engaging in what was termed “red lining”. 
2. In 2002 Bush signed the Single Family Affordable Housing Tax Credit Act to further expand home ownership.  During this period credit requirements and eligibility requirements were relaxed resulting in lower standards in credit worthiness.
3. As a result of periodic recessions and the perception that the economy could be helped most by expanding home ownership, housing began to dramatically expand resulting in overheating of the housing market.
4. In 2003 Bush signed the American Dream Down Payment Act, further expanding available housing to low income and moderate income persons which continued the practice of stretching credit with short term financing, etc.
5. In 2004 Bush and Congress at the behest of the SEC deregulated the sub prime mortgage business opening it up to other entities such as Goldman Sachs, Lehman Brothers and Bear Stearns whereby these companies as well as Fannie Mae and Freddie Mac bundled high risk mortgages with supposedly low risk mortgages into packages, that were sold in the secondary market. Typically, the high risk loans were at either nothing down and interest only and substandard debt to income ratios.   These companies were able to convince the rating agencies of the overall security of the loan bundles resulting in them being given triple “A” ratings by rating agencies like Moody’s.  They were then sold to institutions and the public.  The deregulation resulted in banks and lending institutions being allowed to leverage up to 30 times their capital, making those companies even more vulnerable.
6. In order to further insure that the loan packages, insurance was bought from companies like AIG to give investors more security even though unlike most insurance companies there were less funds to back up the packages.  But it can be argued that the AIG was relying on the rating agencies, who were relying on the information they were given by package brokers like Goldman Sacks, Lehman Brothers and Bear Stearns, who were relying on the underwriting and implied guarantees of Fannie Mae and Freddie who were relying on those who originated the loans who were relying on valuations of the homes by appraisers and the market place for these homes.  And buyers were relying on loan brokers who told them that they qualified for the loans.
7. In addition to the home loan market, equity loans were being made that were being made on homes with questionable value.  The premise was that the homes would continue to increase in value and as long as there were people to buy the loans, there was little risk on the part of the loan originators.
8. As a result, home builders had little trouble borrowing money to build the homes since it seemed that there was a continuous stream of ready buyers, regardless of their credit worthiness. Overbuilding resulted in oversupply and prices began to fall.
9. As a result of overbuilding and poor credit risks a crack in the financial dam resulted which grew to staggering proportions that eventually required the federal government to intervene.
10. Before the dam could be saved companies like Bear Sterns, Wacovia Bank, and Lehman Brothers to name just three took bankruptcy.  AIG and a number of large banks deemed “too big to fail” were bailed out due to the fear that if they failed it would bring down the whole world banking industry.

 So, who do we blame?  As the noted scripture states, everyone is guilty.  Even those of us who weren’t directly involved but succumbed to the sirens song of easy credit and instant gratification have a part in what has happened.  When we don’t stay informed, or make rash judgments about the issues, or opt out because we don’t think we make a difference we are complicit.  But most of all, when we don’t trust God and God’s covenant and place other priorities above God, we are most complicit.  The outcome may not be what we want it to be, but God’s purpose will prevail and we are all a part of that purpose in the way we live and act towards God and to one another.