Question of the Week
Q: I’m wondering what Fr. Spitzer’s views are on the whole subprime mortgage meltdown and banking crisis? If he were advising banking industry leaders in the years leading up to the crisis, could he have seen it coming or at least seen that something was very wrong in terms of the culture of the banks? – JK, Michigan
A: A lot of industry leaders could see as long as three years ago what kinds of abuses could come if the economy were to decline. Any good business person knows that everything is cyclic, and even though the overall trend is upward, there are always downward cycles amidst the upward trend. People knew that the inflationary real estate values they were using to sustain their lending practices could not continue, but no one gave a clarion call. No one said anything! Why didn’t they?
I totally agree that we have to fix a bunch of problems like credit default swaps and short sales. But these are extrinsic solutions. No one is talking about intrinsic solutions. |
I think there were two problems. The first was a plain lack of the cardinal virtues: wisdom, self-discipline, courage, and fairness – courage in particular. The second problem was a Level 2 culture gone wild. Leaders who could see what was bound to happen lacked the courage to say anything, because saying something would have meant standing up to the Level 2, ego-driven, win-at-all-costs culture.
That type of culture always makes the mistake of thinking the good times will last forever, and it’s insensitive to the impact on the larger society when the whole house of cards collapses. The aftermath of the crisis showed you just how intrinsic this culture had become within the industry. Bankers who failed to give a clarion call were still taking huge bonuses and throwing lavish parties!
Everybody is saying that the solution to this problem is to cure the banking regulations. I totally agree that we have to fix a bunch of problems like credit default swaps and short sales. But these are extrinsic solutions. No one is talking about intrinsic solutions. No one is asking, "Is something wrong with our culture that got us into this fix in the first place?" That’s the most important question, because Level 2 behavior and the lack of the four cardinal virtues were at the root of the entire crisis.
If we can’t move from Level 1 materialism and Level 2 egotism to a Level 3 culture oriented toward the common good, then honestly, we’re going to have the same problems time and again. Maybe next time, it won’t be a banking crisis or a mortgage crisis, but it will be something. We need to learn from this crisis, while the lessons are obvious and fresh, and then maybe we won’t, as Santayana said, be doomed to repeat it.
– Fr. Robert Spitzer, S.J.