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Doing the Right Thing
By Scott B. Rae
ZONDERVANCopyright © 2013 Chuck Colson Center for Christian Worldview
All rights reserved.
We're in an Ethical Mess!
One of evangelical Christian leader Chuck Colson's favorite ways to start a conversation about ethics was to ask someone, "What do you think caused the financial crisis?" He was, of course, referring to the meltdown of the US financial system that began in 2008 and caused a worldwide recession worse than any since the Great Depression of the 1920s and '30s. The effects of this recession are still with us today in the lost jobs, foreclosed homes, and large number of people who have either given up trying to find work or are underemployed.
What do you think caused the financial crisis? Think about that question for a minute. How would you have answered Chuck? My guess is that whatever your answer, it will have something to do with ethics—specifically, the collapse of ethics.
Let's look a bit more closely at the financial crisis and the various players in it and what happened to each of them. The financial meltdown centered on the home mortgage industry but infected the entire financial system, coming within a few days of bringing it to a collapse. The following chart will help us see what took place.
Here, in a very simplified way, is how the collapse occurred. Borrowers took out home loans from lenders, or mortgage brokers, who usually sold the loans to the packagers, the banks—mainly those on Wall Street—but also to what are called "government-sponsored entities" (GSEs) that go by the abbreviations Fannie Mae and Freddie Mac. These organizations would buy most mortgage loans and package them into investments. The interest borrowers paid on these mortgages was the income the investors were interested in. Remember, in the early 2000s when this started, the stock market was very volatile, having just come out of the dot. com crash and the economic problems created by the 9/11 terrorist attacks. As a result, the Federal Reserve kept interest rates very low, and they are still very low today. That's why you can't earn much more than 1 percent interest on most savings accounts today. Investors were understandably nervous about the rollercoaster ride the stock market had become, and investing in bonds that had very low interest rates was not attractive, so they were looking for other investments that were more secure than stocks but paid more than most bonds.
The banks were buying up mortgage loans that paid 5 to 7 percent interest and repackaging them into investment securities they sold to investors. The packagers would bundle together thousands of mortgages and sell them off in pieces to investors who were eager to have high returns without the volatility of the stock market. The ratings agencies gave these investments (called "mortgage-backed securities," or MBS) their highest ratings (AAA), which assured investors they were safe. The mortgage brokers, banks, and ratings agencies were paid handsome fees for their roles in this pipeline, and everyone was happy with the huge sums of money being made.
Even the insurance companies got into the act, because the risk to the investors was that the borrowers would default on their loans, thus making the investment securities based on those mortgages less valuable. If enough of them defaulted, the security would be worthless, because only a trickle of interest would be paid to the investors. So insurance companies like AIG sold what are called "credit default swaps," which is a fancy term for an insurance policy that protects the investors should the borrowers default or refinance their loans. It seemed like the system was a win for everyone. So what went wrong?
At every step, something went wrong—and went wrong ethically. Borrowers borrowed more than they could repay, many knowing they wouldn't be able to repay and would simply walk away from their homes. Mortgage brokers became less and less concerned with how credit-worthy borrowers were since they were going to sell the loans they made to the banks. They got paid whether or not the borrowers made good on their loans. They initiated what came to be called "liars loans" or "NINJA loans," which stood for "no income, no job or assets." These mortgage brokers often manipulated borrowers into loans they couldn't afford. The banks were selling mortgage-backed securities they knew were worthless to investors, and increasingly they would bet against the securities they were selling to investors (referred to as "selling them short"). The ratings agencies blessed these mortgage-backed securities with their highest ratings because they were being paid by the banks to issue their ratings (putting them into a major conflict of interest). Government played its role too, by putting Fannie and Freddie into a conflicted position—they could essentially buy off their regulators with campaign contributions, for which they became well known. In addition, the government pressured the lenders to increase home ownership to minority communities (the Community Reinvestment Act), causing them to make loans to less-credit-worthy borrowers. And the Federal Reserve kept interest rates very low for some time, encouraging people to amass a debt load they couldn't carry.
Actor and economist Ben Stein had this to say about what caused the financial meltdown:
Well, the crash really started in 2007. And actually, it started even before that, when there was a law passed, and then repeatedly amended in the later part of the twentieth century, called the Community Reinvestment Act, which greatly encouraged lenders to lend to less-credit-worthy buyers. Lenders were encouraged, both emotionally and also in terms of finance, by the government to do that. So lenders started lending to a great, great many people who were not really credit-worthy.... This became a really, really big business, because people on Wall Street saw that, first of all, there was hardly any government supervision of it. What they saw was that they could take large bundles of mortgages. They sold them to fiduciary institutions, especially pension funds. At the same time, they sold them short. They sold them short and hammered them like mad by buying credit-default-swap insurance, which is a giant short instrument. And then they basically raked in money. And then, at the bottom of the cycle, they bought the bonds back and made money on that part of the cycle. At every level, they were deceiving the people they were dealing with. At every level.... At the heart of this is an unethical series of acts. At the heart of it was the incredibly unethical act of Wall Street in packaging securities they knew to be fragile and often worthless, or largely worthless. They shouldn't have sold them in the first place. If they were selling them, they should not, at the same time, have been selling them short.... In a sense, there was an ethical issue with the public as well, because the public, to be sure goaded by the mortgage brokers, was taking on debt that they couldn't repay, and it is not ethical to take on a debt that you can't repay. Yes, you should not be suckered into it by unscrupulous loan brokers. But, if you borrow money, you should have it in your heart that you're going to repay it.
When it came to holding people and institutions responsible for the financial debacle and the ethical failures that caused it, there was quite a bit of reluctance to assign responsibility. Longtime Wall Street observer Jim Grant (Grant's Interest Rate Observer) put it this way: "You know, in the aftermath of the bust, in the dark days of 2008 and early 2009, you'd hear our public officials say, over and over, 'Let's not have any recriminations. Let's not point fingers and blame.' Without accountability, we are all treading water in this murky, lukewarm, milky sea of collectivism, and nothing good comes of it. Let us have individual responsibility."
Evidence of Moral Decline
Of course, Wall Street is not the only example of moral decline, only the most recent. Evidence of moral decay in our culture is all around us. Education experts tell us there is an epidemic of cheating in schools today, and many educators feel powerless to stop it. In some cases, in order to meet state standards, some teachers and administrators have actually helped students cheat by providing advance copies of the tests. You can say much the same thing about truth telling, another casualty of the moral decline in the culture. Lying is much more common than a generation ago, and some of the most high-profile legal cases have revolved around the cover-ups more than the alleged crime. Wall Street Journal writer James Stewart, in his book on lying under oath, commented, "Mounting evidence suggests that the broad public commitment to telling the truth under oath has been breaking down, a trend that has been accelerating in recent years." And that's just the evidence from people who are under oath to tell the truth! That doesn't even begin to capture the erosion of truth telling in business and private life. Most of the well-publicized business scandals of the last decade (Enron, WorldCom, Arthur Andersen, and many other companies in accounting scandals) are essentially cases of accounting and financial reporting fraud. Not to mention the outrageously extreme case of Bernie Madoff, the investment adviser who swindled clients out of roughly $65 billion.
Along with cheating and lying comes theft. Shoplifting, or retail stealing, has also reached epidemic proportions. An entire industry has been built around retailers' need for loss prevention and security, and the FBI estimates theft costs retailers roughly $30 billion per year.
Another example of moral decline is rampant drug use, leading more influential leaders to admit the war on drugs is a failure and to push for legalization of some drugs. And it is not just the abuse of traditional drugs that is on the rise—it is also the abuse of prescription drugs, especially various kinds of painkillers.
Pornography is everywhere today and available at the click of a mouse. In fact, the majority of Internet traffic is by porn users. With this has come the particularly pernicious sexualization of young girls in the media and in advertising. Not surprisingly, the increases in sexual assault and sexual abuse of children continue to be alarming. Around the world, we have seen dramatic increases in human trafficking and sexual slavery, and in some countries in the developing world, pedophilia is a legal and widespread practice.
The traditional family continues to come unraveled, and the number of households with a mom and a dad living under the same roof is now a minority. Increasingly, kids are having kids, and today we give baby showers to teenagers who are pregnant, as though that were a cause for celebration. The fraying of families increasingly produces children and young adults whose moral compasses are damaged, giving them a skewed view of morality.
Perhaps the most dramatic evidence of moral decline in the culture comes from the rise of the prison population. As Chuck Colson reported, when he began working in the prison system with Prison Fellowship in the late 1970s, there were 229,000 inmates in US prisons. Today there are 2.3 million, a tenfold increase. Colson summarized the moral landscape in America like this: "It's an inescapable consequence of neglecting moral training. We're in an ethical mess because of it. We're all paying the price, and we're all pointing fingers at other people when the real problem is all of us aren't addressing the need for character formation in our lives. That's at the heart of the breakdown that we're seeing in American life today."
Sociologist James Davison Hunter, in his book The Death of Character, amplifies the ethical disarray of the culture, describing the deeper problem:
We say we want a renewal of character in our day, but we don't really know what we ask for. To have a renewal of character is to have a renewal of a creedal order that constrains, limits, binds, obligates, and compels. This price is too high for us to pay (as a culture). We want character without unyielding conviction; we want strong morality but without the emotional burden of guilt and shame; we want virtue but without particular moral justifications that invariably offend; we want good without having to name evil; we want decency without the authority to insist on it; we want moral community without any limitations to personal freedom. In short, we want what we cannot possibly have on the terms that we want it.
The Incoherence of Relativism
Part of the reason we're in an ethical mess is because of the way people think about morality. Whenever someone makes a comment about something being right or wrong, it's very interesting to ask them, "Where do right and wrong come from?" This will often reveal a sense of incoherence in the way they think about ethics. Princeton professor Robert George describes this confusion about morality:
On the one hand, people believe that there are some things that are just plain wrong: murder, rape, theft, and deception. But on the other hand, the polling data makes very clear that many, many Americans, at some level, at least claim to believe in what's called moral relativism: the denial that there is any such thing as moral truth, or an objective moral truth, that all we have is opinion. There are no right and wrong answers to moral questions, just opinions or feelings.
We seem to want it both ways when we think about morality—we believe some things are obviously and absolutely wrong, like slavery and sexual assault, but we also want to believe that morality is relative, a matter of opinion. I will take up this idea of morality being a matter of fact or opinion in chapter 2. For now, let's see where people commonly think ethics come from. The incoherence in our thinking about ethics that Professor George describes is expressed in many different ways in today's culture. Here are a few:
"What gives you the right to judge?"
My good friend and Baylor University philosophy professor Frank Beckwith describes being confronted with this question when he participated in a debate on abortion at a major university. He commented that he believed abortion was morally wrong in most cases. He was immediately attacked by one of the panelists with the question (which wasn't really a question but a statement), "What gives you the right to judge?" He answered it in a way that his fellow panelist didn't quite expect. He said, "Well, I think I'm very qualified to judge. I have a master's and a doctorate in this field, I've written several books on the subject, lectured on it around the world, and have generally given it a great deal of careful thought." His opponent was not particularly impressed with his qualifications but didn't know quite what to say in response, except to make it clear that her point in asking the question was to say that no one had a right to make these particular moral judgments. What was so interesting about this exchange was that she was making a moral judgment on Frank for being narrow-minded and judgmental, while at the same time insisting that no one had the right to make these kinds of judgments! When people say, "What gives you the right to judge?" they really mean that no one should make a moral judgment on another person. The incoherence of saying that no one has the right to make moral judgments becomes obvious when anyone tries to live out the statement. Usually they give up this view when they are the victim of an injustice—then they become not only willing to judge but insistent on making a judgment that they have been wronged.
Follow your own conscience.
This is what I call the "Jiminy Cricket" view of morality—let your conscience be your guide. If you remember the Disney movie Pinocchio you saw as a child, you'll remember that before Pinocchio goes out to face the world, his friend Jiminy Cricket advises him to let his conscience be his guide. Ironically, after receiving that advice, Pinocchio gets into all sorts of trouble, suggesting that his conscience wasn't such a great guide after all. Michael Miller of the Acton Institute responded to this advice to follow your own conscience like this: "In business school, when we had discussions on ethics, they said, 'What's ethics?' They said well, 'Ethics is following your own integrity, or following your conscience.' But what if you have a poorly formed conscience? What if you're a jerk?" Or to take it further, what if you have no conscience at all, as is the case with sociopaths, who feel no guilt or remorse when committing heinous crimes? This view is also incoherent, because a person following his or her conscience may do just fine until their conscience allows for an injustice against someone else. If you are that person who has been wronged, you tend to give up your view that people should follow their conscience pretty quickly.
Values are what you value.
This is a very subjective view of morality (I take up the distinction between objective and subjective views of morality more in chapter 2) and another expression of moral relativism. History professor Glenn Sunshine talks about what happened when his daughter was taught this view of where morals come from by a high school teacher. He says, "My daughter Elizabeth was in high school at one point, and she had a class on, well I suppose it would be the closest they would have to ethics. They said the definition of the word 'values' is whatever it is that you value. That's what values are, whatever you value. So she came home and said, 'Okay, Dad, so if I value good grades better than I value honesty, it's okay for me to cheat?' She got it immediately. It's incoherent."
Excerpted from Doing the Right Thing by Scott B. Rae. Copyright © 2013 Chuck Colson Center for Christian Worldview. Excerpted by permission of ZONDERVAN.
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