Tag: banking

Edward Hadas is an editor at Breakingviews.com, a London-based financial commentary service and teaches philosophy and Catholic Social Teaching at Maryvale University in the UK. His recently released short little book The Credit Crunch gives an incisive analysis of the current economic crisis through the lens of Catholic Social Teaching in very accessible language. Below is an excerpt from Will Chambers’ review of The Credit Crunch:

The author first of all points out that our financial system has brought great benefits. Then he contrasts the liability of financial systems to repeated crashes against the reliability of air transport, where the techniques for recognising and managing risks in large and complex systems are well understood. He then asks why finance should be so accident prone. First he gives a quick definition of finance, and emphasises the need for trust. He then introduces two “lies”, which when linked to greed are the causes of the breakdowns.

The first lie, oddly called “noble”, is that resources claimed by two parties are regarded by each party as belonging to themselves alone. When I deposit money in a bank I still regard myself as owning it, although it has in most cases been loaned out to a borrower who regards it as for his own use (at least for the time being). Without this lie it would be very hard to borrow money for large projects. Greed causes this lie to give rise to trouble when the lender asks for too much interestor when the borrower exceeds his means to repay.

The other lie, the “ignoble” lie, is that one should strive for the highest possible returns. But beyond a certain level one man’s gains are another man’s losses, and so this form of greed leads to a wealth gap, and also to disappointment for most people, since there must be an upper limit on what one can expect without increasing genuine wealth creation.

Read the whole review here. Buy the book here.