What’s Wrong with the World

When the tax code is set up such that is advantageous to close here and move overseas, I figure that most of the ones remaining are keepers. Also, around 10% of that 72% in consumer spending came directly from the false capitalism system, which is thankfully gone.

The goal here was to avoid a hard crash. That doesn't mean we can avoid a major downturn. The long term technical signals on the DJA don't show resistance until 4500 or so.

To see how the CDO's are doing in the real world, this is the link:
http://www.nakedcapitalism.com/2009/02/more-on-simply-dreadful-performance-of.html

Step2: The goal here was to avoid a hard crash.

I'm afraid I disagree. That's a secondary goal, at best, and it reflects short-term thinking which is viewed as "compassionate" but really isn't. The goal ought to be a just pursuit of long-term stability and sustainability, which may or may not result from avoiding a "hard crash." Indeed, having a sharp contraction would likely lead to faster recovery while simultaneously giving the current generation the just fruits of its profligacy. The path we're heading down now of government growth for the sake of preventing a hard crash is disastrous for the long-term health of the nation.

In response to Step2 (and in agreement with what I take to be a point of the main post) I will say again what I've said elsewhere, with welcome agreement from Zippy: What is happening now from the present administration--the whole swallowing of more of the GDP by government--is _not even_ a Keynesian economic boost. It is just pure expansion of government, opportunistically taking advantage of the financial crisis as an excuse. It certainly isn't going to prevent some economic crash, now or in the future; it seems that it would only making recovery from where we are that much harder.

"Usury? you say, what is this antique word?"

The paragraph you begin with these words reminds one of the coat the four soldiers took at Calvary. It has no seam.

Did you write it at one, fevered sitting, Paul? It is inspired.

Obama's goal was never to avoid a hard crash, rather, it was to establish a PERMANENT Democrat majority. In short, the Chicagoization of The United States.

Don't you think that in Chicago there are people who are opposed to the corruption, opposed to the one party city-state? But for all their opposition, there's never been any change in the Democrat's complete control of that poor city.

Obama was sitting in the aisles of a lunatic, a hate-filled lunatic for over 20 plus years. Which means for just about the entirety of his adult existence, he's been listening to Wright.

Who here listens to Michael Savage?

Anybody?

What would be your opinion of someone who did?

But what is Savage compared to Wright?

What are we to make of someone who lacks the mental firepower to see through the heresy, the errors and the historical inaccuracies of black liberation theology, {ANY liberation theology}.

I don't think any of you understand how RADICAL his upbringing was. We're talking about a human being that was effectively marinated in radical theology, radical politics, radical economics, a TOTALLY RADICAL world view. None of us can name a single close friend of his who wasn't either a radical, a muslim, or both a radical and a muslim. He never had any normal friends. And that's NOT hyperbole, that comes from his own peers.

From what we know, the three people closest to him, {outside of his wife, who might be the more radical of the two} were Wright, {a hate-filled lunatic}, Ayers, {another lunatic overflowing with hatred for The United States} and lastly Cass Sunstein, {and he's a real piece of work, a 14th Amendment Marxist, who subscribes to the radical "critical legal theories"}. And Sunstein is probably going to The Supreme Court of The United States, {with a layover at the D.C. Circuit or the 7th Circuit}.

The conception of usury employed here would seem to be different from that employed by the Church (I say 'seem' because the post doesn't bother to explain why the current crisis was founded on usury, but rather takes the point for granted in the course of the larger rant).

It seems quite obvious that the utilization of easy credit and securitization to inflate asset values, from which inflation unearned increments may be skimmed, is usurious, inasmuch as it is utterly infecund, generating no new value, no new productivity, only colossal malinvestment. Its very unsustainability evinces its unproductivity, as the superstructure of speculation toppled when the actual productive economy - people's ability to pay for all of this credit - finally crumbled under its sheer financial mass.

I think (though he can speak for himself) Paul's point is with respect to a Bellocian conception of usury.

Consider the notion of productivity or value. In the present system the notion is ultimately completely relativist: productivity or value just is whatever is subjectively valued by market participants, which they translate into concrete action. Churning out pornography, for example, is highly productive on this conception of productivity, because it happens that many market participants value pornography and act on that subjective judgment. In this sense modern economies are radically anti-realist: all that matters in them (all that is valued) is what people actually happen to will. What can actually be accomplished is constrained by the nature of what is, but not by the nature of what ought to be: the role of ought is subsumed completely under what people actually will.

Usury as understood here (assuming I have it right) presupposes that some things are actually, truly, objectively valuable and productive, while others are objectively not; and that while this may often correspond to subjective judgments, there is not a necessary connection between subjective judgments and objective value. Based on that presupposition there are two distinct kinds of profits generated in the economy: profits which result from objectively productive activities, and profits which result from parasitical activities. In a radically relativist economy what is rewarded is not what is objectively valuable, but rather just what market participants happen to will, and while the two may overlap to a significant extent they are not isomorphic. Furthermore, the life cycle of market projects, etc is such that objectively destructive activities can take profits now and defer their destructive consequences to the future; and this happens whether or not the individuals involved are self-consciously doing it on purpose. The churning out of pornography incurs objectively destructive consequences many of which do not fall upon those who do the actual churning. The deployment of capital for profit, actual profits generated by the relativist market, in objectively parasitical and destructive activities, then, is usury.

This may be more or less compatible with various traditional understandings of usury. But as far as I am aware there is no more or less comprehensive account of usury in the Catholic tradition, which is to say, the existing Tradition underdetermines what is meant concretely by usury as applied to a modern economy.

Mainstream conservatives tend to react rather strongly against the notion that there is objective value in things independent of a subjective market evaluation. I can certainly understand why. The most prominent proponent of an objective theory of value was Marx, and a hundred million or more people paid for that theory with their lives.

But if it is true that value is not wholly subjective and relativist then we cannot ultimately escape from the consequences of that truth.

I can't agree with Paul's interlocutor here though:

...one of these guys has stated, firmly and repeatedly, that Wall Street is basically a parasite...

I think, pace Belloc, that usury permeates every facet of our economy: that usurious activities are to a great extent intermingled with productive activities in a manner in which they cannot be easily teased apart. I agree that there is a lot of parasitism on Wall Street, as everywhere in the economy. But Wall Street also provides genuine value in the form of oversight (of companies, sectors, and whole markets) as well as providing liquidity and capital which would not otherwise be available.

I've seen enough of both the operating side of the house and the finance side of the house to sympathize with their natural prejudices against each other without personally buying into those prejudices. There is plenty of operating-side parasitism, as well as plenty of necessary and productive activity in finance. People naturally want to think that the parasitism is only a product of the Other; but in reality it is everywhere.

It may well be that there are multiple conceptions of usury that are compatible with Catholic doctrine on the matter. But even if this is so, Belloc's account of usury is not among them. Belloc's central distinction between the productive and non-productive loan was condemned by Pope Benedict XIV in 1745. To quote the Catholic Encyclopedia:

Others with Claudio-Jannet (Le capital, la spéculation et la finance, iii, II and III) distinguish between the loan for consumption and the loan for production: we may ask interest from the borrower who takes money or credit in order to produce or gain money; but not from one who borrows under pressure of necessity , or for some unproductive expenditure... [T]his system contains this element of truth, that the lender of a sum of money which is intended for productive use may refuse to lend except on condition of being made a partner in the undertaking, and may claim a fixed interest which represents that share of the profit, which he might reasonably expect to receive. The system, nevertheless, is formally condemned by the Encyclical 'Vix pervenit'"

The entire Catholic Encyclopedia article on usury is well worth reading.

I would also add that under Belloc's system it is not just mortgage backed securities but all mortgages that are usurious. Indeed, speculative mortgages (where someone buys a house intending to slap a fresh coat of paint on it and flip it in six months) have a better claim to legitimacy under Belloc's system than does the typical mortgage (where someone buys a house he's planning to live in).

I haven't read enough of Belloc on the subject of usury to be able to speak confidently about it. But I feel quite confident that the word usury is a useful one here, for it points to injurious or destructive interest as the basis for profit.

The wreck that speculation and securitization on mortgages has made of our economy smacks of usury. I'll admit that the common connotation of predatory interest is not present; that is, this usury is not so much an instance of profit at the expense of someone's misfortune or poverty. Instead, the usury lies in abstraction and engineered opacity. A market in credit derivatives several multiples larger than the whole US economy, much of it composed of investors speculating on the default of certain debt securities; is this not a kind of postmodern usury? How much of this credit derivatives market had any real connection with productive activity, or even to normal increases in property values? A pretty small proportion. Indeed, much of it had a negative connection; the profits to be gained depended on declining value, failing companies, etc. By mid-September 2008, CDS had become a perfectly legal mean of naked short-selling.

In sum, I am using usury because it's the best word we've got to succinctly describe what was going with this frenzied rush to capture a fraction more yield here, a fraction more there, most of it abstracted from any real economy of capital and labor and property.

As for Blackadder's claim that Belloc's argument requires us to mistrust typical mortgages as instance of potential usury, well, it seems uncommonly silly to me. Are we to imagine that simply buying a house and using it to raise a family, to set down roots in a community, to build capital by the gradual achievement of full ownership, would be regarded by Belloc as unproductive activity?

Finally, I welcome and appreciate Zippy's point about the broader parasitism and usury of the modern economy.

this usury is not so much an instance of profit at the expense of someone's misfortune or poverty. Instead, the usury lies in abstraction and engineered opacity. A market in credit derivatives several multiples larger than the whole US economy, much of it composed of investors speculating on the default of certain debt securities; is this not a kind of postmodern usury?

I understand that you don't like abstraction, etc. But from the fact that you think something is bad, it doesn't follow that it's usury. Search through scholastic or modern treatments of usury, you're not liable to find many authors condemning it on the grounds of its abstraction or engineered opacity.

As for Blackadder's claim that Belloc's argument requires us to mistrust typical mortgages as instance of potential usury, well, it seems uncommonly silly to me. Are we to imagine that simply buying a house and using it to raise a family, to set down roots in a community, to build capital by the gradual achievement of full ownership, would be regarded by Belloc as unproductive activity?

Productive and non-productive aren't evaluative terms. When Belloc says that a given loan is for a non-productive purpose, he doesn't suggest that there is something untoward about that purpose, only that the purpose involves consumption rather than production (one of Belloc's examples of a non-productive loan is a loan to a man so he can feed his family). A loan to buy a house one intends to live in would seem to fall into this category.

Silly? Perhaps. But if so the silliness lies with Belloc.

Well, it would sure be nice to have St. Thomas's view on the credit default swap. Alas that it was invented 700 years after his death.

[T]his system contains this element of truth, that the lender of a sum of money which is intended for productive use may refuse to lend except on condition of being made a partner in the undertaking, and may claim a fixed interest which represents that share of the profit, which he might reasonably expect to receive.

That element of truth seems to just be the outline of Belloc's position, as far as I can tell. I'm not familiar with the details of Claudio-Jannet's system, so I can't say (though I could guess, more in a minute) what distinguishes it from the element of truth set apart here as specifically an element of truth. I'm pretty confident that Belloc did his homework though, and when he says outright that his understanding is consonant with the traditional understanding I'm more inclined to take him at his word than to take Internet pundits at theirs. At the very least I take a more jaundiced eye toward the latter than the former.

Just offhand, from my copy of Denzinger, here is Pope Gregory IX (1227-1241), letter of uncertain date:

"He who loans a sum of money to one sailing or going to market, since he has assumed upon himself a risk, is not to be considered a userer who will receive something beyond his lot."

And this is from the encyclical Vix Pervenit by Pope Benedict XIV, also excerpted in Denzinger:

”But by this it is not at all denied that sometimes there can perhaps occur certain other titles, as they say, together with the contract of lending, and these not at all innate or intrinsic to the nature of a loan, from which there arise a just and entirely legitimate cause of rightly demanding something more above the principal than is due from the loan. Likewise, it is not denied that many times one’s own money can be rightly invested and expended in other contracts of a different nature from the nature of lending, either to secure an annual income for oneself, or also to practice legitimate commerce and business, and thus procure an honest profit.”

This of course should all be read with the understanding that medievals had of lending as unconditional, where failing to repay is a crime subjecting the borrower to debtors prison or worse: Shylock, the pound of flesh, and all that. That is quite different from today’s understanding of lending as senior capital structure entitled to return of capital and a certain percentage of profit before equity gets paid, and where bankruptcy represents the failure of the enterprise or project not an unconditional demand on a debtor. I've argued elsewhere on W4 that viewing debt as an unconditional demand on a person, rather than as an investment in a project with well defined limits short of criminal liability or unconditional financial liability, is in my view morally problemmatic. I haven't seen anything from the Tradition or Magisterium to gainsay that understanding, and I've seen much to support it.

There is some interesting stuff in Pope Gregory XIII’s writing distinguishing between ‘fictitious exchanges’ [of promissory notes and money] versus ‘exchanges which are called real’, which is suggestive of some of what Paul is discussing; but I haven’t done the research to have any idea if it really applies here.

In any event I doubt that a quick consult of Google or glance at The Catholic Encyclopedia (which has its own opinionated view of some things) is capable of painting a clear picture.

Certain internet pundits seem invested in the notion that the concept of usury is altogether unintelligible, and thus inapplicable to any concrete circumstances; at most, therefore, there can occur frauds and deceptions, but beyond these, any contract or instrument freely agreed upon must be licit.

I am not inclined to credit economic positivism of any stripe.

That element of truth seems to just be the outline of Belloc's position, as far as I can tell.

Well, no. Belloc's position, after all, was not simply that "the lender of a sum of money which is intended for productive use may refuse to lend except on condition of being made a partner in the undertaking, and may claim a fixed interest which represents that share of the profit, which he might reasonably expect to receive." For that, by itself, is simply a statement of what is permissible, not a statement of what is impermissible.

I'm pretty confident that Belloc did his homework though, and when he says outright that his understanding is consonant with the traditional understanding I'm more inclined to take him at his word than to take Internet pundits at theirs.

I somehow doubt that the authors of the Catholic Encyclopedia qualify as an "Internet pundits." If you'd like a second source, I'll cite John Noonan's The Scholastic Analysis of Usury, which concludes that "[Belloc's] chief distinction, between consumption and production loans, is totally unfounded."

Here, by the way, is a portion of Vix Pervenit that you seem to have missed:

One cannot condone the sin of usury by arguing that the gain is not great or excessive, but rather moderate or small; neither can it be condoned by arguing that the borrower is rich; nor even by arguing that the money borrowed is not left idle, but is spent usefully, either to increase one's fortune, to purchase new estates, or to engage in business transactions.

It's true that Pope Benedict XIV did allow the charging of interest based on what are called extrinsic (as opposed to intrinsic) factors. As the Catholic Encyclopedia notes:

the best authors have long since recognized the lawfulness of interest to compensate a lender for the risk of losing his capital, or for positive loss, such as the privation of the profit which he might otherwise have made, if he had not advanced the loan. They also admit that the lender is justified in exacting a fine of some kind (a conventional penalty) in case of any delay in payment arising from the fault of the borrower. These are what are called extrinsic grounds, admitted without dispute since the end of the sixteenth century, and justifying the stipulation for reasonable interest, proportionate to the risk involved in the loan.

One notes, though, that the extrinsic/intrinsic distinction does not turn on the purpose of the loan, or whether it is for production or for consumption.

BA:

By Internet pundits over whom I'll take Belloc's word I meant you, not the Catholic Encyclopedia.

Belloc's position, after all, was not simply that "the lender of a sum of money which is intended for productive use may refuse to lend except on condition of being made a partner in the undertaking, and may claim a fixed interest which represents that share of the profit, which he might reasonably expect to receive." For that, by itself, is simply a statement of what is permissible, not a statement of what is impermissible.

Precisely what is at issue though is what is permissible. If it is permissible to charge a fixed rate of interest as a partner's share of profits in the undertaking then we are talking about what today we might reasonably call a productive loan charging a fixed rate of interest. What is meant by a loan though has not always been consistent through history: more in a moment on that.

is a portion of Vix Pervenit that you seem to have missed:

No, I didn't miss that. It (and more, very unequivocally condemning any interest charged on loans) was followed by what I quoted, which provides hints on how not to interpret it.

Look, I already said I haven't made an in depth study of usury, though I get the impression that you haven't either, and you just don't like Belloc at all, oh no precious, because when it comes to economics you are ideologically committed to a certain view of capitalism from which I've never seen you budge in the slightest. So I don't expect you to budge from your dug in position, and I don't expect a cordial exploration of the tradition to be possible with you. (Frankly, folks definitely should read the Catholic Encyclopedia article on their own.) The Magisterium condemns the charging of interest on loans very unequivocally; so either that condemnation was just wrong, or there is some way to make sense of it. Part of the way to make sense of it is in the very encyclical which condemns usury in the first place; more is in the context in which it was made.

Belloc's reading certainly looks reasonable to me, and consistent with the tradition. Before the mid 1800's a loan gave a creditor the society-legitimized power to imprison or enslave a debtor and his whole family. It makes perfect sense that the Church would condemn interest, even "reasonable" interest, on "loans" so understood; while also asserting the legitimacy of other titles to fixed interest as fair share of profit for a partner in a productive undertaking. That probably isn't a great narrative for either the raving "value is whatever the market says it is" capitalists or for Marxists, of course; but it makes perfect sense to me. FWIW.

Oh, and as for Belloc making up the distinction between productive and consumptive use as a wacky novelty of his own invention, here is Aquinas:

I answer that, To take usury for money lent is unjust in itself, because this is to sell what does not exist, and this evidently leads to inequality which is contrary to justice. On order to make this evident, we must observe that there are certain things the use of which consists in their consumption: thus we consume wine when we use it for drink and we consume wheat when we use it for food. Wherefore in such like things the use of the thing must not be reckoned apart from the thing itself, and whoever is granted the use of the thing, is granted the thing itself and for this reason, to lend things of this kin is to transfer the ownership. Accordingly if a man wanted to sell wine separately from the use of the wine, he would be selling the same thing twice, or he would be selling what does not exist, wherefore he would evidently commit a sin of injustice. On like manner he commits an injustice who lends wine or wheat, and asks for double payment, viz. one, the return of the thing in equal measure, the other, the price of the use, which is called usury.

On the other hand, there are things the use of which does not consist in their consumption: thus to use a house is to dwell in it, not to destroy it. Wherefore in such things both may be granted: for instance, one man may hand over to another the ownership of his house while reserving to himself the use of it for a time, or vice versa, he may grant the use of the house, while retaining the ownership. For this reason a man may lawfully make a charge for the use of his house, and, besides this, revendicate the house from the person to whom he has granted its use, as happens in renting and letting a house.

Belloc may not agree with Aquinas that the use of money consists in its consumption (and in this I think Belloc has the better of the argument: I doubt Aquinas knew the difference between a balance sheet, a P&L, and a cash flow; and in productive activities the use of money actually does not result in a drop in real net assets or projected future profits, whereas consumption does make them drop). But the notion that Belloc just made up the distinction, with no connection to the tradition, between a productive use and a consumptive use in the context of usury is, well, a sign that someone is talking out of his hat. I mean, maybe Aquinas made it up I suppose, and Belloc just coopted the novelty from the Dumb Ox.

I don't claim to have made an in depth study of usury myself, so I hesitate to say anything categorical, and I'm stuck with just saying what seems reasonable to me. But I see little reason to believe that BA has either.

I have to say, too, that the more I think about it, the more reasonable it seems to see Aquinas' concept of usury, that is, of selling what does not exist, as being at the root of the current crisis. I know Paul Cella was a nutter to attach the label "usury", in his post, to practices of selling nonexistent abstractions. But at least he was in good company.

By Internet pundits over whom I'll take Belloc's word I meant you, not the Catholic Encyclopedia.

Yes, and if I had asked you to simply take what I was saying on my authority, the response would have been justified. But I didn't do that. Instead, I cited to the Catholic Encyclopedia and to Noonan's book on usury (which is generally regarded as one of the best secular treatments of the subject). If you'd rather take Belloc's word over the Encyclopedia and Noonan, so be it. But please, let's be honest about what you're doing.

Oh, and as for Belloc making up the distinction between productive and consumptive use as a wacky novelty of his own invention, here is Aquinas

Belloc's position was that the permissibility of charging interest depended on whether the purpose of the loan was for production or consumption. It had nothing to do with whether money is something consumed in its use. You seem to recognize this, yet fail to see the implication.

My new post picks this up.