Franciscans and their Finances

Economics in a Disenchanted World

David B. Couturier, OFM, Cap.

• Publisher: Franciscan Institute Publications
• Year: 2015
• ISBN:
  9781576593899
• Topic: Théologie et religion
• Subtopic: Commentaire biblique

A book about Franciscans and their economics and the way that Franciscans are developing a more relational economy as they serve the poor and vulnerable around the world.Francis fraternal economy is not primarily about dollars and cents, market shares or stock derivatives. It is about the destiny of men and women in the real world and how they come about a new security and peace in God. By the time his captivity as a prisoner of war had come to an end, Francis had given up on the violence and greed that fed the frenzy of Assisi. He found his peace in mercy in the mercy that God had for him and in the mercy that he could show to those who were poor and suffering. Francis gave away everything he had and felt the first taste of freedom in his whole life. He had given up the need to climb and be right. He had let go of the desire to imitate majesty and control the world. He would never again have to go to war, because there was nothing that anyone else had that he wanted. There was nothing he had that he would not forfeit. He had Christ and Christ had him and that was enough for Francis to feel the peace that passes all understanding.

CHAPTER ONE

FRANCISCANS AND THE GREAT RECESSION

In 2008 America was facing an unprecedented financial crisis. Credit was tightening, unemployment was rising and the cost of living was going up. Increasingly, Americans were afraid that they were going to lose their jobs and the vital medical benefits that went along with them. The recession of 2008 was forecasted to be longer, deeper and harder than anything we had seen since the Great Depression. Franciscans were not immune to these global dynamics. Their institutions would feel the crunch. This article was written at the beginning stages of the Great Recession and asked key questions: What can we do to weather this “perfect storm?” What can we do to help our brothers and sisters get through and make sense of this economic crisis? What in the Franciscan tradition can help us rebuild a legitimate economic security? This paper looked at the history of this crisis and outlined some principles and tools Franciscans could use to make sure that their next steps in the economic world were sure and just.

The Great Recession that (actually) began in 2007 hit Franciscans, as it did most Americans, with unparalleled force. The economic situation of many Franciscan communities was already structurally weak due to the disproportionate rise in the number of elderly members, the ballooning costs of health care, a decades-long vocation shortage that meant fewer young wage earners, unfunded liability on ministerial properties and friaries, the high cost of insurance and the rising costs for energy, food and education, along with a dramatic drop in the number of Catholics going to church and contributing to its mission. Because Franciscans, on the whole, receive stipends rather than salaries for the ministries they do, they depend on donations to supplement for the work they do in hospitals, schools, clinics, parishes and social service agencies among the poor and in the missions. They work with and among the poor. And it was the poor who were most vulnerable to the ravages of the Great Recession. Savings were wiped out; access to higher education was closed off; state funding for supplemental services were dramatically cut, unemployment became a tragic reality and wages were cut even for the working poor. Franciscans found themselves once again among the poor struggling to make do in an economy that had turned against the poor and minority communities with a vengeance.

Now, some years later, the recovery has begun. It is a slow recovery and, for poor and minority communities, it is a very, very slow recovery. Unemployment rates have dropped, but many of the so-called new jobs created in the recovery period are part-time and, on the whole, do not match the experience and expertise of American workers. The stock market has rebounded but the benefits of that rebound continue to flow upward, to those few at the top of the economic pyramid who could weather the turbulence of our economic times. It was the Great Recession that revealed just how uneven the lanes of opportunity truly are in America today. It revealed the two “economies” emerging in America: the one that serves the interests of the privileged few and the one that burdens the shrinking middle and the burgeoning lower class.

The Great Recession hit Franciscans with such force because it crashed as religious life was already reeling from a “perfect storm” of crises: an unparalleled vocation shortage that shows no signs of ameliorating, scandals reaching back decades for which priests and bishops continue to bear responsibility, responsibility for foreign missions that are growing but depend on shrinking American religious community support for their survival, and the vast reinvention of work in religious communities, forcing religious men and women to serve in new and unchartered ways.

The rest of this chapter is a look back in time to the origins of the Great Recession. It was written during the early days of the recession to explain what was happening and to find ways that Franciscans could help their communities weather the economic turbulence of the time. For many Franciscans, it was the first time in a long time that they engaged in direct talk about economics with those they served.

A BIT OF HISTORY

In December, 2008, the Bush administration admitted what most Americans already knew. We were in a recession and had been for some time, in fact for at least a year. Recession is technically difficult to define. Most economists describe it as a decrease of less than 10% in a country’s GDP (Gross Domestic Product) over two consecutive quarters. The National Bureau of Economic Research defines it as a ‘significant decline in economic activity lasting more than a few months.’ Difficult to classify, a recession is not hard to feel, however. In a recession, living costs go up, as incomes get squeezed. It is a sustained period of economic stagnation as spending falls, business investment shrinks, and companies begin laying people off as sales across multiple sectors dry up. It is a time when financial fears go up and economic trust goes down.

We pretty well know the origins of this particular financial crisis. They’re found in what are called subprime loans! Simply put, because of deregulation in the banking industry and a whole lot of greed, banks made housing loans available to a whole class of people whose credit worthiness and ability to pay back the loan were always shaky, at best. Unusually low introductory mortgage rates teased people into the real estate market who would never have qualified under ordinary circumstances and in normal times. With these low introductory rates in place, people bought homes they couldn’t afford, over the long haul. Often without so much as a down payment, people secured 100% adjustable (versus) fixed rate mortgages. With these adjustable rate mortgages, people bought new homes or remortgaged existing homes with fervor or, better, on a wing and a prayer. Everything was fine, at least at the beginning, because on the front end of an adjustable mortgage, payments are low, unusually so. It’s when the adjustable rates kicked in, as they must, that large numbers of families found themselves in severe financial trouble. They could afford the teaser introductory rates, just not the larger adjustable ones which followed.

When the mortgage rates finally adjusted (upwards, of course), the amount people were required to pay for their mortgages on a monthly basis jumped dramatically; in some cases, doubling or tripling. Unfortunately for these sub-prime borrowers, their incomes were only calibrated to the initial teaser rates, not to the final adjustable ones. It wasn’t long before these borrowers found themselves behind the proverbial eight ball. Some tried to stay afloat and make their monthly mortgage payments by borrowing from their credit cards. With interest rates running between 18 and 22% and a whole host of late payment fees, sub-prime families found themselves in a quicksand of debt, unable to pay their mortgages or their credit cards. For many, bankruptcy became the only option. The numbers of people across the country unable to make their mortgage and credit card payments skyrocketed. Banks found themselves with empty loans and dozens of foreclosed properties on their hands. They started to hemorrhage money uncontrollably. Some well-known and highly esteemed banks started to fail. The government needed to step in to forestall rolling bank failures and a nationwide loss of confidence in banks. Because financing is no longer local and many of these loans had been parceled out across the world in our new globalized economic network, the trauma that once could have been cauterized at the local level quickly became an international disaster.

This whole venture sounds so irresponsible. Why would any reputable company engage in a loan sharking-type enterprise of giving mortgages to people who obviously did not have the means to sustain the life of the loan? The simple and most truthful answer is Greed. Consumers got greedy, bankers got greedy and the government, because of its deregulation policies, stopped watching out for and stopped protecting us from these greedy behaviors. No one was minding the store as these loans were sliced up and re-packaged (“bundled’) and then sold to other banking partners (around the world) who ostensibly took legal and financial responsibility for their ever-smaller pieces of the loan. Unfortunately, many of these end-of-the-line owners didn’t know what they actually had or what was implied by having them. Their focus, like everyone else’s, was on making (quick) cash and not on being the responsible agent of other people’s money.

Why was all this attractive? Again, the simple truth is the best. People were making money every step along the way. Every time these loans were divvied up, sold off or handed on to some other party, someone was making money, quick money, easy money. At the end of the day, no one really knew who owned the loans and who was responsible for making good on their promises. It was at this point that banks finally closed their spigots and stopped lending money or making promises to one another. The banking system began to shut down. The economic system’s most prized possession—trust—was in very short supply and, without it, the economy started to become paralyzed. Without trust, banks don’t lend money to one another. Businesses can’t get credit for supplies and companies start pulling back on production. When factories can’t crank out products, people get laid off or start worrying about their jobs. In this climate, consumers stop spending money and the whole cycle of supply and demand grinds down to a point of deep stagnation. A recession can easily turn into a depression, since a depression is simply a longer, deeper, and more aggravated form of a recession.

Most Americans know things are bad. What they don’t know or find hard to admit is that things have been bad for quite some time, at least for the middle and lower class in America. Before we turn our attention on what we can do, let’s trace how life has been economically for the middle and lower-middle class in America.

LIFE INSIDE THE BUBBLE

If you asked most Americans to describe the economic climate of the 1990s and the early years of the 21st century, you would probably get a very positive assessment. The end of the twentieth century is remembered as “good times.” The Cold War was over. Unemployment was low and productivity was high. Americans went to college in record numbers. Gas prices were down and so were food prices, relatively so, due to low energy and transportation costs rippling through the system. Americans spent like there was no tomorrow – literally. The personal savings rate dipped below 0 percent for the first time since the Great Depression, hitting a negative .5% in 2005. (This was down from a personal savings rate of 9% in 1985.) Even though Americans were spending more than they were earning, credit was plentiful and Americans became accustomed, for the first time in their history, to living their lives in debt and without shame. In 2004, the credit card industry took in $43 billion in late-payment, over-limit and balance transfer fees. The average household credit card debt increased 167% between 1990 and 2004.

Just below the surface of these good times, trouble was brewing. Americans were accumulating huge debts, well beyond their means to repay in any systematic or coherent fashion. The average household consumer debt in 2004 is estimated to have been between $9,000 and $13,000. Between 1990 and 2004, America’s total credit card debt increased from $243 billion to $735 billion. It is clear that more and more people began using their credit cards to buy groceries, fill prescriptions and pay for their medical care.

Something more than personal lapses and individual moral failures is at work here. It is clear that Americans have been living beyond their means and on borrowed money and lots of it. But a closer look reveals that there are structural factors at play that make it necessary for families to go into debt. Below the radar of ordinary American spending are some very troubling social forces that make it difficult for more and more Americans to get by. A list helps us contextualize and understand this financial crisis better. Here’s what’s been happening while ordinary Americans have been trying to make a living.

• The average American worker is worker longer and harder and for less money. The average worker now spends 200 more hours a year on the job than he or she did in the 1970s, an extra five weeks per year. The average middle income family experienced an increase of ten additional weeks per year in annual paid household workload. You would think that more work would translate into more money and spending power. Just the opposite happened. Americans have been working harder but falling further behind.

• Why are Americans working so hard? It’s not because they want to work longer hours and with less vacation time and fewer benefits than any of the other industrialized countries of the world. They have to do so. Driving the cycle of overwork is not the greed to have more, but simply the desire to maintain what families now have. The fact is that wages, adjusted for inflation, have remained distressingly stagnant, while the costs for food, housing, energy, college, day care and health care have soared well beyond the rate of inflation. The modern economy is not an escalator that carries people up and out of disadvantage. Today it is more like a treadmill whose settings are gradually increased. People have to run faster just to stay in place.

• Most people are afraid to complain about the increased demands for time at work because they are terrified of losing their health benefits. The rate of U.S. health care spending as a percentage of GDP (Gross Domestic Product) rose from 5% in 1960 to 16% in 2004. In 2005, 46.6 million people in America had no health care insurance at all; 15 million more people than just 10 years before. Although 80% of those who are uninsured actually work, full or part-time, the cost for securing and maintaining health insurance today remains largely out of reach for a good portion of our American workers. Without universal health care protection, they are forced to cobble together their out of pocket solution to higher fees and prescription costs, or simply go without health care.

• A popular saying is that “the poor are getting poorer and the rich are getting richer.” It is not only popular, it is also true. The number of families and individuals in poverty and economic hardship has risen. The poverty rate for 2005 was 12.6 percent, up from 11.7 percent in 2001. There are 36 million Americans in poverty and the bulk of these (13 million) are children. One third of all African-American children in America lives in poverty; 23.9% of all African-American seniors live in poverty, compared to a national average of 9.8% of all elderly, 65 and over.

• What is emerging is a frightening picture of growing economic inequality and financial disparity in America. Money made in the 1990s and early part of the 21st century flowed upward; it didn’t trickle down as promised. More and more Americans are working harder and harder so that a smaller and smaller group of people at the top can do well, enormously well. (In the 1970s, the wealthiest 1% of the population owned 20% of all private wealth. Today, the top 1% owns over 34% of all private wealth.)

This inequality shows itself in stark and subtle ways. An Oil Price Information Service study indicated that lower income Americans spend 8 times more of their disposable income on gasoline than their wealthier neighbors do. Fewer and fewer well-off Americans are relying on the public services, civic organizations, and community structures that everyone else must depend on. Living in gated communities, playing at private clubs, designing their own recreational venues, the well-off in America have simply “privatized” their family’s educational and security needs. Instead of relying on and sharing the burden of public education, community libraries, and public transportation, they have simply left the “public square,” withdrawn from community action, and become more and more isolated from the public parks, public works, and common wealth we all depend on to make American democracy work well for all of us. No wonder they want further tax cuts! Power is shifting in America and ordinary voters, unionized workers and wage earners are losing ground to big money investors and campaign contributors who are more interested in corporate interests than in our common tasks and responsibilities.

The crisis we face is deeper than any quick bailout can fix. Andree Zaleska of the Boston office of the Institute for Policy Studies said it succinctly – “We are not going back to some golden age of economic growth based on empire, unfettered capitalism, and cheap energy – nor do we want to! We have to! prepare ourselves and our communities for transformation.”

A shift is what is demanded of us ...