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HIGH FINANCE
Part II
All Scripture references
are to the Anglicised New International Version (NIV-UK) unless stated
otherwise.
Let no debt remain
outstanding, except the continuing debt to love one another,
for he who loves his
fellow-man has fulfilled the law.
Romans 13: 8
The
first part of this two-part article appeared in the end-December 2011
Newsletter, and is available on our site
here.
THE NORTHERN ROCK once ranked number eight
in the top ten of British high street banks. The name is a legacy from the
mutual societies which merged in 1965 to form the Northern Rock Building
Society. In September 2007 Northern Rock failed to obtain loans to fund the
daily operation of its business and was forced to apply to the Bank of England
for emergency support. The news of its financial embarrassment triggered a run
on the bank. Customers frantically withdrew their money.
The run on Northern Rock was the first for a
British bank in 150 years and has become the defining event of the ‘credit
crunch’ – the systemic drying up of lending in the European and American
finance sectors. The British government intervened to rescue the bank,
effectively taking ownership. As the crisis deepened, the government was forced
also to bail out the Royal Bank of Scotland and Lloyds, both large, established
banks. These debacles tarnished the reputation of bankers in general, once
regarded as steady, conservative and dependable.
Who Can You Trust?
The goldsmiths of seventeenth-century London
worked – as the name suggests – with the precious metal to make jewellery and
to fashion gold-plated goods. Accustomed to storing items of high value and
handling large deposits, goldsmiths maintained ‘running cashes’ or current
accounts for their customers. From their reserves of coins they made loans. The
goldsmith was both banker and craftsman.
John Freame, apprentice to the London goldsmith,
Job Bolton, joined with Thomas Gould in 1690 in using their goldsmith’s trade
to secure deposits, offer easy withdrawals and lend cash. Both were Quakers.
Faithful to his creed, the Quaker’s simple and strict pattern of holy living
gave him a reputation for trustworthiness. Though often ridiculed for his
peculiar ways, the honesty of the Quaker became itself a hallmark.
Deceitfulness of Riches
Freame and Gould made a great success out of
their banking enterprise and this gave Freame no small scruple over his income.
Riches present a difficulty to the Christian (Mark 10: 25): -
It is easier for a camel to go through the eye of a needle
than for a rich man to enter the kingdom of God.
The self-sufficiency that comes from possession
of a fortune and the comfortable living that accompanies it can compromise the
simple faith that Christians endeavour to cultivate. Freame’s talent for
banking was moderated by his conscience – a guide and measure of how money
ought to be used and to whom he should lend. After Freame’s death the business
passed to his grandsons, David and John Barclay, the founders of Barclays Bank.
High Finance
The Barclays Group is wealthier than many of the
world’s nations. Computerised stock trading and risk-spreading investments are
just two of the financial instruments used to garner funds into the banks’ coffers.
The large profits of the Group are reflected in the pay of its top-level staff,
whose salaries and bonuses amount to millions of pounds. Prior to the collapse
of the world’s financial system beginning in 2007, high levels of earning in
the financial sector were considered justified by the overall success of the
industry. The public now takes a different view. Repulsed by the avarice which
underlies the financial markets, they are casting about for more reliable
investments.
No-Interest Lending
Sharia finance appears to offer an ethical
alternative. The uncertainty and falling interest rates of the traditional
banking industry prompted many investors to look East. Founded upon Islamic
law, Sharia finance offers loans and credit on principles similar to those of
the Old Testament. It forbids charging interest on a loan. Profit must be
derived from legitimate trade or investment in assets.
More than a parochial service to domestic and
retail customers, the Islamic banking model has proven itself a competitor to
the traditional Western model. Sharia-compliant finance has funded the oil
industry and property boom in the Middle East. Islamic banks issue bonds which
grant the buyer a claim on the wealth generated from the investment.
Nonetheless, there is still the possibility of loss. Regardless of the ethical
integrity of the bank, the issuer of the bonds does not offer a guaranteed
return and the buyer is expected to shoulder some of the risk.[fn]
A Basket of Cracked Eggs
Dividing up the risk so that the losses of the
few are borne by the many is a practical strategy – it is the essence of
insurance: the gamble pays off only when the odds are relatively low. But a
fundamental cause of the current credit crisis was this sharing of risk. The
American practice of issuing unsound mortgages, ‘bundling’ them, and selling
them on to financial institutions around the world helped to precipitate the
collapse of the system.
The cascading effects resulted in a massive loss
of trust among investors at every level. Confidence between banks was eroded as
each grew wary of buying more bad debt from the other. This suspicion filtered
down to the high street and broke the public’s trust in the entire banking
system. Governments scrambled to limit the damage, doling out vast sums of
money to the troubled banks to keep them solvent, and additionally beefing up
government guarantees on customers’ deposits in the event of a bank’s collapse.
Crisis in the Eurozone
The Apostle James exhorts Christians to trust in
God and not in chance (James 4: 13-15): -
Now listen, you who say, ‘Today or tomorrow we will go to
this or that city, spend a year there, carry on business and make money.’ Why,
you do not even know what will happen tomorrow. . . . Instead, you ought to
say, ‘If it is the Lord’s will, we will live and do this or that.’
As the British people grew more prosperous and
confident of a rosy future, borrowing became standard practice. In our day,
there is less dishonour attached to being in debt. But 150 years ago, the fear
of poverty imposed thrift and industry; the borrowing of large sums was
considered a sign of a dissolute lifestyle. Religious mores held sway and the
virtue of living within one’s means was widely understood. Now the modern western
economy depends on people borrowing and spending. Mortgages, personal
loans and credit cards are the usual means of buying cars and high-cost
household items.
The Apostle James’ lesson has been given a
practical demonstration in the ongoing crisis of monetary confidence in the
Eurozone. Some of the governments linked to the Euro had for years spent more
than they took in through trade or taxes. When the credit system faltered, the
financially-distressed governments were forced to prop up their economies through
increased borrowing. This had the effect of raising the cost of borrowing,
until it became evident that they could not repay their debts. Despite the
intervention of the European Central Bank and other central banks to maintain
the value of the Euro, the more vulnerable European economies (Greece, Ireland,
Portugal, Spain, Italy) continued to slide, triggering lay-offs, cuts in social
benefits, and sometimes riots in the streets. And because the various banking
regimes are linked through trade and investment, most Western economies have
been more or less damaged. The ongoing crisis heralds an age of austerity
across Europe and North America.
Under immediate threat is the post-war vision of
a united Europe, one that abounds in the wealth of mutual industry and
commerce. To repair and maintain the unity a further sacrifice will be
required: a transfer of wealth from rich to poor. Each country bound to the
Euro will be faced with diminished revenue and be obliged to cut welfare
services, even as they are compelled to raise taxes. Whether the Euro and the
European Union can survive over the long term is an open question.
In Britain, itself stressed by economic
pressures, the necessity of contributing financial support to Europe is
beginning to chafe. Prime Minister Cameron’s veto of a revised European Treaty
aimed at imposing fiscal uniformity fits with Britain’s island perspective. But
in this twenty-first century world, criss-crossed by the tentacles of global
finance, linked economies and peopled with workers constantly on the move, no
nation can prosper in isolation.
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NOTES
Citations to Web pages are correct as of the
dates retrieved, but sites may expire or be moved.
^[fn]Financial Services Authority (FSA) Britain’s
regulator, summarises the principles of Sharia banking on its Website: <http://www.fsa.gov.uk/pages/About/Media/notes/bn016.shtml> (retrieved 11
January 2012)
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Article copyright January 2012 by
ukbiblestudents.co.uk
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