What Went Wrong?

As I have thought about the current economic world situation as well as some of the struggles facing the Orthodox Church in the United States, I have begun to wonder if there are not certain parallels.  Specifically, a shared lack of awareness of, or maybe indifference to, the human vocation to be wise stewards of the gifts we have been given by a loving and merciful God.

One thing that has helped me understand somewhat the struggles I see in the Church are the findings of a relatively new branch of the social sciences, the economic study of religion.  Applying economic theory, scholars in this discipline work to understand the different choices made in the area religion.

Now one of the different groups I am associated with is Foundation for Research on Economics & the Environment (FREE), based in Bozeman, MT and chaired by the author of the essay I have posted here today, John Baden. 

In some John's earlier scholarship, he looked at how different religious political groups manage the stewardship of shared goods (the "tragedy of the commons").  I thought I word re-post some of Dr Baden's columns here to stimulate some conversation especially on the life of the Church.

As always, your comments, thoughts, questions and criticisms are not only welcome, they are actively sought.

In Christ,

+Fr Gregory

This column was prompted by the question: "Doesn¹t today's economic distress demolish the case for capitalism and free markets?"

Some, who inquired gleefully, anticipated my discomfort; others were genuinely curious and concerned. All were confused about the complex causes of our economic chaos.

I hope this helps clarify their thinking, but first a disclaimer: I'm not a general economist who knows macroeconomics, money and banking, and international trade. Rather, I'm a retired professor and farmer who has studied and written academic articles and books on political economy for 40 years. I focus on the ways in which institutions, that is culture, ethical norms, and law, influence wealth, opportunities, and strategic behavior.

Let's dismiss the claim that the greed of Wall Street and investment bankers caused our distress. Greed is ubiquitous, perhaps for evolutionary reasons. Jewish theologians have wrestled with this character flaw for three thousand years. Yet, Israeli politics remain plagued with pathological greed.

Blaming greed is like condemning gravity; both endure. Responsible people recognize and utilize these forces rather than deny them. It's most constructive to design institutions that contain and direct greed into productive channels, just as engineers put gravity to use in building arches. Obviously, our institutions are flawed, greed has run amuck, and innocent as well as complicit folks are hurt.

Let's first consider the basic function of capitalism. Its success lies in efficiently allocating capital toward profit, the difference between costs and returns. When the system works, market prices provide the information and the incentives to invest where legal returns are greatest.

But this is perhaps not capitalism's greatest asset. In addition to being an engine of prosperity, only free markets spontaneously and peacefully organize the daily, voluntary interactions of millions of primarily self-interested individuals.

Socialism works poorly because it is unable to efficiently coordinate and allocate resources. Hence, it never generates wealth for the masses but socialist elites enjoy privilege and plenty. Their greed rigs the game to their advantage. Likewise, America's investment bankers have rented and bribed politicians to rig the game to socialize risks and privatize profits. Fannie and Freddie's failures and rich rewards to former managers, $100 million to one, are prime examples.

Our current problems flow largely from Wall Street bankers' financial innovations. They discovered ways to profit by misallocating capital, and in the process they decoupled risk from their returns. Under legislation for which they lobbied, they were rewarded for pumping evermore capital into overvalued housing. Viewing their houses as ATMs, people bought consumer goods far beyond their means. (Expect massive credit card default next.)

Investment bankers arranged highly arcane financial instruments covering their loans with understated risks. Loans were bundled, sold internationally, and insured by American International Group (just bailed out with nearly $125 billion from the federal government) among others. This process endured as poor risk management was fostered by profits from capital misallocation.

Further, Wall Street adults who should have been in charge and responsible, didn't understand the complex, mathematical models directing investment decisions. Senior management ignored the admonition to loan money only to those likely to pay it back.

While some bankers knew better, the net result of bad loans is the erosion of capital. Assuming recovery, we need institutional reforms that inhibit capital misallocation. For example, removing legal requirements to make loans when risks are not reflected in interest rates. This generates loss while stressing people, especially the poor.

When politicians allocate capital, we can't expect efficiency, but corruption by special interests is certain. Investment banks benefited from this political arrangement. With the Bush Administration encouraging sub-prime lending (the "Ownership Society"), these home loans grew from 2 percent in 2002 to 30 percent in 2006. In October of 2004, President Bush said, "We're creating...an ownership society in this country, where more Americans than ever will be able to open up their door where they live and say, welcome to my house, welcome to my piece of property."

Sub-prime loans were bundled into Collateralized Debt Obligations and rated AAA. With this high rating, investment-banking firms neglected due diligence and sold the bundles worldwide. Defaults and massive write-offs naturally followed, banks collapsed, and we suffer.

That's what went wrong.

John Baden is Chairman of the Foundation for Research on Economics & the Environment (FREE), based in Bozeman, MT.

In his essay "On the Question of the Order of Reception of Persons into the Orthodox Church, Coming to Her from Other Christian Churches," Archimandrite Ambrosius (Pogodin) makes some interesting observations regarding at least the view of the Moscow Patriarchate that bear on the relationship between the Catholic and Orthodox Churches. Fr Ambrosius writes that

Following the Second Vatican Council an agreement was worked out between the Russian Orthodox Church and the Roman Church that, in the case of extreme need and in the complete absence of their clergy, members of the Roman Church could receive the Holy Mysteries in Russian Churches and likewise, the Orthodox in Roman Catholic Churches. We have no knowledge whether this agreement was realized in practice or whether it only remains on paper. Not a single Orthodox Church, with the exception of the Russian Church Abroad, reproached the Patriarch of Moscow for this decision which was called forth by the terrible times and persecutions of Christians under godless regimes. Nonetheless this decision has not been rescinded even now, and the recently printed catechism of the Roman Church published with the blessing of Pope John Paul II speaks of the full recognition of the sacraments of the Orthodox Church. However, there is no doubt that as the result of the proselytism among the traditionally Orthodox population — by Roman Catholics and by Protestants — to which the Orthodox Church reacts with great distress, as well as on the repression against the Orthodox in Western Ukraine and even in Poland — there is no longer that warmth and cordiality towards the Orthodox as there was during the Second Vatican Council and for some time afterwards. However, the incisive question today is this: Has there been any change in the practice of the Roman Catholic or Lutheran Churches with respect to their sacrament of baptism? And the answer is this: Nothing has changed. Thus, our Churches (with the exception of the Russian Church Abroad), recognize the sacrament of baptism performed by Roman Catholics and Lutherans as valid.

(A side note, Fr Ambrosius attended the Vatican II as an official observer from the Russian Church Abroad.)

Contrary to what we some times imagine the divisions between East and West--at least as it pertains to the Orthodox and Catholic Churches--are not as wide as some would imagine.

In Christ,

+Fr Gregory

Missional Theology for a Missional Church « Missional Church Network

The church does not do mission, it is mission. By its very calling and nature, it exists as God’s ’sent’ people (missio = sending). Its worship, its proclamation, its life as a distinctive community, and its concrete demonstration of God’s love in acts of prophetic and sacrificial service are all witness to the good news whose sign and foretaste it is to be.

Such is the consensus of missio Dei theology — but it is hard to translate into the deeply rooted and long since defined classical patterns of western theology. It is equally difficult to translate into the structures of churches which are still shaped by the mindset of Christendom and which have not come to terms with the paradigm shift that surrounds them.

No area of theological work or churchly practice is untouched by the theological agenda of the Missio Dei. This is demonstrated by the ways in which the study of missiology has evolved in this century. From a rather narrow focus upon the expansion of western Christianity and it implications, the discipline today intrudes into every area of theological discourse.

It is still possible to find seminary courses on “the theology of mission.” But the global paradigm shift requires now that we do “missionary theology.” This is the missional challenge that confronts the biblical scholar, the church historian, the systematic theologian, and the practical theologian.

Darrell Guder is Princeton Theological Seminary's Dean of Academic Affairs
and the Henry Winters Luce Professor of Missional and Ecumenical Theology