Wednesday, 11 November 2009
Monday, 9 November 2009
We are lucky just now in having a Chief Rabbi who is always worth listening to, whether in philosophical and social analysis or jokes. But in his Theos lecture last week, the thing that stuck with me came up casually in the question session at the end. It was about Islam in modern society. Rabbi Jonathan Sacks observed that the advantage of being Jewish is that for 2,600 years you have learnt to “sing in a minor key”, in societies you did not dominate. Christianity, he said, is learning this as its numbers decline, but Islam is new to the experience.
The musical metaphor works. Jews maintained their identity in diaspora, a perennial minority. Yet they have added their voice to many a social choir, enriching and counterpointing without expecting to play the lead. The prophet Jeremiah did not urge his co-religionists in Babylonian exile to become terrorists: he told them to wish no ill to their new neighbours but “Seek the welfare of the city where I have sent you into exile, and pray to the Lord on its behalf, for in its welfare you will find your welfare.”
For Christians, too, there was a time of minority. Jesus ordered followers to render their dues to Caesar, and the early Church enjoined “Honour the Emperor”. Contemplating the later corruptions of Christian authority in crusades, persecutions and forcible conversions, words such as “Christendom” ring bitterly: the “dom” of domination jars with the gentleness of the founder.
There were benign social and aesthetic effects of homogeneous European Christianity, but against those must be set its abuses: hypocrisies, cruelties, petty rules. Authoritarianism and self-righteousness are the chronic diseases of religiosity, and no corruption of power is worse than the perversion of religion, because religion claims to speak to the deepest private part of us. For an illustration of that, ask yourself whether it is worse to stop a child’s pocket money for being obstreperous, or to inform him that he is sinful and likely to burn in hell forever.
So faith and power are not good bedfellows, and I for one am always glad to see religion kicked out of bed by a secular state. Not least because religion can then stand upright, and in the words of George Fox, founder of that perennial minority the Quakers, “. . . walk cheerfully over the world, answering that of God in everyone”.
Curiously, however, because of the prevailing mildness of established Anglicanism in Britain we have a unique situation: real power has left the Church but it remains a useful ritual figurehead. Yesterday we stood in a vast crowd by the war memorial in Oxford while the Salvation Army band played and the City Rector prayed alongside Muslim, Hindu, Jewish and Sikh representatives. Harmoniously.
But that was about shared sorrow and respect: not power or evangelism. Christianity now, said Rabbi Sacks, is having to learn the Jewish lesson about being a minority that enriches and harmonises, modestly. Some Christians are learning it better than others: the rise of a spiteful “moral majority” in parts of the US is dismaying, with the pious terrorism that bombs abortion clinics and torments homosexuals. Equally deplorable is the stranglehold of the Catholic Church in countries where it impedes humane campaigns against Aids because it cannot tolerate condoms, even for married couples where one partner is infected.
The minor key need not involve diluting faith. Hindus, Buddhists, Sikhs and others seem to know instinctively that you can treasure your beliefs and customs, cautiously welcome serious converts, yet not throw your weight around or go out of your way to give (or take) offence. Surrounded by infidels, you treat them politely and think your own thoughts. And while you may be stern on morals within your own community, if you live under a civilised democratic law you abide by it, and refrain from harming your apostates or murdering your daughters for loving the wrong man.
But some Muslims, said the Chief Rabbi without disrespect, have yet to learn the knack of the minor key. Which is understandable: it is a younger faith, and ruled great empires in the age before globalisation. Like Catholicism, it thrived on authority: a statist faith that can burn, behead, flog and imprison is always attractive to some. Islamist extremists now — impotent and prickly, beached in secular Luton or Bradford or Boston — may feel it shameful to be a “tolerated” minority. Hence the murderous vainglory of suicide videos, and before that the crazy rantings we ignored for far too long from Abu Hamza al-Masri on his Al-Jihaad site (“[Unbelievers] are filthy scum of the earth . . . beneath the level of the cattle. We must crush them without mercy . . . So now it is time to make your decision . . .” ).
Decent Muslims, undoubtedly a majority, opt like Jews and sane Christians for the minor key and the modesty of a settled faith which resolves neither to despise nor proselytise. But it takes discipline and rationality to hold a strong private faith and moral culture while living in a society that does not share it. If society must tolerate diverse faiths, so must faiths return the compliment and pragmatically avoid clashes. It seems ever more obvious that Major Nidal Malik Hasan of Fort Hood, dismayed when his country went to war in Iraq and Afghanistan, should have left the US armed service promptly, and been allowed to do so. Instead he blogged, ranted and seethed until he cracked and murdered 13 people who trusted him.
Equally, on a lesser matter, it seems obvious that when her country’s law brought in civil partnerships, the Islington registrar who huffily refused to perform them on Christian grounds should just have sighed, muttered a prayer and found another job. One makes sacrifices for one’s beliefs, surely? The tribunal should never have rolled over as it did, agreeing to exempt a public servant from civic duty. Religion is religion, law is law. Render unto Caesar.
It’s a hard lesson to learn. But once it has been learnt, as Judaism has found, it brings great rewards. You can be a citizen, valued and accepted and eminent, yet preserve your faith, rituals, roots and community values. Your voice can harmonise with the diverse choir around you without being drowned or cracked. It can be done. There are many roads up the holy mountain, and no need to chuck rocks down on people you consider to be on the wrong one.
The musical metaphor works. Jews maintained their identity in diaspora, a perennial minority. Yet they have added their voice to many a social choir, enriching and counterpointing without expecting to play the lead. The prophet Jeremiah did not urge his co-religionists in Babylonian exile to become terrorists: he told them to wish no ill to their new neighbours but “Seek the welfare of the city where I have sent you into exile, and pray to the Lord on its behalf, for in its welfare you will find your welfare.”
For Christians, too, there was a time of minority. Jesus ordered followers to render their dues to Caesar, and the early Church enjoined “Honour the Emperor”. Contemplating the later corruptions of Christian authority in crusades, persecutions and forcible conversions, words such as “Christendom” ring bitterly: the “dom” of domination jars with the gentleness of the founder.
There were benign social and aesthetic effects of homogeneous European Christianity, but against those must be set its abuses: hypocrisies, cruelties, petty rules. Authoritarianism and self-righteousness are the chronic diseases of religiosity, and no corruption of power is worse than the perversion of religion, because religion claims to speak to the deepest private part of us. For an illustration of that, ask yourself whether it is worse to stop a child’s pocket money for being obstreperous, or to inform him that he is sinful and likely to burn in hell forever.
So faith and power are not good bedfellows, and I for one am always glad to see religion kicked out of bed by a secular state. Not least because religion can then stand upright, and in the words of George Fox, founder of that perennial minority the Quakers, “. . . walk cheerfully over the world, answering that of God in everyone”.
Curiously, however, because of the prevailing mildness of established Anglicanism in Britain we have a unique situation: real power has left the Church but it remains a useful ritual figurehead. Yesterday we stood in a vast crowd by the war memorial in Oxford while the Salvation Army band played and the City Rector prayed alongside Muslim, Hindu, Jewish and Sikh representatives. Harmoniously.
But that was about shared sorrow and respect: not power or evangelism. Christianity now, said Rabbi Sacks, is having to learn the Jewish lesson about being a minority that enriches and harmonises, modestly. Some Christians are learning it better than others: the rise of a spiteful “moral majority” in parts of the US is dismaying, with the pious terrorism that bombs abortion clinics and torments homosexuals. Equally deplorable is the stranglehold of the Catholic Church in countries where it impedes humane campaigns against Aids because it cannot tolerate condoms, even for married couples where one partner is infected.
The minor key need not involve diluting faith. Hindus, Buddhists, Sikhs and others seem to know instinctively that you can treasure your beliefs and customs, cautiously welcome serious converts, yet not throw your weight around or go out of your way to give (or take) offence. Surrounded by infidels, you treat them politely and think your own thoughts. And while you may be stern on morals within your own community, if you live under a civilised democratic law you abide by it, and refrain from harming your apostates or murdering your daughters for loving the wrong man.
But some Muslims, said the Chief Rabbi without disrespect, have yet to learn the knack of the minor key. Which is understandable: it is a younger faith, and ruled great empires in the age before globalisation. Like Catholicism, it thrived on authority: a statist faith that can burn, behead, flog and imprison is always attractive to some. Islamist extremists now — impotent and prickly, beached in secular Luton or Bradford or Boston — may feel it shameful to be a “tolerated” minority. Hence the murderous vainglory of suicide videos, and before that the crazy rantings we ignored for far too long from Abu Hamza al-Masri on his Al-Jihaad site (“[Unbelievers] are filthy scum of the earth . . . beneath the level of the cattle. We must crush them without mercy . . . So now it is time to make your decision . . .” ).
Decent Muslims, undoubtedly a majority, opt like Jews and sane Christians for the minor key and the modesty of a settled faith which resolves neither to despise nor proselytise. But it takes discipline and rationality to hold a strong private faith and moral culture while living in a society that does not share it. If society must tolerate diverse faiths, so must faiths return the compliment and pragmatically avoid clashes. It seems ever more obvious that Major Nidal Malik Hasan of Fort Hood, dismayed when his country went to war in Iraq and Afghanistan, should have left the US armed service promptly, and been allowed to do so. Instead he blogged, ranted and seethed until he cracked and murdered 13 people who trusted him.
Equally, on a lesser matter, it seems obvious that when her country’s law brought in civil partnerships, the Islington registrar who huffily refused to perform them on Christian grounds should just have sighed, muttered a prayer and found another job. One makes sacrifices for one’s beliefs, surely? The tribunal should never have rolled over as it did, agreeing to exempt a public servant from civic duty. Religion is religion, law is law. Render unto Caesar.
It’s a hard lesson to learn. But once it has been learnt, as Judaism has found, it brings great rewards. You can be a citizen, valued and accepted and eminent, yet preserve your faith, rituals, roots and community values. Your voice can harmonise with the diverse choir around you without being drowned or cracked. It can be done. There are many roads up the holy mountain, and no need to chuck rocks down on people you consider to be on the wrong one.
Good article:
Lending must support the real economy
By Dirk Bezemer
Published: November 4 2009 22:21 Last updated: November 4 2009 22:21
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Economists have been mulling over the shape financial reforms should take. Robert Shiller wrote on these pages in defence of “financial democracy”, arguing that a wide range of financial products allows everyone to access liquidity and insure against risk. A week earlier in The New York Times, Paul Krugman pinpointed the way bankers are paid as the focal point of reforms. The problem with these discussions is that they introduce red herrings. Dear top economists, the problem is debt. Any solution that sidesteps this is a non-starter.
As I wrote in the FT last month, the crisis and recession were not all that difficult to predict once you started to look at the flow of funds – at credit and debt – and at the financial sector as separate from the real economy. Following the same logic, it should now be fairly uncontroversial what our long-term aim in financial reform is. It is to redirect lending away from bloating the financial sector and towards supporting the real economy, rather than loading it down with debt.
In the 1980-2007 era of cheap credit and deregulation, banks had every incentive to move from real-economy projects, yielding a profit, towards lending against rising asset prices, yielding a capital gain. In the 1990s and 2000s, loan volumes rose to unprecedented levels, supporting global assets booms in property, derivatives and the carry trade. The share of lending by US banks to the US financial sector – instead of to the real economy – went from 60 per cent of the outstanding loan stock in 1980 (up from 50 per cent in the 1950s) to more than 80 per cent in 2007.
But the price was growing indebtedness. Profit and capital gains may look much the same to the individual bank – a stream of revenues – but they have different macroeconomic consequences. Lending to the real sector is self-amortising: it creates a debt, but also the value-added to repay principal and interest. Such loans enlarge the economy in proportion to the debts created and are financially sustainable. By contrast, loans to create or buy financial assets and instruments are not, by themselves, self-amortizing. In a credit boom, successive owners may sell the asset at a profit, but their buyers will have to shoulder proportionally more debt in order to acquire the asset, balanced (for the time being) by the asset’s value. Asset trading may be individually profitable; but it is a zero sum game, sustainable only if the real economy furnishes enough money to support the rising debt burden. Beyond a point, the lure of capital gains diverts funds from real-sector investment, and households’ rising debt-service cuts demand for real-sector output. In both ways, excessive growth of financial asset markets is self-defeating.
This logic may be traced in the statistics (all figures from the Bureau of Economic Analysis). The US stock of loans to the real sector (as a proportion of gross domestic product) has remained roughly constant since the 1980s. In contrast, loans by US banks to other US banks have grown from 2.5 times GDP in 1980 to a factor of 5.8 in 2007 – all attributable to growth in loans to the financial sector. The US financial sector was over three times larger in 2007 compared with 1980.
Credit flowing into asset markets created a debt overhead while the real economy’s capacity to pay the debt declined. Demand for the real sector’s output also suffered as US households by 2007 were paying over a fifth of their after-tax, disposable income to the financial sector in debt servicing and financial fees. The US had become an economy trying to drive with the brakes on. The real-sector recession, after the 2007 financial crisis, occurred because the real economy had become overly dependent on continued lending against rising asset values. Those are the trends that financial reforms must curb.
A promising policy avenue is tax reform. During the asset boom of the last decades, taxes on capital gains in the US, UK and most other OECD economies have fallen sharply relative to value added tax and labour taxes. When the banks have recovered, they need a regulatory and policy climate that discourages the pursuit of capital gains for their own sake, and which favours growth of the real economy. Finance should be the economy’s handmaiden, not the other way round.
In this perspective, it is beside the point to focus on exorbitant bonuses or financial democracy. In fact, Mr Shiller’s proposal risks boosting yet again the volume of financial instruments and the debts they generate. Didn’t we once welcome credit derivatives for extending mortgage finance to the financially unreached? We forgot that such instruments need to have a basis in the real economy. Likewise, enthusiasm about the rally in asset markets (even as the real economy continued to contract) shows how widespread the confusion between the financial sector and the real economy is. The priority now is not to revitalise asset markets, but to transform a bloated and dysfunctional financial sector towards one that supports the real economy in a sustainable and cost-efficient way.
The writer is a fellow at the Research School of the Economics and Business Department, University of Groningen
Copyright The Financial Times Limited 2009. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.
Lending must support the real economy
By Dirk Bezemer
Published: November 4 2009 22:21 Last updated: November 4 2009 22:21
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Economists have been mulling over the shape financial reforms should take. Robert Shiller wrote on these pages in defence of “financial democracy”, arguing that a wide range of financial products allows everyone to access liquidity and insure against risk. A week earlier in The New York Times, Paul Krugman pinpointed the way bankers are paid as the focal point of reforms. The problem with these discussions is that they introduce red herrings. Dear top economists, the problem is debt. Any solution that sidesteps this is a non-starter.
As I wrote in the FT last month, the crisis and recession were not all that difficult to predict once you started to look at the flow of funds – at credit and debt – and at the financial sector as separate from the real economy. Following the same logic, it should now be fairly uncontroversial what our long-term aim in financial reform is. It is to redirect lending away from bloating the financial sector and towards supporting the real economy, rather than loading it down with debt.
In the 1980-2007 era of cheap credit and deregulation, banks had every incentive to move from real-economy projects, yielding a profit, towards lending against rising asset prices, yielding a capital gain. In the 1990s and 2000s, loan volumes rose to unprecedented levels, supporting global assets booms in property, derivatives and the carry trade. The share of lending by US banks to the US financial sector – instead of to the real economy – went from 60 per cent of the outstanding loan stock in 1980 (up from 50 per cent in the 1950s) to more than 80 per cent in 2007.
But the price was growing indebtedness. Profit and capital gains may look much the same to the individual bank – a stream of revenues – but they have different macroeconomic consequences. Lending to the real sector is self-amortising: it creates a debt, but also the value-added to repay principal and interest. Such loans enlarge the economy in proportion to the debts created and are financially sustainable. By contrast, loans to create or buy financial assets and instruments are not, by themselves, self-amortizing. In a credit boom, successive owners may sell the asset at a profit, but their buyers will have to shoulder proportionally more debt in order to acquire the asset, balanced (for the time being) by the asset’s value. Asset trading may be individually profitable; but it is a zero sum game, sustainable only if the real economy furnishes enough money to support the rising debt burden. Beyond a point, the lure of capital gains diverts funds from real-sector investment, and households’ rising debt-service cuts demand for real-sector output. In both ways, excessive growth of financial asset markets is self-defeating.
This logic may be traced in the statistics (all figures from the Bureau of Economic Analysis). The US stock of loans to the real sector (as a proportion of gross domestic product) has remained roughly constant since the 1980s. In contrast, loans by US banks to other US banks have grown from 2.5 times GDP in 1980 to a factor of 5.8 in 2007 – all attributable to growth in loans to the financial sector. The US financial sector was over three times larger in 2007 compared with 1980.
Credit flowing into asset markets created a debt overhead while the real economy’s capacity to pay the debt declined. Demand for the real sector’s output also suffered as US households by 2007 were paying over a fifth of their after-tax, disposable income to the financial sector in debt servicing and financial fees. The US had become an economy trying to drive with the brakes on. The real-sector recession, after the 2007 financial crisis, occurred because the real economy had become overly dependent on continued lending against rising asset values. Those are the trends that financial reforms must curb.
A promising policy avenue is tax reform. During the asset boom of the last decades, taxes on capital gains in the US, UK and most other OECD economies have fallen sharply relative to value added tax and labour taxes. When the banks have recovered, they need a regulatory and policy climate that discourages the pursuit of capital gains for their own sake, and which favours growth of the real economy. Finance should be the economy’s handmaiden, not the other way round.
In this perspective, it is beside the point to focus on exorbitant bonuses or financial democracy. In fact, Mr Shiller’s proposal risks boosting yet again the volume of financial instruments and the debts they generate. Didn’t we once welcome credit derivatives for extending mortgage finance to the financially unreached? We forgot that such instruments need to have a basis in the real economy. Likewise, enthusiasm about the rally in asset markets (even as the real economy continued to contract) shows how widespread the confusion between the financial sector and the real economy is. The priority now is not to revitalise asset markets, but to transform a bloated and dysfunctional financial sector towards one that supports the real economy in a sustainable and cost-efficient way.
The writer is a fellow at the Research School of the Economics and Business Department, University of Groningen
Copyright The Financial Times Limited 2009. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.
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