Debt. The common view is that it’s reasonable to incur some debt during the journey from adolescence to dotage. “Anonymous” called my attention to the subject when she commented this afternoon on a post The Erstwhile Conservative had about it last April. It was occasioned by a man who asked Christian financial guru Dave Ramsey about the morality of accepting unemployment compensation after being laid off. The E.C. thought it an odd question, but maybe it’s not given the stark contrast in political philosophies between the two parties now. The Tea Party is primarily motivated by the high national debt and advocates strong medicine to bring it down, even apparently to the extent of austerity measures like those being employed in the European Union. The Democrats however see debt as an essential tool for the Keynesian management of the economy as the Obama administration struggles to pull out of the financial nose-dive of late 2008, something recognized as necessary even by the Bush administration when it started TARP.
In his post the E.C. makes the important point that, contrary to Dave Ramsey’s opinion, social programs like unemployment compensation and Social Security are reasonable financial buffers for the vagaries of financial fortune, simply because bad stuff happens both nationally and personally. In effect, such programs represent a national insurance program that is collectively paid for by taxes and as such are, in his opinion, thoroughly moral. I find it a reasonable argument even though my personal philosophy has always been to minimize debt. Still, the question about the morality of debt remains unresolved.
The recent housing bubble resulted from bad debt management by government, the finance industry and by individuals. Powered by government indulgence and corporate greed facilitated through lobbyists, way too many mortgages were contracted to people who couldn’t afford them. Down payments were small or non-existent and the problem was then compounded by the mortgage industry being allowed to bundle the weak mortgages into financial “instruments” that appeared to have the government-backed protection of Fannie Mae and Freddie Mac. Turns out they did have it because they and the big banks got bailed out and, as usual, it was the little people that suffered. Who was to blame? I submit that everybody involved was, including the house-buyers who overextended themselves, sometimes doing it just to try to “flip” their purchase.
Did you ever wonder what the mortgage industry was like before World War II? I looked up the history of the FHA in Wikipedia and discovered that during the Great Depression “most home mortgages were short-term (three to five years), (with) no amortization, (and) balloon instruments at loan-to-value (LTV) ratios below fifty to sixty percent.” The National Housing Act of 1934 changed all that and the FHA enabled the post-war housing boom. As a result, mortgage debt loads previously unheard of were made respectable and home ownership increased from 40% in the 1930s to nearly 70% in 2001.
On the subject of debt morality it is helpful to go back even further in time. Article III, Section 3. of the U.S. Constitution contains this interesting debt-related sentence:
The Congress shall have Power to declare the Punishment of Treason, but no Attainder of Treason shall work Corruption of Blood, or Forfeiture except during the Life of the Person attainted.
Attainder? Corruption of blood? It has to do with government’s power to affect your finances. I had to look it up and Wikipedia again came to my rescue.
In English criminal law, attainder or attinctura is the metaphorical “stain” or “corruption of blood” which arises from being condemned for a serious capital crime (felony or treason). It entails losing not only one’s property and hereditary titles, but typically also the right to pass them on to one’s heirs. Both men and women condemned of capital crimes could be attainted.
The rest of the entry explains that the legal device was used regularly by British kings to keep the nobility in line and it was very effective because it meant losing one’s financial and legal identity, being reduced to a commoner subject to torture, and through the “corruption of blood” clause to the denial of any inheritance by one’s descendants. That’s harsh, and I can see why the founders thought to protect the citizens from such untoward and far-reaching power of government. Maybe they should have specified a minimum percentage of mortgage down payment while they were at it. I guess they could not conceivably have foreseen credit card debt. And then there’s student loan debt, probably the next government-backed debt-bomb about to explode. That’s something young people have been led into because “everybody does it” and because the government appears to approve of it. (Sound familiar?) All I can do is to urge moderation in all things, and especially in debt, a necessary evil.