Credit's Not a Bad Thing

This work is provoking difficult reactions. I'm getting support from those within the financial industry who feel that the Goldman Restoration is insupportable. From various Quaker sources, the reaction is more complex. Wary, as one would expect (although some at the Quakernomics website seem politely curious about views which at first glance are so comprehensively not theirs). But also disengaged - as though the very idea of thinking carefully about finance might be in itself corrupting. I was rootling around in the library of my local meeting house this week, looking for an account I thought I remembered on borrowing and lending, and I was pursued by one of the Elders. "I'm just not interested in money, you know" she said, "You mustn't think the Quakers have the answers on this."

Let it drop.

But Quakers really don't want you to check your intelligence in at the Meeting House door. So how can I let these questions drop, even though people I love and respect feel so unsettled by them? Finance is a serious thing, and the lopsided international access to credit is the biggest and most stupid (most wasteful) source of global inequality there is. How can one talk of equality if this topic is off limits?

So to work, and damn the torpedoes. What I want to do today is talk about credit - lending. I want to pursuade you, or maybe just remind you, that by and of itself it's no bad thing.

I think the reflex objections to credit are based on the fear of growing rich at the expense of others, and the siren call of luxury. Well, those are pretty good reasons to be wary. But to balance that I'd argue there’s far more poverty, suffering, injustice and enslavement in the world attributable to the absence of credit than there is to its profusion. When we speak instinctively of the lack of fairness in international finance, isn’t this partly what we mean – that if your skin colour is the right shade, and you live in the right part of the world, you have ‘access’ to inordinately more resources than if you aren’t born so prettily. If you’ve spent your career working in financial markets in Asia, you’ll have seen what happens when credit becomes available for the first time. Oh dear, I fear it may be true: HSBC has probably liberated more Asians than Oxfam.

(The logical extension of this, by the way, is that there’s also/even a moral case to be made even for ‘bad loans’. After all, if the real injustice is that people who could usefully use loans (ie, could use them to better their lives, and repay them) can't get them, then part of the job is to find the ‘limit’ of where lending should be made. And the only way you find that limit is by crossing it, breaking it.)

Where excessive caution allows human potential to go to waste, I can see no simple virtue. "The poor without employment are like rough diamonds, their worth is unknown" said John Bellers. I think you can say the same for the poor without credit in vast swathes of the world economy.

More, lending is the flip side of saving. No-one needs convincing of the virtues of saving, but unless people bury their cash, or buy gold (the same thing), their saving properly implies lending and interest payments.

And here we get to the nub of it: banking matters because the banker offers to intermediate between the saver and the borrower. The fact is, this is trusteeship, and it places the banker right at the centre of that 'vast and complex movement of social service.'

The early banking Quakers understood this, I think. A Quaker banker would have at the forefront of his mind the fact that he had taken deposit money on trust, and therefore he had to ensure he didn’t lose it. “If I lend you this money, are you in a position to repay it?” But in taking this care, in accepting this responsibility, perhaps he also brought something unusual to the table – an acknowledgement that a credit contract involves responsibilities not just for the borrower, but for the lender too. The lender has a responsibility to the borrower because he also has a responsibility to the depositor who’s money it is that is being lent. That responsibility starts in, and is implied in, the very extension of credit in the first place. The lender and the borrower have both put themselves in a position whereby they owe each other support.

And this insight,as I understand it, is what also underpins the success (measured by low default rates) of microcredit schemes.

It is also the insight that commercial banks have lost - completely, I think. The problem with ‘credit’ is, in fact, a problem with the institutions which allocate that credit. It is the lack of acknowledgement that borrower and lender have a mutual responsibility to each other, on behalf of the depositor.

So it's to the institutions that we must turn next.