Tuesday 25 August, 2009

Economy
UK

RBS Bank in Jersey

By Andrew Halloway

Technically the recession may be over, say economists, but the impact will linger for years to come, as the country struggles to pay back massive debts.

Yet according to the Chaplain of London’s financial district, the Bible had the answer all along. If bankers had stuck to biblical standards, we might never have had a recession.

Giles Fraser, Canon Chancellor-elect at St Paul’s Cathedral and Reverend to the City, says the Bible denounces usury – the lending of money at an exorbitant rate of interest. Apparently, this biblical wisdom goes to the heart of the banking crisis that got us into our present financial mess.

Fraser has been active in a multi-faith delegation called the London Citizens, who recently met with the Royal Bank of Scotland to ask for the creation of a credit card that has its interest rate capped at 10%. Some credit cards are charging 40% or more, even though the Bank of England base rate is at an all-time low.

The chaplain says: “It sticks in the throat that taxpayer-subsidised banks like RBS are entitled to act as little better than legalised loan sharks to claw back money they threw away on crazy investments and eye-popping bonuses.”

But usury is more than just a moral issue. Avoiding it makes good financial and business sense.

Fraser explains: “No less a figure than Adam Smith, that great patron saint of the free market, argued the problem with unlimited interest rates is that they steer investment into risky projects that may indeed make the lender a fortune, but are by definition more likely to fail.

“Thus money is ‘kept out of the hands which were most likely to make a profitable and advantageous use of it, and thrown into those which were most likely to waste and destroy it. When the legal rate of interest is fixed, sober people are universally preferred.’”

But when bonus-driven bankers, who have little to lose if investments fail, are free to set extortionately high rates of interest, they will lend to pretty much anyone if there is a chance of getting their money back with such a high profit margin. They have little incentive to lend to responsible people and sensible projects at a low rate of interest when there is potentially much more profit in lending to the cavalier risk-takers.

Fraser says: “Here is the root cause of casino capitalism. On the other hand, if interest rates were capped then money would be driven into reasonable projects where it is most likely to be productive.

“Of course, some say it is the poor who have most to lose from any cap on interest rates. Unable to charge very high levels of interest, banks would stop lending money to those with poor credit ratings. But would this really be so bad a thing? The have-now-pay-later culture has imprisoned too many families in a mountain of debt. That widescreen plasma TV looks very tempting in the shop. And debt makes it all so easy to buy. But the high interest rate will drain money from the household budget – money that is much better spent on proper meals or new school clothes.”

And it is the average Joe’s household budget that has been hit hardest by the recession – not the high-flying bankers who, even if they have lost their jobs, often are financially secure because they made hay while the sun shined.

Debt help at hand

Debt was a big problem for many families before the recession, and as unemployment has risen it is an even bigger problem now. But a new national Christian charity is offering award-winning help.

In the last ten years Christians Against Poverty (CAP), which operates through local churches, has created 100 branches. It has been voted charity of the year three times, and in 2008 and 2009 the Sunday Times newspaper hailed CAP as the best small company to work for in the UK.

If you have got into financial difficulties, CAP has a national free debt advice line, 01274 760780, which anyone can access and obtain debt advice. Last year, CAP helped 6,250 families out of debt. All their advice is free. See www.capuk.org for more information.

Photo: Public Domain