Fed Cred

Ad fontes—to the source!

“Holy Cow, Batman! What about the credit crisis?”

“Well, Robin, it’s not really about money.”

“Not about money?! Then what is the problem?”

“Some say it is a credit crisis. Some say its a lack of market confidence, that people need to trust the market. But I say, ad fontes.”

Ad fontes was a motto of the Protestant Reformation that suggests that in order to correctly understand the issues we need to return to the primary sources. They meant the Greek and Hebrew texts of the Bible, but that’s not what I mean. I mean that we need to return to the primary definitions of the English words that describe our current financial crisis.

Most financial analysts tell us that the problem is that credit is drying up and without credit lending cannot happen, which means that businesses cannot get the capital they need to function. That is essentially correct. But what is really behind the money problems? The problem is that credit is drying up. But credit is not money.

Money is not the problem. Money problems are a symptom of the problem. Money is a measure of value. It measures worth. When a thing costs a lot, it means that it is worth a lot. The more people want something, the more they are willing to pay for it. It is not scarcity alone that drives price. Something scarce that nobody wants is still cheap. Money is simply an indicator of value. It indicates what people value. So, a money crisis suggests a values problem, a credit or credibility problem.

Those who cannot manage their money actually have a values problem that manifests itself through the wrong or inappropriate things they spend money on. People in America aren’t actually poor, they have a values problem. They don’t correctly value education, learning, discipline, hard work, etc. Giving a poor people more money is seldom the solution to their problems. If their problem is poor personal management, they will simply manage more money just as poorly, and they will remain unable to accumulate capital, to get out of the hole they’re in. Everyone who lives beyond their means, regardless of how much money they make, is in this category.

In addition, money won’t solve drinking problems, gambling problems, marital problems, etc. In fact, money doesn’t solve any of our most serious problems. It can’t, it’s only a measure of value. I understand that this doesn’t make common sense to most people. But then again the fact that certain values are common doesn’t make them sensible either.

Values are tricky, hard to understand. What people value the most are the things that they believe most strongly. Values are the expressions of our beliefs. Or to say it another way, our most fundamental beliefs create our values—and this is not only related to our current credit crisis, but is at the very heart of it.

The word credit means to have trust in something, or to trust in the truth or veracity of something. It’s root (source) is the Latin word credo, which means to believe. Lenders give credit to those who they believe will pay them back with interest. Financial pundits tell us that we need to have trust in the fundamental soundness of the market, that our trust in the market is what makes the market sound. But there is a fundamental error in this thought, an error that marks the difference between a dupe and a cautious skeptic.

Trust in the market is fine, unless the market is itself untrustworthy. And when a market is untrustworthy it is foolish to trust it. So, rather than emphasize our trust in the market, it makes more sense to emphasize the markets trustworthiness. In the former case the burden is on the people to exercise trust, in the latter case the burden is on the market to exercise trustworthiness. The two things are related, but trustworthiness must precede trust.

What makes the market untrustworthy? Toxic credit issued by unscrupulous lenders to untrustworthy people in order to create notes (agreements, paper) to sell for a quick profit before the debts drive the person into bankruptcy or foreclosure. Toxic credit is a form of greed and corruption, and it has infected the market. Toxic credit is a form of false belief, and unfortunately false beliefs tend to cluster.

The Fed wants to provide sufficient market liquidity to keep the market from crashing in the hope that the problem can be fixed by regulation. The bail out is a short-term fix that will continue a broken system. Maybe it will buy enough time to fix the problem, and maybe not. Nonetheless, once the wolf of depression is chased off the doorstep, the question remains as to whether market credibility can be legislated.

Of course, legislation—the right legislation—will help. But credibility like morality cannot be legislated. Legislation helps by making certain practices illegal. So, in the same way that other kinds of laws help retard some expressions of criminality, legislation will help. But legislation won’t help unscrupulous people curb their greed, selfishness and pride.

What we really need is an infusion of righteousness (integrity), where righteousness (integrity) means adhering to moral principles, doing things right—not just for personal gain, but because doing things right is the right thing to do. This crisis we face is actually more of a righteousness or integrity crisis than a credit crisis. It’s more about our cumulative social morality, our cumulative social integrity or righteousness than our money. How can I say this? Well, if unscrupulous financiers hadn’t hidden toxic notes in the bundling of investment vehicles, and if the credit industry and investors weren’t so infected with greed by shoving credit (cards) down the throats of every man, woman and dog in America, we wouldn’t be here.

But we are. And the fact that we are here means that our money, which is a measure of the things we value, is tainted. Tainted with what? Tainted with immorality, unrighteousness and a lack of integrity—sin.

We know that righteousness fixes sin. But we (the corporate we, the social we, the market we) don’t seem to have any righteousness—or certainly not enough. So the most helpful question to ask is, Where will we find it?

Ad fontes!