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Sub-Prime Mortgages (And Other Risky Ideas)

Sub-Prime Mortgages (And Other Risky Ideas)

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With the economy battered from all the hits it has absorbed from the sub-prime mortgage crisis, the finger pointing is in full swing. The "know-it-alls" have taken the elevator up and mounted their high horses, berating irresponsible lenders who recklessly extended loans to undeserving candidates. "What do you expect when you loosen the reins; availing credit to a high-risk population?" they self-righteously postulate to anyone willing to listen.

But is allowing more people the opportunity to buy a home an immoral idea? There must be an upside here somewhere.

Think about your first job, your first client, or the kid who included you in the kickball game on the first day of school. We've all benefited from undeserved kindness, been trusted on potential rather than past performance. No track record, no history of credit worthiness; someone takes a chance, and then the rest is up to us. And so it goes we are trusted and we trust others, we take risks and are entrusted with other's confidence.

It's a hazardous business this trust thing; the opportunities for abuse abound. From laziness to outright cheating, con artists make a nice living off other's munificence. And so many seem to be getting away with defaulting.

And when victimized by the recipient of unearned trust, we tend to shame the other and recoil, lock our trusting instinct away, resolved never to be fooled again. It's a pity. Just as cash stuffed under the mattress sacrifices opportunities, trusts withheld wither and die within.

So now what? Should the FDIC terminate all "high risk" loans, should kids only play with well-credentialed friends? And why should I be a chump and make my payments?


Let's look at this issue from a spiritual perspective. As much as we might dislike facing it, we are all gratuitous beneficiaries. Without even having us filling out a credit application, G‑d has entrusted each one of us with a soul. Before even having done one mitzvah or shown any sign of success, a literal piece of G‑d is ours. No collateral, no cosigner, nothing more than our word to be righteous and not evil, and G‑d places His most precious asset in our untested hands—purely on the optimism that we will justify His risk.

It's so tempting to take the money and run; many seem to get away with it. And despite the evidence to the contrary, G‑d continues to believe that we are a reasonable gamble.

A metaphor: A king makes a feast and invites his most honored ministers to celebrate with him. They dig in to a scrumptious meal. Out in the back, the wait staff and the cocker spaniel eat pretty good too; a banquet like this produces some pretty fine leftovers.

A pragmatic observer might conclude that the dog has a better deal; he eats the same food as the partygoers without fidelity to the monarch—they don't even need a tie. Some might even encourage the guests to "take a hint"; leave the hard work for the poor saps who don't know any better and live off the leftovers. Why not make a decent living without breaking a sweat?

On the other hand, the clever waiter, having brushed up against nobility, resolves to graduate from the kitchen to the dining room.


So know ye all lenders of capital or compassion: there are crooks out there that will betray your trust. Yet the only way to profit is through risk and there is no greater beauty than trust requited. And know all ye recipients of kindness: much can be siphoned from the bighearted, yet if you chose that path it leads to the doghouse when your place card reads "dais."

G‑d is an unregulated lender, trusting undeserving folks with unreasonable capital. Let's make him look like a genius by growing His investment!


Rabbi Baruch Epstein is a Chabad-Lubavitch emissary to Illinois, and serves as the rabbi of Congregation Bais Menachem. He and his wife Chaya are the proud parents of three daughters.
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dg May 26, 2008

greed listen closely........change is here to stay!!!.......so.......if you can't beat them....arrange to have them beaten!!

you die on your feet, or live on your knees..... Reply

Peter J. Nickitas Minneapolis, MN May 23, 2008

Interest and tsedakah The remark on the USSR is an accurate quote of an old saw, with no relevance to the present discussion.

Newer loan-sharking schanden include Bear Stearns. Anyone who thinks that no Jew engaged in sharp business practices since Boesky and Milken is either innocently ignorant, willfully ignorant, or a propagandist.

Rubin, Baruch, Kuhn & Loeb add no merit to Yiddishkeit. Mr. Schwartz I do not know.

Government is more efficient at the delivery of needful services than private players. Social Security has an administrative cost of approximately 1%. No private life insurance plan can claim anywhere near that; 15% is common. Medicare has a 1 - 2% administrative cost per dollar collected; private health insurers have 15 - 24% administrative costs. Canada's health ministries have administrative costs of 0.7%.

Torah will not give refuge to the greedy, or the slothful. Reply

Morton Roodman Singapore, Singapore May 23, 2008

sub-prime Re prohibition on interest - the notion not prohibited is fair return for risk taken. Otherwise, Tzedakah exclusively. And as the USSR showed, 'they pretend to pay us, we pretend to work' when a retrurn on money is totally banned and labelled anathema.

Muilken, Boesky, et al. I prefer the craft of Robert Rubin, Bernard Baruch Z'L, of the fouder of Koor Industries Z'L too, and my fellow Canadian, Gerry Schwartz of Onex Corp., a brilliant billionaire and a philanthropist too. Reply

Moishe May 22, 2008

Again Peter Greenspan? You have to go back 20 years to Boesky-Milken?
The fewer and fewer hands that are ruining the country and world are the governments taking more and more and more and more from those who've succeeded in business and creating very poorly run programs to get the naive masses to vote for them and empower them to solve all of society's problems and that are virtually impossible to monitor or end when they almost always fail. Reply

Peter J. Nickitas Minneapolis, MN May 22, 2008

LENDING Good question. Banking without interest, partnership-like relationships between lenders and borrowers, and interest-free loans are options for bankers, Jewish, Muslim, and non-Jewish alike. Torah prohibited interest-bearing loans which would dispossess people of their birthrights in Eretz Israel. Hillel modified the provisions for loans approaching Yovel, to encourage loans and to benefit the Temple. Interest-bearing loans, and the concentration of wealth in fewer and fewer hands worldwide, is jeopardizing the whole world. This wealth concentration results in the poverty, ecological destruction, and strife which Torah warns against for straying from Torah-Mitzvot. Jewish bankers should avoid even the appearance of exploitation. Those who don't, wind up in the dock. Look at Boesky, look at Millken. Greenspan and Goldman-Sachs will be next. Reply

Morton Roodman Singapore, Singapore May 22, 2008

sub prime lending, a comment on Asset Backed Secur Dear All:

The position taken by the scholar who wrote the piece is one which contains decency and menschlikhkeit re those in our society who simply do not have the immediate cash in hand to buy a house immediately but can service monthly payments spread over 20 year payback period.

Otherwise, where to turn - homeless shelter, beg from relatives, skimp on essentials.

The readers' comments also contain some strong points - BUT, the reference to 125% loans is inaccurate, in extremis. 125% ( over-collatererlized loans when made to sub - prime, higher risk borrowers ), theoretically ensures that 100 of the 125% is re-paid. The extra 25% is the risk factor.

The math needs re-working for sub-prime ABS lending to work well - but do not throw out a noble concept because some guniff insiders manipulated but failed in their machinations, in the end.

G-d has issued the judgement - we mortals must now understand. Reply

Jess Seattle`, WA May 21, 2008

Perhaps I am misunderstanding. I read this article as addressed to the backlash in the wake of the subprime collapse.

It is one thing to say that lenders need to be responsible and to research and document a borrower's financial situation.

However, I've heard a significant amount of talk to the effect that poor people should not receive help to buy homes. That they are undeserving and too risky.

Continue to act with trust and compassion and even to push the edge with these "risky" people as we have been given gifts in great trust and compassion Reply

David Mariposa, CA May 21, 2008

Saving and Loans As an Apprasier we are not swayed to meet a given value by any loan companies or banks we are govern by the state to make our valuation by the give market. It's the same thing we had going in the 1980's greed from the bankers!! Plus we are not to charge other jew's a usery tax. Reply

Mort Resnick Oxnard, CA May 21, 2008

Sub-Prime Mortgages Rabbi, I'm reminded of a sign I saw in a store "In G-d we trust, all others pay cash". I don't see how you can equate Hashem's trust and gifts to us to lenders granting mortgages to people. It's true that by not requiring documentation by borrowers that many unqualified people were granted loans that they shouldn't have received and the lenders are to blame for that and have no one to blame but themselves. You seem to imply that making these loans to undeserving people is comparable to Hashem's trust in us which completely confuses me. Judaism imposes on us obligations not rights. One of our obligations is to deal ethically and honestly with people. We don't have a right to home ownership to be gained by any means available to us , even illegal and unethical ones. Reply

Mike New Hempstead, NY May 21, 2008

To Peter Are you saying that Jews shouldn't be bankers (there are only a few) because some non-jews will then say all Jews are evil? Haven't you noticed that there are people who don't like other people, for no reason? We've always been damned if we do, damned if we don't. Jews have a duty to themselves and the world not to cower in the face of evil people. Reply

dg May 20, 2008

munificence some great article, rabbi.........with super insight........but when does it all end...... Reply

lauren SRQ, FL May 20, 2008

Mortgage crisis IThe cause is greed. It is not because people of iffy credit were granted a chance. Speculators bought many houses and sold for inflated prices. People took loans 125% which is more than the value of their homes to get extra money to pay their credit card bills. Many appraisors were swayed to meet a value that wasn't there for greedy loan brokers. People got interest only loans and adjustable rate loans. It's not like it's going to adjust down. People who chase materialistic things who want them immediately and unscrupulous people along the entire chain from buyer to lender with real estate agents etc. all got in the mix. Some followed the rules and others cheated. It is the greedy cheaters that wrecked abused the bubble. it is like the 1920s and the economy didn't recover until the 1940s. Hope it doesn't take a war this time. Blame greed. Reply

Peter J. Nickitas Minneapolis, Minnesota May 20, 2008

Subprime mortgages Torah permits loans by Jews to non-Jews. Torah does not require such loans. The Alter Rebbe declared that what Torah prohibits is prohibited, and what Torah permits is not necessary. Is is necessary to loan money? Are there not more equitable relationships to create prosperity amongst Jews and non-Jews? Islam found some and prohibits moneylending at any rate. This is a moral issue which we as Jews must address, because non-Jews will smear even the most ethical Jew as a shylock on the weakest pretext.

Public banks, like the Land Bank of Colonial Pennsylvania, make taxation unnecessary because the Commonwealth had enough money for schools and public works from the difference between money lent and money paid on deposits.

Do not blame the borrowers. Do not praise lenders who profited from fraud and governmental acquiescence. Question the very act of lending and consider alternatives which are consistent with Torah. Reply

Dovid Grossman Chicago, IL May 18, 2008

Magnificent ! With the vision of a real chosid, Rabbi Epstein looks at the world around us and finds the moral of today's story just as The Baal Shem Tov taught us.
Thank you once again Rabbi. Reply

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Not "why did this event occur?" but "why did I find out about it?" There must be a reason. It must contain a lesson I can use to better myself and my surroundings. Together we will find the lessons...
Rabbi Baruch Epstein is a Chabad-Lubavitch emissary to Illinois, and serves as the rabbi of Congregation Bais Menachem. He and his wife Chaya are the proud parents of three daughters.
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