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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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Discussion (14)
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.....
dg
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.
Peter J. Nickitas
Minneapolis, MN
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.
Morton Roodman
Singapore, Singapore
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.
Moishe
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.
Peter J. Nickitas
Minneapolis, MN
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.
Morton Roodman
Singapore, Singapore
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
Jess
Seattle`, WA
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.
David
Mariposa, 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.
Mort Resnick
Oxnard, CA
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.
Mike
New Hempstead, NY
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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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