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Justice & Peace – and the Financial Crisis

In his 1904 novel, The Napoleon of Notting Hill, G.K. Chesterton hailed the virtues of the neighborhood, which he deeply believed permitted people to exercise freedom and contained “the essentials of civilization, a chemist’s shop, a book shop, a provision merchant for food and a public house for drink.”

Chesterton was rebuking the “One World” government visions of the utopians H.G. Wells and George Bernard Shaw. Such utopias, for Chesterton, meant “regimentation rather than emancipation, repression rather than expansion.”

Although the novel was published eighteen years before he converted to Catholicism, Chesterton instinctively embraced the basis of Catholic social thought – subsidiarity. Hence, he questioned the likelihood of any single international governing body successfully managing hundreds of nations and hundreds of thousands of national sub-divisions – states, counties, cities, towns, villages, hamlets, tribes. 

Because, Chesterton argues, it is difficult enough to successfully govern a small municipality – thanks to all the bickering that goes on within families and between neighbors – it would be impossible for a handful of potentates perched on the highest thrones to manage a world of billions of bickering people.

Unfortunately, Cardinal Peter K.A. Turkson of the Pontifical Council for Justice and Peace did not read Chesterton before signing off last week on “Towards Reforming the International Financial and Monetary Systems in the Context of Global Public Authority.” Fortunately, this severely flawed document is not signed by the pope and, therefore, not binding on Catholics.

The document begins by explaining the need for all to promote the common good based on the principle of subsidiarity, which is defined as “the higher authority offer[ing] its subsidium, that is, its aid, only when individual, social or financial actors are intrinsically deficient in capacity, or cannot manage by themselves to do what is required of them.” 

So far so good. But then it makes dubious claims that the financial crisis and the worldwide lack of confidence in banks are the result of economic liberalism, utilitarian thinking, technological ideology, selfishness, collective greed, and “hoarding of goods on a grand scale” (whatever that means).

These overbroad and, therefore, deceptive observations lead to the conclusion that to promote “a free stable world economy and financial system at the service of the real economy,” subsidiarity demands the creation of a worldwide financial authority with “universal jurisdiction.” In other words, a supranational tribunal would now regulate even your neighborhood bank. Sounds like a recipe for subsidiarity in reverse to me, and a system likely to result in more and even worse disasters than we’ve already experienced.

         Cardinal Peter K.A. Turkson of the Pontifical Council for Justice and Peace

This new international authority would, among other things, possess taxing powers on financial transactions; would create a “world reserve fund to support the economies of the countries hit by crisis”; and would recapitalize troubled banks “making the support conditional on virtuous behaviors aimed at developing the real economy.”

What the Pontifical Council for Justice and Peace fails to understand is that the financial crunches in the United States and Europe were the direct result of unrighteous, profligate, bloated governments that made decisions based on suppositions that were diametrically opposed to the principles of subsidiarity.

In America, the seeds of financial destruction were planted by President Clinton in 1994, when he announced that the federal government was determined to “expand the American Dream” by increasing the number of homeowners across the nation, even if they were not financially qualified.

In response, the government-sponsored Fannie Mae relaxed loan-underwriting standards. Banks were directed to eliminate the usual down payments of 20 percent on homes, and normal income verifications. Lending institutions were also told to approve mortgages in a more “democratic” fashion, to expand creative financing, and to simplify the home-buying process. 

The result:  mortgages were given to millions of unqualified borrowers who could not possibly keep up with monthly payments.

Thanks to these well intentioned but ill-conceived policies, Fannie Mae bought tens of billions of subprime mortgages, which were bundled and then sold to investment banking firms who procured insurance guarantees and AAA ratings from Moody’s and Standard & Poor’s. 

The investment bankers then sold these toxic securities to unsuspecting individuals, mutual funds, and bank investment portfolios. When the real estate bubble burst, millions of people and scores of banking institutions went broke thanks to this government-sponsored Ponzi scheme.

European financial institutions have been imploding because national governments – in Greece, Italy, Spain, Portugal – have borrowed and spent themselves into bankruptcy. For generations, they have financed an unsustainable welfare system that has created a self-righteous, indolent working class that views material benefits and security as entitlements, not achievements gained through dedication and hard work.

The worldwide financial crisis was precipitated precisely by big-government managers who replaced subsidiarity with centralized power and discarded the common good in favor of a license – indeed a right – to act irresponsibly. The resulting maladies will not be cured by creating yet another governing body – this time global, and likely to make even larger and more costly errors – that would, no doubt, be manned by bureaucrats who believe liberty means their freedom to impose enlightened values, whauch are, of course, their own.

Before Cardinal Turkson and his collaborators release more recommendations on how economies and banks should be regulated, I recommend they crack open the works of Catholic thinkers well-versed in the meaning of subsidiarity and the common good – Jacques Maritain, Michael Novak, and, of course, G.K. Chesterton.

By following their advice, pontifical councils might avoid embarrassing themselves and the Church they serve. 

George J. Marlin

George J. Marlin

George J. Marlin, Chairman of the Board of Aid to the Church in Need USA, is the author of The American Catholic Voter, Narcissist Nation: Reflections of a Blue-State Conservative, and Christian Persecutions in the Middle East: A 21st Century Tragedy. His new book, Sons of St. Patrick, written with Brad Miner, was published on St. Patrick's Day 2017.