The Catholic vision for authentic banking reform

Last Thursday, JP Morgan Chase's CEO Jamie Dimon announced that the company lost $2 billion in a risky trading scheme that had been implemented over the past few months. Mr. Dimon has long opposed increasingly strict government regulations of banking practices but, to his likely dismay, this latest blunder has reignited the debate on how strict government regulation should be.

Mr. Dimon, in an attempt to send a clear message about the company's ability to address the issue internally, has taken decisive action. He forced the early retirement of Ina Drew—the executive who oversaw the faulty trading strategy--and appointed industry expert Mike Cavanagh to ensure that the organization’s risk is handled appropriately.

For Wall Street critics, however, the move was not sufficient.

White House Press Secretary Jay Carney said this incident showed why it is necessary “to fully implement Wall Street reform.”  Sadly, the moral dimension of this banking mishap is strangely missing from the media’s post-fall out discussion.

As we learned so profoundly during the 2008 financial crisis, the victims of big banks’ poor trading practices are not simply the direct investors of those particular banks.With the size and complexity of world financial markets, the victims are often far away from the initial decisions. They are the men and women who have been laid off, the homeowners whose houses have lost significant value, and the students whose parents can longer afford to pay for their college education.

Recognizing the significant moral and public implications of these supposedly “private” transactions, the Church has provided a strong and consistent voice for adequate banking reform—reform that could have perhaps prevented the latest JPMorgan Chase disaster. The Church often defers particular technical solutions of moral issues to lay politicians and policymakers, but in this case, it has been decidedly unafraid to do so.

This is most evident in Pope Benedict’s Caritas in Veritate and the Vatican’s 2011 memorandum on international financial reform. In Benedict's Caritas in Veritate, the Holy Father insists that the financial crisis obliges the global community “to re-plan our journey, to set ourselves new rules and to discover new forms of commitment, to build on positive experiences and to reject negative ones.” Responding to Benedict's appeal, his own Council on Justice and Peace published a memorandum in October 2011 which strongly criticized economic systems that “spurn rules and controls” and “exaggerate certain aspects of markets and downplays or ignore others.”

Such a system propagates the idea of “what is useful for the individual leads to the good of the community.” Though this capitalist maxim contains some truth, the Council notes that “it cannot be ignored that individual utility—even where it is legitimate—does not always favour the common good." In fact, authentic Christian solidarity often requires a spirit that “transcends personal utility for the good of the community.”

To fight against the false-idolization of the market, the Council encourages international authorities to establish a “global world authority” which will monitor and regulate the financial industry.

Effective regulation is clearly advocated for by the universal Church, but it is also finds support deep within the American ethos. As Arthur Schlesinger, Jr. notes in The Age of Democracy, “American democracy has come to accept the struggle among competing groups for the control of state as a positive virtue--indeed, as the only foundation for liberty.” Thus, Mr. Schlesinger argues that the dance between government regulation and marketplace power is an inherent part of the American democratic tradition, as government is the only other social actor with the power to restrain the moneyed interest in its pursuit of profits.

Buttressed by its deep roots in the Catholic religious and the American civic traditions, effective government regulation must be a core part of our country's financial markets.

The excessive banking deregulation that began in the Reagan Administration clearly created a terra firma for the current financial crisis. So as Congress begins to review the latest banking debacle and considers the proper implementation of the Dodd-Frank law, let’s hope they heed the advice of Benedict and “set ourselves new rules and to discover new forms of commitment, to build on positive experiences and to reject negative ones."


Christopher Hale writes for Common Good Forum, where this article first appeared in the Catholics in Alliance for the Common Good website.

The views and opinions expressed herein are those of the author only, not of Spero News.

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