In my August post about the "sub prime lending" problem, a couple of posters complained that I didn't discuss usury. I might point out, neither did they.
I wonder if they discovered what I did: that the Catechism of the Catholic Church says almost nothing about it, other than saying its a bad thing.
So what is usury? It's lending money at excessive interest. At one time in the tradition, it was understood as lending money at interest at all, but the Church came to see that there is time-value to money, and that it is not in itself illegitimate to charge a reasonable interest for the use of money, any more than it's wrong to charge a reasonable rent for the use of property.
I did find the following the Compendium on the Social Doctrine of the Church:
341. Although the quest for equitable profit is acceptable in economic and financial activity, recourse to usury is to be morally condemned: “Those whose usurious and avaricious dealings lead to the hunger and death of their brethren in the human family indirectly commit homicide, which is imputable to them”. This condemnation extends also to international economic relations, especially with regard to the situation in less advanced countries, which must never be made to suffer “abusive if not usurious financial systems”. More recently, the Magisterium used strong and clear words against this practice, which is still tragically widespread, describing usury as “a scourge that is also a reality in our time and that has a stranglehold on many peoples' lives”.
Common sense tells us that with lending comes risk--and a lender has to be able to cover that risk, or else lending would cease. Does anyone think we would be better off without lending as a tool of finance?
So back to the sub-prime situation. I guess what commenters want me to say is usury is bad. It is. But since the key distinction lies in "excessive" interest, then how shall we determine what is "excessive"?
I really don't know. So, while I readily believe some of these lenders were usurious, I don't happen to know which ones. Nor do I really have much confidence in the various attorneys general or other politicians who get on the warpath about such things, that they are going to make suitable judgments.
Here is an interesting situation involving something that seems clearly usurious: so-called payday loans. Unfortunately, I can't find the link, but a few weeks ago, I read something surprising. A non-profit agency decided to try to offer pay-day loans at the minimum amount necessary to break even--and the rate, when risk and defaults were taken into account--was surprisingly high. That isn't surprising, really, is it?
But we all recoil at the idea of people being charged exhorbitant rates for such things, or for check-cashing.
I'll leave it to you to suggest how we know when the interest charged is "excessive." Let us move onto the next question: what do we do about it?
If you say, the state should regulate it, should cap the interest rate, my response is, okay, fine--then what?
Do you really suppose the folks who were getting such loans will still get loans at the better rate? Some perhaps, but not all. So what will they do?
You and I know full well what they will do: they will get loans other ways. We know from whom, too. The mob charges usurious rates, and has other ways to deal with default, and the reasoning, while abhorrent, is otherwise sensible: they can't sue you, so how do gangsters enforce their claim on the debt? They cause some other harm.
Now, of course, we can go after such rackets and we do.
But I do think it's good to ask whether we need to outlaw everything that is morally abhorrent. Sometimes we realize that the solution is a lot harder to identify than the problem.
Someone will make a facile comparison with abortion: i.e., since we seek to outlaw that, then we must seek to outlaw everything that is wrong. But of course that's not true. Sometimes the difficulty is in identifying a workable solution; sometimes it has to do with the gravity of the wrong. The greater gravity of abortion should be manifest; plus, it is a very clear-cut wrong, whereas the definition of "usury" hinges on very subjective or situational elements of "profit" and "excess."
So, you wanted a post on usury. Usury is bad. Don't do it, you may go to hell.