By the CyberRav—Rabbi Rafi Rank
A wise financial consultant once said: live below your means. It’s good advice, but in our credit card culture, living below your means is a huge challenge. Access to easy credit can be a trap for both the borrower and the lender. Borrowers may soon find themselves in over their heads, struggling to repay the loans they should never have taken. And lenders may find their sources of income hopelessly broken, as those who are obligated to pay default on their payments.
Right now our economy, and a good portion of the global economy, is reeling from just such a trap. The mortgage crisis that has impacted on financial firms, wounding some and crippling others, was partially born out of the greed to make lots of money from people who really didn’t have the bucks in the first place. Over 20% of all mortgages secured between the years 2004-2006 were subprime, or mortgages created for people with questionable credit ratings. Lured into the market by low introductory interest rates, these people found themselves unable to pay the bills once the introductory rate expired and the real rate kicked in. Faced with foreclosure, they lost their homes to the lenders.
Additionally, the banks would take many of these mortgages, group them together and sell them to Wall Street firms which in turn welcomed investors to buy into them with hopes of sharing in the profits they were sure to generate. There was only one problem—as borrowers defaulted on their payments, there were no profits to be shared. Moreover, agencies charged with rating such securities did not always do due diligence and often assigned low risk ratings to mortgage backed securities that proved to be very risky. The little investor was thus duped by a rating that proved to be false.
And so it is that the Torah wisely instructs mortgage brokers, banks and Wall Street with the following words of wisdom: Even sheleimah vatzedek yihiye lakh… You must have completely honest weights and completely honest measures, if you are to endure long on the soil which the Lord your God is giving you” (Deuteronomy 25:15). People who can’t afford it, shouldn’t be told they can. Securities that are highly risky, should not be rated as moderately risky. And finally, all of us would do well to follow these four simple words: live below your means.
There is no doubt that a healthy economy is fuelled by a certain degree of self-interest, but there is a huge difference between self-interest and greed. Self-interest will certainly move us to attain the most or the best for ourselves and for our families. Greed, however, moves us to take advantage of others, if not ourselves. It is a practice that is sure to come back and hurt us. We may rightfully demand of others to accurately portray what a person can afford, or the risk rating of a particular security. But more importantly, we must learn to measure ourselves with complete honesty. How much can any of us reasonably afford? Can we assume a particular obligation at this time in our lives? If we are ever in over our heads, it should be because we just dove into a swimming pool and not into an ocean of debt.
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