Catholic Perspectives on the Financial Crisis
By Michael W. O'Hern, FSC, Chief Executive Officer
CBIS’ Chief Investment Officer, Frank Haines, has well-articulated our financial advice to participants in recent weeks and our interpretation of the causes of this global financial upheaval. He and his investment team are closely monitoring market conditions and are in regular contact with our sub-advisers and members of CBIS’ Investment Advisory Committee. We will continue to communicate with you and offer advice and guidance as market events unfold.
We understand the righteous anger expressed by many Americans — and no doubt felt by many CBIS participants ― at the need for a government bailout of the same banks and financial institutions whose leveraged speculation and willful ignorance of common sense in lending created the mountain of bad debt at the center of the crisis. It is a complicated mess, to be sure, one where reasonable people can profoundly disagree on the appropriate, if sadly necessary, policy responses.
Whatever our political points of view as Americans, there is a perspective on this crisis that we share as Catholic socially responsible investors. We often say that our active ownership initiatives promote the development of a just and sustainable economy, one that distributes its benefits broadly and fairly, and that meets the needs of the current generation without compromising the ability of future generations to meet their needs.
We agree that there is something profoundly wrong with a financial system that rewards Wall Street bankers, traders and hedge fund managers with millions of dollars a year in salaries and bonuses when asset prices are rising, only to call on the government and middle-class taxpayers to repair the damage caused by their reckless speculations when asset prices fall. Such a transparent socializing of risk and privatizing of gain is neither just nor sustainable.
We agree that there is something profoundly wrong with a corporate governance system that rewards corporate CEOs and top executives with tens of millions of dollars a year in compensation packages and severance benefits, while many Americans struggle in lower-wage jobs working directly or indirectly for those same corporations or even worse are now losing their jobs.
And there is something profoundly wrong when executive compensation is enhanced not through the creation of enduring shareholder value but through the value of stock options that rise with loose monetary policy and cost cutting, outsourcing and layoffs that often come at the expense of investment in communities and sustainable business practices.
CBIS participants have long supported active ownership initiatives that sought to address some of the causes of today’s crisis. Our SRI program has pressed companies to halt predatory lending, develop sustainable lending standards, restrain excessive executive compensation, and promote fairness and sustainability in global finance. Religious investors working through the Interfaith Center on Corporate Responsibility (ICCR) have pressed global financial firms for better disclosure of off-balance sheet liabilities, better assessment of counterparty risks, greater transparency of their complex trading strategies, and the need for more conservative capital adequacy ratios.
The near breakdown of the global financial system is a complex crisis with many causes. Yet it is fair to say that faith-based investors have demonstrated long-standing concerns about many of the most important ones. At the heart of it all has been a distinct lack of integrity in the making and implementing of many key business decisions, and the abandonment of ethical principles by lenders and many borrowers alike. The job of rebuilding domestic financial regulatory policies and negotiating the global agreements that govern international finance has just begun, and the majority of this work will fall on the incoming Obama administration.
When the panic eases, when public outrage fades, and normality returns to global banking, it will be all too easy for financial and political leaders to overlook the larger principles essential for the construction of a just and sustainable financial world order. From a Catholic SRI perspective, we frame these principles in this way:
When taken seriously, these principles offer guidance for our individual behavior and for the policies and principles that govern the conduct of our financial and regulatory institutions. They form the ethical foundation for a just, lasting and widely shared prosperity. As global governments and financial leaders seek to repair the damage done in recent years by the abandonment of these principles, we hope there will be a conscious effort to fully integrate them into specific regulatory and policy measures.
For our part, we will continue to advocate for the adoption of these principles by corporations worldwide in our SRI initiatives on these crucial topics. The crisis of the past year only reinforces the need for ethics and integrity to be placed at the center of business strategies and decisions. And the critical relevance of the teachings of our faith to the conduct of global finance has never been more obvious than it is now.