naked capitalism

Reader John D sent a link to an Atlantic Monthly story that appeared in its December issue, “Did Christianity Cause the Crash?”. Although this piece is arguably dated, I though it was worthy of consideration. It makes an argument I haven’t seen made elsewhere; a quick search of the blogs to which I subscribe confirms it received far less attention that it deserved. One reason might be the headline; it overstates the article’s thesis. But as likely is that the article complicated the tidy narratives that many people seem to have constructed about subprime borrowers.

Whenever this blog has brought up the idea of mortgage mods or bankruptcy cramdowns, the response has tended to be wildly polarized. Some readers are pro some form of resolution regarding severely stressed borrowers, whether for reasons of efficiency (as banks used to do mods before the age of securitization; it can be a better economic outcome to restructure a debt than foreclose, not just for the borrower, but also for his neighbors) or the belief that a fair number of borrowers had bad luck (medical bankruptcy, job loss, etc.). Another set of readers is vociferously opposed, generally for reasons of fairness and morality (these readers themselves often consider themselves to be prudent; the arguments are sometimes personalized: “I saved to make a sizable downpayment, I’ve never missed a loan or credit card payment. Why should these people who lived beyond their means get a break?”).

But underlying these debates is generally (not always, but generally) the long-standing “deserving poor versus undeserving poor” thread, that the unfortunate should get help only under certain circumstances. But drawing that line may not always be so easy.

What happens when people seek out advice from people they trust or think are experts and are led astray? What if those people benefitted from their at best misguided, and often self-serving advice? And worse, what if some of those people were religious leaders?

This line of reasoning may seem like a stretch, but Hannah Rosin shows it operated in “prosperity churches” that came out of the Oral Roberts lineage:

In June, the Supreme Court ruled that state attorneys general had the authority to sue national banks for predatory lending. Even before that ruling, at least 17 lawsuits accusing various banks of treating racial minorities unfairly were already under way. (Bank of America’s Countrywide division—one of the companies Garay worked for—had earlier agreed to pay $8.4 billion in a multistate settlement.) One theme emerging in these suits is how banks teamed up with pastors to win over new customers for subprime loans.

Beth Jacobson is a star witness for the City of Baltimore’s recent suit against Wells Fargo. Jacobson was a top loan officer in the bank’s subprime division for nine years, closing as much as $55 million worth of loans a year. Like many subprime-loan officers, Jacobson had no bank experience before working for Wells Fargo. The subprime officers were drawn from “an utterly different background” than the professional bankers, she told me. She had been running a small paralegal business; her co-workers had been car salespeople, or had worked in telemarketing. They were prized for their ability to hustle on the ground and “look you in the eye when they shook your hand,” she surmised. As a reward for good performance, the bank would sometimes send a Hummer limo to pick up Jacobson for a celebration, she said. She’d arrive at a bar and find all her co-workers drunk and her boss “doing body shots off a waitress.”

The idea of reaching out to churches took off quickly, Jacobson recalls. The branch managers figured pastors had a lot of influence with their parishioners and could give the loan officers credibility and new customers. Jacobson remembers a conference call where sales managers discussed the new strategy. The plan was to send officers to guest-speak at church-sponsored “wealth-building seminars” like the ones Bowler attended, and dazzle the participants with the possibility of a new house. They would tell pastors that for every person who took out a mortgage, $350 would be donated to the church, or to a charity of the parishioner’s choice. “They wouldn’t say, ‘Hey, Mr. Minister. We want to give your people a bunch of subprime loans,” Jacobson told me. “They would say, ‘Your congregants will be homeowners! They will be able to live the American dream!’”

Rosin spends most of the article discussing one church in Charlottesville, VA, and some of its parishoners:

It can be hard to get used to how much [pastor] Garay talks about money ….Garay was preaching a variation on his usual theme, about how prosperity and abundance unerringly find true believers. “It doesn’t matter what country you’re from, what degree you have, or what money you have in the bank,” Garay said. “You don’t have to say, ‘God, bless my business. Bless my bank account.’ The blessings will come! The blessings are looking for you! God will take care of you. God will not let you be without a house!”…On the altar sat some anointing oils, alongside the keys to the Mercedes Benz.

Later, D’andry Then, a trim, pretty real-estate agent and one of the church founders, stood up to give her testimony. Business had not been good of late, and “you know, Monday I have to pay this, and Tuesday I have to pay that.” Then, just that morning, “Jesus gave me $1,000.” She didn’t explain whether the gift came in the form of a real-estate commission or a tax refund or a stuffed envelope left at her door. The story hung somewhere between metaphor and a literal image of barefoot Jesus handing her a pile of cash. No one in the church seemed the least bit surprised by the story, and certainly no one expressed doubt. “If you have financial pressure on you, and you don’t know where the next payment is coming from, don’t pay any attention to that!” she continued. “Don’t get discouraged! Jesus is the answer.”

And the areas worst hit by the subprime crisis were also ones where the prosperity churches were well represented:

Demographically, the growth of the prosperity gospel tracks fairly closely to the pattern of foreclosure hot spots. Both spread in two particular kinds of communities—the exurban middle class and the urban poor. Many newer prosperity churches popped up around fringe suburban developments built in the 1990s and 2000s, says Walton. These are precisely the kinds of neighborhoods that have been decimated by foreclosures, according to Eric Halperin, of the Center for Responsible Lending.

Now this does NOT mean that the prosperity churches were the main cause of the subprime crisis. But simple black and white narratives that overlook ugly nexuses of gullibility and greed can impede coming up with the best (or more likely, least bad) remedies.

You can find the entire article here.

Update: Independent Accountant e-mailed some supporting links:

3 Hebrew Boys’ Guilty In $82 Million Ponzi/Affinity Fraud Scheme

California Man Guilty In $62 Million Ponzi Scheme

Fraud trial begins for ex-execs of Baptist Foundation

He adds: “Yes, people do not want to brand religious leaders as fools or corrupt. About four or five times a year one of my clients will ask me about one of these programs. Invariably when I tell him it looks like a scam, he gets angry with me! What’s wrong with you that you are so unenlightened you can’t see the promoter has “God’s favor”?

“So far none of my clients has lost more than a few thousand dollars in any of these scams.”