The markets have been very volatile lately and according to most experts the United States has entered a recession. All of this uncertainty and financial difficulties is a result of the credit crisis that was sparked by the collapse of the sub-prime mortgage market. On Monday of this past week everything came to a head with the collapse of Bear Stearns, one of the world's largest global investment banks.
It was bought by JP Morgan Chase in a stock swap worth $2 a share. Bearing in mind that its stocks were worth $172 a share in January 2007, this was a humongous downfall of a massive financial institution. Needless to say many people on Wall Street lost money and many companies went into crisis mode.
The focus is not only on the banks and financial institutions that are in trouble because of the credit crunch, but also on the people that are getting hurt. Many people got into a three- or five-year ARM (Adjustable Rate Mortgage) and when their mortgage adjusted to a higher rate, they could no longer afford payments and their homes went into foreclosure. As more homes were taken back by the banks the housing market in many areas started to fall. People who borrowed one hundred percent for their home immediately started to have negative equity issues. With nothing to lose many have walked away from their homes, leaving the banks with further loses and their mortgage-backed securities significantly devalued.
It Take Two to Tango
Clearly it takes two to tango and this credit mess is the combined fault of both the banks and borrowers—they were both deceptive with each other. Borrowers were able to get home loans without having to prove their income; many therefore deceived the lenders regarding their real salaries. Lenders for their part were offering people with bad credit interest-only loans for above-market interest rates that seemed manageable at the time of the transaction. In many cases they were not, however, up-front about what would happen when the rate adjusted. Any reasonable outsider was able to see that this deception would come crashing down at some point, to everyone's detriment.
Indeed this is what has been happening over the last eight months or so. Banks no longer trust people and there is virtually no such thing as a no-doc-loan anymore—if you want a loan, you have to prove your income. Banks don't even trust their fellow banks anymore.
The Torah Predicts a Crisis
It is fascinating that all of this has come to a climax on Monday of this past week. Jews have a custom to study the week's Torah portion according to the way it has been divided for the day of the week. Tradition has it that within each daily portion there are elements that relate directly to the happenings of that particular day in any given era.
On Monday we studied the laws that pertain to the asham, the guilt offering that was brought up on the Altar in the Temple by a person who had sinned. There are numerous reasons why a person would bring a guilt offering. One of them is for dishonesty. The Torah says in the end of the previous week's portion (Leviticus, 5:21–25), "If a person sins … by falsely denying to his fellow concerning a deposit, or money given in hand, or an object taken by robbery, or he withheld funds from his fellow … [he] shall then bring his guilt offering to the L-rd."
Bear Stearns as a Guilt Offering
On Monday of this past week—the day Bear Stearns finally fell—we read more about the offering that a dishonest person must bring to gain atonement (Leviticus, 7:1-4), "And this is the law of the guilt offering. It is a holy of holies … And the kohen shall cause them to [go up in] smoke on the altar as a fire offering to the L-rd. It is a guilt offering."
It seems clear to me that the fall of the mighty Bear Stearns and the shaky US economy and the volatility in the markets is a result of dishonesty that has taken place over the last few years and Bear Stearns was the sacrifice offered as a result of this. In fact many experts have said that the liquidity crisis is a direct result of a lack of trust between banks.
If the economy is to recover, all of us—financial institutions, Wall Street professionals, and regular people alike—must take the Torah's advice to heart and there must be a collective repentance and atonement for the dishonesty of the past. Let us hope that Bear Stearns is the only sacrifice needed for this atonement to take effect permanently.
