The Financial Crisis: What Would the Talmud Do?

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Would the current financial crisis have been avoided if traders followed Jewish traditions embodied in the Bible and the Talmud? Two scholars from the Conservative and Orthodox branches of the Judaism are suggesting just that. They also conclude that the tradition prescribes significant regulation to begin to redress the debacle.

That may not be so exotic as it sounds. Every theology has a subdivision for business ethics, but Judaism's is especially complete. It is said that more of the 613 commandments in the Jewish bible deal with keeping one's money kosher (or "fit") than pertain to one's food; and the business literature springing from that concern may be the longest and most continuous in the world.

In an article to appear in a book from Oxford University Press, Aaron Levine, chair of the economics department at a respected New York college opens with the assertion: "The current downturn is the first post World War II recession that has its roots in widespread moral failure." It's an interesting, if debatable contention, but equally interesting is the authorities Levine cites as he makes his argument: the Jewish torah, the mishna (transcribed oral law), talmud, the work of medieval jurists like Maimonides, and host of rabbinical opinions (responsas) ever since. Levine is an Orthodox rabbi as well as a prof, and his institution is Yeshiva University. The book is titled Judaism and Economics; and his article's title is "The Recession of 2008: The Moral Factor — A Jewish Law Analysis."

It is not surprising that scholars like Levine have begun to bring Jewish religious teaching to bear on the current crisis — which, if not completely about ethics, certainly has a large ethical component. Says Rabbi Eliezer Diamond, Professor of Talmud and Rabbinics at New York's Jewish Theological Seminary, a body of the Conservative arm of Judaism, puts it, "What any religious tradition calls on us to ask is, 'how can I make money and simultaneously be a responsible member of the society in which I live, protecting the interests of both the buyer and the seller?' Clearly that consideration was absent from this whole process."

Neither Levine nor Diamond claims that Jewish participants in, say, the sub-prime mortgage crisis have been more virtuous than non-Jews. But both are inclined to analyse it through the lens of Jewish law, especially regarding proper financial disclosure, on which so much of the current fiasco has hinged. Here are some of the ancient principles they feel are applicable to today's bad news

Bamboozling the "Blind"
Much Jewish ethical thought flows out of Leviticus 19:14, which reads "Thou shalt not curse the deaf, nor put a stumbling-block before the blind." From an early date, rabbis expanded this into a general prohibition on bad advice. In time, it became part of the language specifically regarding loans, mostly regarding the need for witnesses. But Diamond says it now applies to the whole loan debacle and "any expert who tells someone who probably shouldn't take out a mortgage 'you'll be able to do it, no problem.'" There are a lot of financially "blind" people out there, and a lot of people mis-advised them.

Hidden Flaws and the "Reasonable Man"
Medieval jurists like Maimonides identified a more specific kind of bad advice. They tackled the idea of the "hidden flaw," which, Levine points out, leads directly to a demand for fiscal disclosure. "If you sell an animal, you had to disclose to the buyer what the hidden flaw is," he explains. Not only that: "the disclosure has to be made so that a 'reasonable,' or average man can decide" whether to buy. Once again, almost the entire chain of transactors in the mortgage crisis is guilty: predatory brokers for not alerting working-class borrowers to the fine print; middle-men selling mortgage debt to investment banks sliced and diced into "tranches" that obscure their riskiness; bankers who used hard-to-fathom financial instruments that leave ultimate responsibility for a loan a mystery even to experts. Like many observers, Levine is particularly exercized about credit default swaps, a largely unregulated field since 2000.) And anyone who willfully ignored the fact that real estate prices must eventually come down.

The Bath House Rule
An extension of the disclosure concern, Diamond reports, was explored by Jews through the unexpected vehicle of marriage law. The tractate Ketubot in the Mishna dictates that a betrothal is valid only if the bride-to-be has no hidden blemishes that would have disqualified the match, had they been public. However, there is a heavy responsibility on the groom: if he has relatives who could have observed the disfigurement by checking out his fiance in the womens' bath but neglected to do have them do so, he can't complain. This suggests (feminist complaints notwithstanding) that culpability in sub-prime crisis does not lie solely on the mortgage broker who glided over the fact that payments ballooned in the third year; but also on the buyer who happily neglected to read the fine print: : "Ignorance of the facts is no defense," Diamond says.

Morals of the Mark-Up
Leviticus 25 of the Bible explains that you cannot charge the same price for land that is about to become useless (in this case, by reverting to its original tribal ownership) as for a parcel that still has decades of use left. Rabbinic tradition, says Diamond, interpreted that as a check on price-gouging and ruled that nobody should charge more than one-sixth above market value for anything.

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