Debt … that peculiar nexus where money, narrative or story, and religious belief intersect, often with explosive force.
– Margaret Atwood, Payback: Debt & the Shadow Side of Wealth
W HILE I was writing a monthly column for Richard Russell’s Dow Theory Letters, back in 2015, Jubilee* came around. So felt it an apt moment for spotlighting debt, if only for a smidgeon. The current debt load, domestically, not to mention globally, may be too gargantuan for any single mind to grok. Can a fish even conceive of water? So I created a three-panel triptych for contemplation of just a whiff:
- An isolated segment of the US debt colossus
- A civilization that avoids debt
- Our universal indebtedness
My glimpse went something like this. To begin, let’s zero in on a relatively small aspect of our national debt: student loans. In America, student debt as of 2015 ran $1.1 trillion. A study from the St. Louis Fed in the spring of that year reported the delinquency rate rose from less than 1 in 9 former students a decade ago to over 1 in 4 today.
Here’s the kicker. Schools can go bankrupt, but federal student loans aren’t dischargeable; the taxpayer pays the burden.
Meanwhile, this ballooning student debt is a barometer of the general deformation of our educational system as it too becomes financialized, along with everything else. Today, the Humanities and Liberal Arts are taking the backseat to STEM curricula (Science, Technology, Engineering, Math) because a degree there is believed to automatically translate into student debt repayment. In the hierarchy of economic needs, critical thinking, self-actualization, and self-esteem are the least essential skills.
In mentioning this example, I had to restrain myself. That year, I’d taught 21 doctoral students, online: twice as many as I’d bargained for. I can now easily rail from experience against the national trends I came up against: overcrowded classrooms, soaring tuition fees, astronomical student debt, salaries going through the roof for those at the top, grunge salaries for up to three-quarters of adjunct faculty.
But all’s not gloom and doom. Since I love the burgeoning social capital sector, I can offer props to an instance of how it’s playing in here. At least one innovative, grass-roots response has arisen to address the crisis: Student Loan Genius. It’s the brain-child of three young men who graduated with $275,000 in student debt between them. Their company recruits employers who can offer student loan forgiveness as a competitive advantage, essentially through a 401k for students. Such are the revolutions that, as Nietzsche said, do not come via cannonballs, but, rather, on little doves’ feet.
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Next, lets’ track some of those doves’ footprints on a vaster shore …
Earlier this month, flying under the media radar, a significant gathering was held in Scotland, drawing industry leaders, academics, students, and financial service participants from across the Middle East, Africa, East Asia, Europe and North America. A primary, noteworthy interface for dialogue at this inaugural Global Ethic Finance Forum was the convergence between socially responsible investment (SRI) / environmental, social, governance focused investment (ESG) –- and Islamic finance.
History reminds us how the Islamic world during the Middle Ages was the planet’s economic nerve center and active core of Western civilization. As you may have already heard, Islam doesn’t believe in leverage. It’s such a fundamental point of difference, we might take this note by anthropologist David Graeber, from his magnum opus Debt: The First 5,000 Years, as a provisional index:
Whereas Persian and Arab thinkers assumed that the market emerged as an extension of mutual aid, Christians never completely overcame the suspicion that commerce was really an extension of usury, a form of fraud only truly legitimate when directed against one’s mortal enemies.
Islamic economics is regulated by a religious code of ethics (shariah). Spiritual and moral implications of indebtedness are thus factored into financial transactions, with equal concern for both the debtor and the lender.**
In the comity of contemporary global economies, these long-term, holistic, ethical considerations come into sharp relief when contrasted to the 2008 crash. Dr. Zeti Akhtar Aziz, governor of Bank Negara Malaysia, pointed out at the forum that high debt-to-equity ratios were one of the major contributions to that tragedy; conversely, investors avoiding firms with the biggest debt-to-equity ratio could be supporting tangible assets.
Considering the social impact of investments, it’s interesting how it’s been since that crash that players in the SRI/ESG sector began moving beyond investment criteria for ruling out sectors considered unethical and towards collaborations towards positive social conditions. No longer just avoiding harm, but also promoting the wholesome.***
At the forum in Edinburgh, Thomson Reuter provided an initial working paper, entitled “Responsible Finance,” establishing bases for inclusion of Islamic finance alongside SRI/ESG. The report forecasts that in four years, the Muslim world will represent $244 billion in investment. For example, a convergence between Islamic finance and ESG in mutual funds could be a $37 billion opportunity by 2019.
Joint ventures between the Muslim and the non-Muslim world will require standards, and regulatory changes. If, at the outset, all parties understand each other’s premises, they might come to understand each other better through collaboration for common cause as well as for mutual benefit. In so doing, this could promote and maintain much-needed healing and transformation in our global village, a very worthy by-product.
Unless we actively manage the impact of a carbon-based economy, we would have used our beneficiaries’ monies to create an environmental and financial disaster for them in the future, which will negate any nominal financial return we may make for them.
Saker Nusseibeh, Torn-up Tracks
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Economy may, like science, propose having no moral constraints, yet any economy is a reflection of the moral compass of its society, for well or ill. The erosion of our educational system is but a pimple on the moral fall-out from our debt-fueled economic system. Now that our economy has become financialized, especially after 2008 — when traditional asset correlations no longer applied — it’s hard to speak of economics without turning to fundamentals and a bigger picture.
Past a certain point, I believe debt dampens productivity, and our debt is now twice as much as our productivity. Of late, it seems a strain to paint a happy human face upon our current economy. Any such face projected upon our economy by its critics may well become, alas, the poster image of the starving polar bar floating on a tiny island of ice … unless we revise the correlation between value and values, both short- and long-term.
The polar bear as a poster for reform may seem a bit facile to many, and counter but perhaps it echoes the bottom line of our deeper indebtedness. No economic sphere can survive long-term if it believes itself separate from the ecosphere. Human beings and our environment are not two separate things. This truth is the same for all civilizations, and it’s a truth in which we are all schooling ourselves now. Without Mother Earth, we have nothing.
Like pure wealth, debt itself is invisible, in the abstract,. Yet its pervasiveness means its traces are everywhere. If you haven’t already done so lately, you might take a moment to look in the mirror and ask how you see yourself in relation to debt: economic debts … debts to our society … and indebtedness to larger forces. I hope these three brief windows into debt might set off sparks in your imagination, for your own accounting.
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*At the time, the Jubilee movement looked to Biblical times when every seventh year there was a Sabbatical Year. Debt was cancelled, as was work. Every 50 years, comes a Jubilee Year. With it comes canceling of debts, freeing of slaves, returning to the land … (and with such blessings for the fortunate there are also curses for the unrepentant, such as drought, plague, fall of Babylon, etc.)
**In 2008, Feisel Khan published a paper entitled How ‘Islamic’ is Islamic Banking?, questioning whether, 30 years after their introduction, Islamic banking and finance practices are as interest-free as claimed.
from Finding the Spiritual in the Financial, Dow Theory Letters. September 20, 2015, reprinted with permission.
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For further reading
Declaration of International Islamic Climate Change Symposium
Global Ethical Finance Forum:
Islamic finance research resources
DEBT: The First 5000 Years – David Graeber
(Special thanks to Reda Mokhtar for several of the impeccable research resources, and for his own insights and encouragement.)
