On a day when politicians are talking about introducing economic measures that are fair and just, it is interesting to recall that the first act that Ezekiel mentioned, when talking about the unrighteous turning from his sin and doing what is just and right, was 'give back what he took in pledge for a loan.' (Ezekiel 33:14-15) Taking a pledge for a loan is so accepted in modern society, that it may be difficult for us to see why this should appear first in a list of unjust practices that continues with 'return what he has stolen'. The reason is that there is an unfair distribution of risk and return in the relationship between lender and borrower: the borrower bears almost all of the risk associated with use of the loan, while the lender benefits disproportionately from any return on the loan.

A major contributor to the current financial crisis has been the high levels of 'leverage' of households and some financial institutions - that is, the control of assets in excess of the capital invested in their control, usually involving the assumption of debt. Current tax systems generally favour this kind of debt finance over alternatives, thus amplifying our vulnerability to falls in asset values. One way of redressing this bias would be the development of contracts for house purchase that share the risks and returns of price fluctuations more effectively. This could include lease-to-buy or shared-appreciation arrangements, in which banks take equity stakes rather than give loans. Such contracts would dampen speculative incentives to buy in the upswing and pressure to sell in the downswing.

The introduction of non-debt forms of house purchase would thus offer enhanced stability, enabling market economies to be more resilient to periods of falling prices. More than this, such transactions would also be fair and just.

For more on the injustices and problems that have arisen because we have ignored traditional Christian teaching on finance, see our Cambridge Paper The ban on interest: dead letter or radical solution?, which remains as relevant today as it was when first published fifteen years ago.

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