Features (April 2009)
Faith and Life
On the Second Day ?
Alastair Macnaughton, Developing Discipleship Officer , reports on an inspiring insight from a Faith and Life course...
It was only a week or so after leading Janet Appleby’s ‘Struggling with Suffering’ course, that co-leader Christine Blakesley and I realised that the theme admirably fits a Good Friday/Holy Saturday/Easter pattern.
We started by facing the horror of suffering (Good Friday). We then found ourselves needing to face unflinchingly some difficult questions about suffering - questions that not even our Christian faith seems fully to answer. Facing these gave us a feel of the helpless failure of Holy Saturday, as Christ lies in the tomb, finished, dead. And after this we realised that breakthrough (Easter) comes only when, amidst all the despair and unanswered questions, we see that somehow God is present, though apparently, like us, ‘failed’.
This has set me personally on a voyage of exploration this Lent. I started with a book from the North East Learning Resources Centre called ‘Between Cross and Resurrection, A Theology of Holy Saturday’ Eerdmans 2001) Alan Lewis’ message is that the first Easter, was preceded by a day (the Sabbath/Saturday) when all had failed. God had failed. God, as it seemed, was absent. That first Easter Eve/Holy Saturday was not a prelude, a time of anticipation, it was a time of utter misery and despondency. The first disciples had completely given up hope. Ever since, this fact has tended to be overlooked or softened. To link the Resurrection to the rhythms of nature, says Lewis, glosses over the fact that the death of Christ was simply the end. There was no question of rebirth, or the buried seed sending up green shoots.
At a recent training day, a small group of people were discussing a passage in St Mark where Jesus warns the disciples of his suffering and death. One of the leaders-in-training posed the question: what does Easter mean for us? One of the group, Thakana, from Lesotho, said: “In Lesotho we seek before Easter to share in Christ’s sufferings.” This struck several of us deeply. For me it was another stage on this journey. Sharing in his sufferings means sharing some of the darkness of Easter Eve.
Perhaps if we do, then the impact of Easter will be much greater.
Street Pastors share the challenge
The Tynemouth Deanery Faith and Life group recently met a group of Street Pastors who have been working in the centre of Newcastle.
Members of the group are pictured here with Street Pastors Andrew Holmes, Iain Burdis, Adam Sutton and Adrian Sutton.
Steve Dixon writes: “ We heard of the exciting work of these dedicated people who work with the 60,000 plus people enjoying a night out in the centre of Newcastle, and learned that they are building good relationships with the police and club staff. “
He adds: “Although the aim is to help those who find themselves in difficulty whilst out for the evening, the Street Pastors also find that they are often asked about their motivation for volunteering their time. It is then that they can share their faith and show how the churches can act together to provide for people's needs as an act of loving service.”
Steve, Church Army captain and project leader/pioneer minister at St. Paul’s Centre in Willington Quay, says that the Tynemouth Deanery Faith and Life group found the experience “challenging and stimulating, helping us to focus on how we all have a vocation in the communities we serve."
A Question of Science...
The very first Developing Discipleship ‘Science and Faith’ course has been meeting at Fatfield, Washington.
The banner says 'God with us' and that has been a theme for the group, meeting at St George's in Fatfield with Rev. Brett Vallis – a former curate at St Mary’s Monkseaton.
The course includes lively issues like: Miracles- do they happen? Is science about facts and religion about faith? How did the universe begin?
Alastair Macnaughton, Developing Discipleship Officer, says: “The next stage with the Science course will be the training of facilitators in June with Rev. David Wilkinson at Cranmer Hall. In the autumn we should be able to run the course at a few Deanery venues in the Newcastle diocese.
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Anglicans and Amnesty
By Peter Sagar
There is a common misconception that ‘human rights’ is a modern and secular invention. I do not believe this at all, as we can surely see from the things that Biblical prophets have said in the past.
Amos, in Chapter 5, verses 21 and 24, exclaims: “I hate, I despise your festivals and I take no delight in your solemn assemblies….but let justice roll down like waters and righteousness like an ever-flowing stream...” ) A little later, Amos goes on to say, “Hear this, you that trample on the needy, and bring ruin to the poor of the land.....buying the poor for silver and the needy for a pair of sandals.” (Amos 8: 4,6) It is quite clear here that Amos is on the side of the poor and the weak and he is crying out for justice against the accepted beliefs of many in the society he lived in.
It has been noted that the prophets of Ancient Israel tended to cry out during times of economic problems and this seems to make sense as there was more for them to say. This can be clearly seen in the words of Isaiah: “Ah, you who make iniquitous decrees, who write oppressive statues, to turn aside the needy from justice and rob the poor of my people of their right, that widows may be your spoil and that you may make the orphans your prey?” (Isaiah, 10:1-2) Again the prophet is on the side of those in society who need protecting; not on the side of the rich and the powerful. Also from Isaiah, “.....the spoil of the poor is in your houses. What do you mean by crushing my people, by grinding the face of the poor”. (Isaiah, 3:14-15) Is it really impossible to imagine a modern day Isaiah, coming out of neglected housing scheme and spraying words such as these on the walls near to his home?
Then of course we have the words of the most notable prophet of all - Jesus. Matthew reports him as saying, “I was hungry and you gave me food. I was thirsty and you gave me something to drink, I was a stranger and you welcomed me, I was naked and you gave me clothing, I was sick and you took care of me, I was in prison and you visited me....... Truly I tell you, just as you did it to one of the least of these who are members of my family, you did it to me”. (Matthew, 25:31-46)
Human Rights, I believe, comes to a large extent from the Judeo-Christian tradition. Certainly, Amnesty International has its roots firmly in the Christian church. It is surely no coincidence that its founder, Peter Benenson, went to a church, St Martin’s-in-the Fields, to contemplate what to do about the story he had just read in a newspaper about two students in Portugal, who had been arrested for toasting ‘freedom’ in Lisbon bar in 1960. It was Benenson, who came up with the idea of an organisation to try to protect humans and their rights around the world.
Amnesty International has grown from its small beginnings to become a hugely respected human rights organisation, the largest of its kind in the world. It has sections in 73 countries, with 2.2 million members in all. The UK Section, the second largest is made up of a number of nations and regions and I am very proud to be the Regional Rep for Amnesty International in the NE and Yorkshire.
Amnesty’s work has also grown over the years since it was founded in 1961, and now embraces far more than the original concerns about prisoners of conscience. We still campaign for individuals at risk, including human rights defenders across the world, who are threatened because of their very important work, defending the rights of people in their vicinity, We also campaign against the death penalty, to end violence against women and against discrimination to name but a few of our areas of concern. We have also just started our Dignity campaign, in which we hope to make a difference to the lives of people throughout the world, who live in terrible poverty, those that Isaiah and Amos spoke for all those centuries ago.
At a panel discussion in February at the University of Northumbria in Newcastle, Kate Allen, the director of AIUK, shared a platform with Dr. David Golding from Make Poverty History – NE. It is envisaged that Amnesty will work closely in this region with Christian aid agencies, such as Christian Aid, CAFOD and Tearfund.
In the North-East, Amnesty has local groups in Newcastle, Hexham, Wearside and Durham and it is hoped that shortly, there will be new groups in SE Northumberland and on Teesside. We work closely with the trade unions in the region and I fervently hope that we can build as close a relationship with churches and faith groups.
I am also well aware that many churches already do a lot of excellent human rights work, both in terms of justice and peace work generally and especially working with asylum seekers’ support groups, such as the West End Refugee Service and the East Area Asylum Seekers Support Group, both in Newcastle. It seems to me that there are many ways in which Amnesty and Anglican and other churches in the region can work more closely together, providing support for each others’ events, sharing information, lobbying politicians, getting the human rights message across to the general public and many other ways. I would be delighted if you could contact me about any ideas you might have.
Finally, information about two forthcoming events: On April 18 in Newcastle, we are holding an Iranian cultural day to highlight human rights abuses in that country, and I also hope to hold a conference in the autumn with members of churches and faith groups to discuss ways in which we can work together.
If you are interested in the above events or helping with Amnesty’s work in the region generally, or would like to tell me about the human rights work you are involved in your church, then please contact me at: sagar@biddlestone-road.fsnet.co.uk or 0191 276 3522
*Peter Sagar is Amnesty International UK NE and Yorkshire Regional Rep.
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Tony Blair Interview
Bishop Paul Richardson recently interviewed former prime minister Tony Blair for the Church of England Newspaper. Here Link publishes a shortened version of that encounter.
Once Tony Blair was a politician who didn’t do God (at least not in public). Now he is more than ready to do God but wary of getting involved in politics. He hesitated for a split second when I asked him whether he agreed with the decision to prevent the Dutch MP, Geert Wilders, entering Britain but then told me ‘I try not to get involved in political matters’.
Blair gave me an interview at his London office to talk about the Tony Blair Faith Foundation. What is its purpose? I asked. ‘The purpose is to bring people of different faiths together through education and interaction and to combine religious faiths in activity that promotes good’, he tells me, ‘ so that, for example, the Foundation is very active in supporting the anti-malarial campaign in Africa where the churches and mosques have a great role to play but would play it better if they played it together. It’s about bringing religions together and it’s also about promoting religious faith as something positive and progressive and about the future and not just an interesting relic of history or tradition’.
There is a moving passage in Blair’s Washington Prayer Breakfast speech where he tells how faith began to stir in his own life when a teacher prayed with him at school after he heard that his father was seriously ill. ‘That teacher would lose her job today,’ I suggest.
‘I hope not,’ Blair replies. ‘I hope and believe that stories of people not being allowed to express their Christianity are exceptional or the result individual ludicrous decisions. My view is that people should be proud of their Christianity and able to express it as they wish’.
Cardinal Cormac Murphy-O’Connor has complained that faith ‘tends to be treated as a personal eccentricity rather than as a central and formative influence in British society’. Does Blair agree?
‘I think he is right to draw attention to that danger and risk,’ Blair comments. ‘Sometimes I think we as Christians are more sensitive than we should be although I say that as someone who when I was in office, although I was perfectly open about my Christianity, nonetheless kept it within certain boundaries that were restricted in terms of what I said publicly. The position of Prime Minister puts you in a unique category. But in general terms in British society there is a risk that people see faith as a personal eccentricity. I actually believe that people are far more respectful of Christian faith than is acknowledged.’
‘As with all these kinds of issues , ‘ he continues, referring to press stories of people penalised for expressing faith at work, ‘you can take one or two well publicised stories that are actually exceptions but you end up thinking they are the general rule. My experience is that they are not’.
We turn to a related issue, the clash between faith communities and new codes of Human Rights. How does Blair see this working out? ‘I think this conflict is inevitable’, he responds. ‘With change in society you are bound to have a situation where faith communities have different views. You have to work out a way through that keeps people of faith together even though they may disagree. I think these issues are difficult but they are not confined to Christianity. ‘
When it comes to Muslim courts and sharia law in Britain, Blair does not understand what all the controversy is about. ‘If it’s about substituting sharia law or any religious law for the law of the land, forcing people to go through religious law rather than the ordinary law of the land, I don’t think people would find that acceptable in this country. I don’t think that ‘s what Rowan Williams was actually advocating. I think he was drawing our attention to the fact that in Judaism there are procedures recognised by our courts but there is no doubt that primacy rests with the courts of the land. I thought at the time all this was a lot of fuss over nothing. As I am sure Rowan Williams knows, you have to choose your words very carefully otherwise people think the head of the Church of England is advocating the import of sharia law into the UK in a way that you would understand it in a predominantly Muslim country and that is not what he was saying really’.
I suggest that what the archbishop was concerned about is the right of voluntary bodies to function according to their own beliefs and values, and that there is a danger in allowing the state to over-rule intermediate bodies (such as faith organisations) and regulate their internal affairs. The treatment of Catholic adoption societies is an example of this.
‘I happen to take the gay rights position,’ Blair tells me. ‘But at the time of the Catholic adoption society dispute I was also concerned that these people who were doing a fantastic job were not put out of business. You have got to try to work your way through these issues. Religious organisations are no different from the rest of society. The most important thing, I think, is to create the space in which people of different views can still come together.’
What about attempts to suppress free speech on the grounds it is disrespectful to religion? ‘The real test of a religion,’ Blair affirms, ‘is whether in an age of aggressive secularism it has the confidence to go out and make its case by persuasion. You will get all these different issues that come up but if I was going to be advising a religious organisation (which I’m not) my advice would be you have to manage the kind of disputes that are going on in the whole of society but, if I were you, I’d worry far more about how you are facing outwards to the public at large and showing the essence of religious faith. In other words, how you can prove that religious organisations can be an instrument of God’s work in carrying the essential message of compassion and solidarity and humanity out into the world. That’s where we are being attacked. People are saying you are part of the problem you are not part of the solution. Actually, we are part of the solution.’
Just as once he was a moderniser, intent on getting the Labour Party to move on beyond Clause Four and live in the real world, so Blair gives the impression of wanting to get religions to stop arguing about doctrine, modernise and concentrate on practical activities. But can we ignore doctrine? I ask him.
‘I actually am fascinated by issues to do with theology,’ Blair assures me. ‘I read a lot about it and think a lot about it. But I am convinced that the first stage for religious faith as a force for progress in the 21st Century is not actually to deal with the issues of doctrine first but to show religious faith in action. That is not to say issues of theology and doctrine are unimportant. On the contrary, at a certain point they are central and crucial. But I think that the starting point is to get people of different faiths to come together and to act together according to the basic principle that all religions accept: love your neighbour as yourself.’
Only a few politicians make the jump to becoming a kind of moral or spiritual leader. Nelson Mandela has managed it without using explicitly religious language. The Dalai Lama is both the political leader of his people and a widely respected spiritual leader. Tony Blair still carries a lot of political baggage which affects how people see him. But when issues like the Iraq war are no longer so controversial and people look at what his Foundation is doing, they will probably conclude he does have important things to say about the role of faith in the modern world.
Whether the faith communities listen to him is a different matter. He remains a moderniser; many will find his ethical views confused or argue the failure to reckon with doctrine leads to superficiality, but he can quote no less a figure than Hans urs von Balthasar in support of his approach. ‘Only love is credible,’ the Swiss Catholic theologian pointed out.
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Back to Church Sunday
‘Comeasyouare’ – on Sunday 27th September - 2009 theme for Back to Church Sunday
As the poster depicts, all are welcome – young and elderly, male and female, people in the workplace, people from all walks of life… and we are asked to make this an opportunity to invite our friends to come to church
In January this year when Back to Church Sunday 2009 was launched it was attended not only by Anglican dioceses, but by Methodist and Roman Catholic Churches across Britain.
Back to Church Sunday is an initiative which began six years ago in Manchester Diocese. Each year since then ‘Back to Church Sunday’ (B2CS) has grown as more and more dioceses have joined in. In 2008, three-thousand churches in England and Wales welcomed back thirty-seven thousand people. Thirty-one thousand people came back to church in the thirty-eight Church of England dioceses from Cornwall to Newcastle who took part and nearly one hundred of those parishes were from our Diocese.
Canon Paul Bayes is quoted on the Back to Church website as saying: “What happened on Back to Church Sunday? More than 37,000 people invited someone they know to something they love. That’s how Christianity has spread over the centuries, and it still works. What’s new in this: when churches everywhere unite to invite on one special moment in the year, something really good is added. It feels like one big church with one big welcome. And that strengthens the resolve of the inviter and the returner to return.”
Meantime Bishop Martin says: "Over 90 parishes from the Diocese took part in "Back to Church Sunday" last year, and I hope that this will encourage an even great participation this year. The theme is "come as you are" and one of the keys to a good outcome is the personal invitation members of the congregations make to their neighbours and friends. I hope that we will be able to build on last years experience and learn from the good practice of others in your area and Deanery."
The Rev. Dorothy Robinson, one of the Newcastle organisers of B2CS, says:
“I felt a positive buzz after having spoken to people from one or two parishes that joined in B2CS. Most had appreciated the experience, even though there were comments that ‘maybe we didn’t get it right’ or ‘there might have been more support from the diocese to help with the preparation process’ – however, the feeling was that people would like to sign up and do it again. After all The Church Times (6th February 2009) tells us that “The invitation needs to be repeated, and the welcome durable”
Comments from parishes that took part in B2CS 2008 are encouraging for others thinking of signing up this year. They include:
- “B2CS is an opportunity to take a look at ourselves, join with a national initiative but be able to put our own mark on it. It also reminds us that we are all responsible to work together to make others aware of what being Church is about.”
- “One person came the Sunday before to catch a flavour of what we are up to, and then came back”
- “Several new families have been back to church since that service”
- "We combined B2CS with a ‘Trip Down Memory Lane’ event (old photos and parish registers going back 150 years available for inspection) on Saturday at which every visitor was invited to come to Sunday Services. We had 180 visitors on Saturday, not including church members”
- “We had approximately double our normal congregation, meaning most people brought someone”
- “Lots of favourable comments on how we made the Communion Service user friendly”
- “A number of former church members came back, together with others who have moved into the area more recently and who hadn’t found it easy to come to church. Of those who returned on the day, one third have been back since”
Some parishes incorporated other themes, such as harvest, on the designated day, others adapted the material or used their own resources.On B2CS teenagers from St Mary’s Fawdon extended a warm welcome to visitors and showed work which had been done as an introduction to Messy Church.
Tynemouth Priory, Holy Saviour offer All Age Service on the last Sunday of each month, and on B2CS youngsters got involved in Jonah-Man Jazz while other members of the congregation took part in the singing. It was an opportunity to invite friends and family members or neighbours to a ‘Back to Church’ service – people who might have attended as children or got out of the habit of coming to Church; or might have experienced special events in church such as weddings, baptisms or funerals or perhaps didn’t know much about church and welcomed the opportunity to find out more.
Personal invitation is the key to someone taking that initial step in returning to church and then being made to feel welcome by their friends. It might just help to sustain regular attendance.
Asked why they took part replies from parishes included:
- It was an opportunity for all of us to rediscover what it means to belong to Church
- To benefit from the national publicity and raise awareness locally
- Excellent outreach opportunity supported by Diocese, encouraged congregation to think about outreach
- To try to encourage regular congregation to invite people to church more often
- Because part of our Mission Action Plan is to reach out to the community, to encourage personal evangelism and this was one way that we could do these things
- There was also an article in our magazine, it featured in the pew-slip for at least three weeks prior to the event, and I even preached about it, and referred to it in the sermon on more than one occasion.
B2CS is not just a one off initiative – it is not a big thing to be tried then move on to something else – through sustaining an impetuous we can gain strength and confidence in proclaiming our faith.
This Grove Booklet is one suggestion of literature available which might be helpful in preparation for B2CS - Grove Evangelism Series No. 66 Creating a Culture of Welcome in the Local Church by Alison Gilchrist
In 2008, Back to Church Sunday brought 37,000 people into our nation’s churches. But once new people have stepped over our church threshold, what kind of welcome do they receive, if any?
In her insightful and challenging, yet easily read booklet aimed at encouraging a welcoming church culture, Alison Gilchrist draws on her own experiences of welcome as a stranger in different churches and explores the experiences of others for whom church is an alien world. Her light-hearted approach soon draws the reader into sympathy with the new visitor before she begins to challenge the prevailing culture of our churches. Gilchrist reveals the scriptural basis for welcome and discuses the psychology of congregations. Her conclusion is that churches tend towards introversion, security and, ultimately, exclusion. However, Gilchrist offers hope through the encouragement of the shadow side of a church’s personality, where extraversion and risk-taking can lead to a warm and inviting welcome.
The appendix offers practical assistance to churches including a Welcome Audit and exercises to help empathise with the newcomer. This booklet provides an excellent resource to prepare your church for Back to Church Sunday.
Order forms for packs will be emailed to parishes by the end of March. Completed order forms should be returned from parishes by the third week in May
For further information do not hesitate to contact
Captain Steve Dixon s.c.dixon@bigfoot.com
Revd Dorothy Robinson dottirobinson@hotmail.com
10 Top tips on ‘Welcome’ and much more can be found can be found on the website http://www.backtochurch.co.uk
Prayer for ‘Back to Church Sunday’ 2009
Welcoming God, we thank you for life.
Thank you for making us and loving us.
Thank you for inviting us to know you.
Help us to invite others to Church
so they can know you too.
Please bless Back to Church Sunday everywhere.
Help us all to know you better.
We pray in the name of Jesus. Amen
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Answering the call - wherever it may lead!
My name is Mark Crane, and I am a 21 year old student at the University of Newcastle upon Tyne. I study modern foreign languages (German, Spanish and Dutch) and I am currently in my third year of study. As it’s my third year, that means that I’m currently abroad doing a year’s placement in countries where my target languages are spoken – languages is a four-year course – so hi from Germany!
If you had suggested the priesthood to me five years ago, I would have probably laughed you out of the room. I suppose my first experience of a ‘call’ was when people in my church started saying things like ‘you’d make a good priest’ and things like that. I’d never really thought about it, and I suppose that planted a seed. As I grew in faith and the church that seed grew and I kept having what I like to describe as a ‘niggling’ feeling, that perhaps God was calling me to something more than lay service in His church and as much as I tried to run away from it, it kept coming back. Eventually I did something about it by talking to the chaplain at the university, who put me in touch with the DDO. Fortunately for me, that very weekend there was a young vocations event going on in York and the DDO invited me. So, that very weekend I found myself in a church in York, experiencing workshops, worship and frank open talks about ministry, the priesthood and the Church of England. The event was attended by over 100 people aged 15 – 25 and that feeling of ‘wow it’s not just me’ was pretty overwhelming. On that day I knew I had to do something about the nagging sense of call that I had. I’ve been meeting with the DDO now for about two years; it started with me saying: ‘I don’t know what this is, but it won’t go away, maybe it’s about ordination, maybe now or in the future, maybe not at all’. Meeting with the DDO, exploring issues of faith, calling and attending conferences and meetings with other people ‘on the road’ has only strengthened my sense of call. So if five years ago, I would have laughed you out of the room, now I can’t imagine my life being fulfilled if I wasn’t serving God as a priest in His holy church.
I have another year to study in Newcastle and during that time I will continue to meet with the DDO and start to look towards selection for training as a priest. It’s an exciting time! I continue to pray, experience and read about ministry and the priesthood, and it only strengthens and confirms my original ‘niggling feeling’. Most of all I am open to God, and to what he wants from me, whether that be ordained ministry or something completely different and like Isaiah I say: Here I am Lord, send me.
If anybody is reading this, young or old, and has that same niggling feeling then take my advice, don’t shut it out, pray, experience, read, talk – to friends, family priests and minister and most of all, be open to God: ‘For you did not choose Me, but I chose you’ (John 15:16)
The financial crisis: Just remind me how it came about!
Tony Garland, General Synod Member, reports
Well, I guess most of us have tried to get our brains round just what caused the financial mess the world’s in. If, like me, you find it a bit of a challenge, perhaps you’ll welcome the following paper prepared for General Synod members in February.
At St Mary’s, Monkseaton, we’re including a section on the financial situation in our Easter Newsletter, which will be delivered through each of the 3,600 letterboxes in the parish. As well as some appropriate prayers from the Church of England website (see below), we’re offering readers a copy of the paper, by Andreas Whittam Smith, plus a copy of an excellent booklet for people worried about repossession of their home. ‘Save your home’ is an extremely readable collection of good advice and practical tips, available from ‘Care for the Family’. We might have a few to spare; if you want one drop me an e-mail at newsletter@stmarysmonkseaton.co.uk
Prayer for the current financial situation
Lord God, we live in disturbing days:
across the world,
prices rise,
debts increase,
banks collapse,
jobs are taken away,
and fragile security is under threat.
Loving God, meet us in our fear and hear our prayer:
be a tower of strength amidst the shifting sands,
and a light in the darkness;
help us receive your gift of peace,
and fix our hearts where true joys are to be found,
in Jesus Christ our Lord. Amen
Prayer for those remaining in the workplace
Life has changed:
colleagues have gone-
redundant or out of work.
Suddenly what seemed so secure is now so very fragile.
It’s hard to know what I feel:
sadness, certainly,
guilt, almost, at still having a job to go to,
and fear of the future:
who will be next?
How will I cope with the increased pressure of work?
Lord Jesus, in the midst of this uncertainty, help me to keep going:
to work to the best of my ability,
Taking each day at a time, and taking time each day to walk with you,
For you are the way, the truth and the life. Amen
A brief account of the financial crisis
By Andreas Whitttam Smith, First Church Estates Commissioner
The deep recession now under way differs in two respects from anything we have experienced in our lifetimes:
1. It is totally global in nature. It affects both the West and the rest of the world. I emphasise this aspect because there is a tendency in Britain to think that it is only the US and Europe that are facing difficulties. Thirty years of globalisation means that every country, from China to the tiniest African state, is caught up in it
2. Its proximate cause is a sudden withdrawal of credit by banks that has reduced business activity. This crisis developed spontaneously and was not the result of direct action by governments to cool their economies as has often happened in the past.
The over-trading by the banks that created simultaneous bubbles in housing, in consumer credit and in the financial industry itself - driven by greed - finally collapsed under its own weight in the second half of 2007. These booms were not confined to the West. There have been unsustainable rises in residential property values all over the world - from the United States and Britain to Eastern Europe and from India to Thailand and Vietnam.
Governments unwittingly created the conditions under which unbridled speculation could race ahead. Two policy changes have proved to be highly significant- In a pattern that repeats itself in this story, they were expected at the time to bring large benefits to the world economy and have done so; then perverse consequences have arisen only recently:
a. The first was the removal of external barriers to trade. The promotion of free trade through international agreements began soon after the end of World War II. In the 1930s, protectionism had prolonged the Great Depression. In contrast free trade benefits developed and developing countries alike. Each undertakes those activities in which it has an advantage. This expansion of free trade was a continuous process and a succession of free trade pacts was still being signed in the 1990s.
b. The second was the lowering of internal barriers to trade, or deregulation by another name, comprising the removal, reduction, and simplification of restrictions on business and individuals. Promoted originally by Mrs. Thatcher and President Reagan from 1980 onward, a wide variety of businesses in many countries benefited including banking. The rationale was similar to that put forward to support free trade - that fewer and simpler regulations would lead to a raised level of competitiveness and thus bring higher productivity, more efficiency and lower prices overall.
The negative consequences arose as follows:
a. As far as free trade is concerned, industrial groups in recent years have used it to move work from their own countries to less developed countries in order to cut costs. At the same time poorer countries, having signed up to free trade in the expectation that it would bring jobs, have been forced in return to deregulate their capital markets. This was the bargain. The new arrangements have precipitated a dramatic increase in capital flows. Higher output in Asian countries, in oil exporters and in other developing countries created excess savings that flowed into the financial markets of the industrialized West. Jobs have been going one way and savings the other. And it is these excess savings deployed by the banks that have created financial bubbles.
b. Deregulation of the banks removed restrictions on what activities they could undertake. As a matter of fact, contrary to what many suppose, it didn't weaken prudential regulation as such. Prudential regulation specifies how much capital banks should hold to support a given volume of lending. The most striking aspect of banking deregulation in Britain was that building societies, mutual organisations, could transform themselves into shareholder owned banks specialising in mortgage lending as well as in providing other financial services previously forbidden to them. They did not make a success of their new freedom. Every building society that demutualised has either been taken over by a bigger bank or rescued by the Government. None has remained independent. Northern Rock and Bradford & Bingley are examples.
Meanwhile the banks had invented a business technique that improved the workings of financial markets but, like free trade and deregulation, it had a dark side. Towards the end of the 1950s banks learnt to take the individual loans they had made, each underpinned by a legal agreement between the bank and the borrower, and combine them together so that the bundle became a security that could be traded. The process is known as securitisation. It started with mortgage loans extended to homebuyers. The banks would place these packages into specially created companies or trusts, not subject to prudential regulation, which new investors would be invited to finance in return for the interest that the underlying loan agreements provided. In this way the banks could clear their books of their old loans and then make fresh commitments, earn fresh fees and finally repeat the process all over again. The advantage was that risks were widely dispersed.
As a matter of fact, the unregulated bodies were still engaged in banking even though it was never described as such. For they borrowed short-term in order to finance longer-term business. This was shadow banking, more akin to nineteenth century practice than late twentieth century. The ratio of borrowing to capital supporting the loans was often well beyond best practice. It was legal only in the sense that ways of avoiding tax are legal until the Government closes the loophole. While it lasted the banks had found a way of escaping prudential regulation. They exploited the gap.
Ten years later, in the late 1990s, the banks devised a second method of removing risk from their books and freeing up reserves. Credit default swaps were invented. A third party would assume the risk of a debt going sour and in exchange would receive regular payments, similar to insurance premiums, from the bank concerned. Again on first appearance credit default swaps seemed like an excellent idea. They were an additional way of cutting risk up into small pieces and spreading it widely. Banks became enthusiastic consumers of credit insurance, as did the investors buying the loans that banks were securitizing.
Once more problems appeared. The idea got about that, paradoxically, risk was nothing to worry about. It could be split up, passed on, sold off.
Rather than being placed at the centre of financial transactions, where it ought to be, risk was banished to the sidelines. It was a detail that could easily be handled. At the same time, banks became careless about the standing of the counterparties to whom they were handing off risk. The USA's biggest insurance company, AIG, had to be bailed out by American taxpayers after it had defaulted on $14 billion worth of credit default swaps it had made to investment banks, insurance companies and scores of financial entities.
Consider then where we had got to by 2003. The excess savings of vigorous Asian economies, oil producers and other developing countries that had flowed into Western banks had pushed interest rates to very low levels. Globalisation had removed bargaining power from workers in the West with the result that inflation was only a percentage point or two per annum. In real terms interest rates were more or less zero. For banks, in other words, money was free. Furthermore now that loans could be securitised and removed from banks' books so that they no longer needed the backing of their capital, lending activity had begun to appear costless. In addition, lending had acquired the extra virtue of appearing riskless because credit insurance would ensure that others would bear the cost of defaults. The upshot was clear. When money is free, and lending is costless and riskless, the rational lender will keep on lending until there is no one left to lend to.
To reach this Eldorado, the means were at hand. Automated credit scoring speeded up the processing of applications for loans. Trimming back on documentation brought more borrowers into the fold. A proliferation of products offering credit on easy terms was devised. Moreover it didn't seem to matter if such hastily written business wasn't always of a high quality. After all the loans were to be packaged up and sold on. In other words, the banks originating the loans would have no stake in the borrower's continued solvency. At the same time, pay levels in the financial services industry were topped up with bonus schemes that gave very high rewards to those managers who could "shift product'. New borrowing was piled on old borrowing, risk on risk.
Whereas the sum of all financial assets - stocks, bonds, loans, mortgages and the like, which are claims on real things -used to be about equal to the total of the world's output of goods and services, by 2007 financial assets were approaching four times global output. In 1990, only 33 countries had financial assets whose value exceeded that of their respective outputs. By 2006, this number had more than doubled to 72 countries. Brazil, Russia, India and China were among those with financial assets worth far more than their gross national products.
In the high summer of 2007, the first cracks appeared in the great edifice of credit that had gradually been built up over twenty years. The beginnings of a decline in US property prices were the cause. The most over-geared borrowers were asked to repay their loans. They became forced sellers. This produced a triple whammy effect. As asset prices had fallen, borrowers made losses. If they couldn't fully repay their loans and went bankrupt, the banks that had financed them likewise suffered. At the same time, the values of similar assets had been put under pressure. This meant that the credit standing of fresh ranks of borrowers had been damaged. As a result a further cohort was forced lo go through the same process with the same results. And then there followed another cohort and another cohort and so on.
Some 18 months since it began, this de-leveraging process is still under way and, if anything, gains in momentum. It is a doomsday machine. In my view, it explains almost everything:
a. Why property prices continue to fall
b. Why any gains in stock market prices are quickly swamped by fresh selling
c. Why the banks find there is no end to the losses that they are incurring and that they thus constantly need re-financing
d. Why banks remain terrified and will engage in fresh lending only if the government forces them to do so or if it removes the risk.
The recession will continue until this process is over.
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