Loans, Bad Loans, and Usury

I read Zero Hedge on a daily basis. I like to know what’s going on in the world without having to resort to mainstream or social media. Many of the articles are well written. Some aren’t worth the ‘digital paper’ they’re written on. However, this one concerning usury caught my eye today.

Obviously, the author has some experience in finance and did his best to make sense of the definition of usury. Unfortunately, I think all he did was to muddy the waters, so I made a comment, which may have made the matter worse. Who knows? I can’t say that I know exactly what usury is, but this is what I think. Whether it is correct or not is debatable, but many dictionary definitions attribute a moral value to the concept, as do I.

“Usury is a loan when the borrower is subtracting equity.”–Monetary Metals

This statement makes it sound like when you’re making money off the loan, you’re not engaging in usury, but if you lose money, then you are. In reality, this is throwing the unwise borrower under the bus, because it’s his fault that he didn’t make sound business decisions. Or maybe borrowed the money to take his wife on a vacation to Tahiti, with no way to pay it back when he returns. Stupid, yes, but not a legal matter.

No one is forced to borrow money at interest. There is always a time when the borrower can just say no. Borrowing at interest is a voluntary transaction and because of that, there are no limits to the amount of interest which can be charged–as long as the borrower is willing to pay. If he can’t, he suffers the consequences.

My definition of usury is that it is the practice by a lender to loan money at interest to a person who is destitute and desperately in need of help. Think homeless person today. He has no collateral, no property, no job, no income, probably sick and starving, at the end of his rope. We’ve all seen them.

To offer this person a sum of money on the promise that it will be paid back with interest is, biblically speaking (Old Testament) criminal. Any interest at all, even a very low percentage, would be outlawed. In fact, a loan under these conditions would not even be proper or wise since the payback would be impossible for the recipient to fulfill. Instead, the person with the money was expected to simply give the down-and-outer whatever he might need in order to survive–at that moment, but only at that moment. It was not a long-term welfare program. 

There is nothing wrong or immoral about interest in a normal situation, but interest charged to anyone who has nothing except his life (and probably only a tenuous hold on that) is usury. The people who commit usury are those who do not hesitate to squeeze the last drop from anyone who is desperate, so that they can become richer. To put this in modern terms, it would be like requiring the shopping cart, tent, blanket, and the trash bags filled with stuff as collateral and then taking it away in the event of default–all to satisfy a loan with interest added.

The practice of usury is a moral, not a financial issue. What is needed here is compassion and generosity. We can all develop those.