The Bailout: Hillel's Prozbul For The Pro's?

Dr. Robert B. Schonberger, who holds a master's degree from the Jewish Theological Seminary and is an anesthesiology resident at Yale Medical School, offers a different approach to the current plans for a bailout to save the economy:

It's well known that the world's oldest religions have a lot to say about that most timely of concerns, money. If we'd all followed the Muslim ban on lending with interest, for example, we wouldn't have this credit crunch. (Of course, we also wouldn't have credit.) But what's less well known is that religions have dealt specifically with credit crunches before. Judaism came up with one answer surprisingly relevant to our own day.

Two thousand years ago, Rabbi Hillel the Elder, the head of the rabbinic court during the reign of King Herod, faced a liquidity crisis in the debt markets of his day. Hillel saw that the rich were refusing to lend money to the poor because biblical law mandated debt forgiveness during the Sabbatical year. Deuteronomy 15 declares: "At the end of every seven years thou shalt make a release. And this is the manner of the release: Every creditor that lendeth ought unto his neighbor shall release it; he shall not exact it of his neighbour, or of his brother; because it is called the Lord's release." With this dictate in mind, lenders would refuse to do business with debtors as the Sabbatical year approached.

In response, Hillel inaugurated a controversial legal construct known as a "prozbul," which effectively nationalized private debts. In so doing, he allowed lenders to bypass the dictates of Deuteronomy, which demanded debt forgiveness only between individuals -- debts owed by a person to the community at large were exempt. This sweeping transformation of privately held debts into publicly held obligations is recounted in the Mishnah, the great codification of Jewish law from Hillel's time.

The ramifications of this kind of 'bailout' differ from what the US economy is facing today:

Hillel knew that if he did not offer a public bailout for lenders, not only would the poor suffer, but he would be leading both rich and poor to moral as well as economic ruin...In the frozen debt markets of his day, Hillel realized that a concession to lenders was necessary.[emphasis added]

This of course is different from the approach to be implemented today:

Fast forwarding to our own times, Henry Paulson's attempted bailout of the debt markets is a bitter moral pill for most Americans to swallow. His proposal for the nationalization of private debts can be viewed as an enormous effort -- one is tempted to say of biblical proportions -- to institute a Sabbatical year not for the poor among us, but rather for Wall Street bankers. The tempting alternative would be for us to demand that the people who make bad investment choices pay an appropriate financial penalty and capitalist justice be served.

Perhaps Maimonides was right that some day in the future we would return to the system of Deuteronomy, but in America today we are returning with a historical irony that is hard to miss. Mr. Paulson's plan is, after all, a rejection of the morals of modern finance in favor of the morals of Deuteronomy, but with a perverse role reversal between rich and poor, lenders and debtors.

Instead of debt forgiveness for the poor or instituting a way for lenders today to collect from from big businesses--instead we have debt forgiveness for big business, leaving the prospects for the poor uncertain.

So much for modern finance.

Crossposted on Soccer Dad

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