Many of you will remember with sadness the news story earlier this year about a family in Wilmington, California, near Los Angeles, where five children and their mother were shot by their father, who then killed himself. The tragic incident was another casualty of the economic downturn. The Lupoe family home was being foreclosed on, and both adults had also lost their jobs the week before. Believing they had no other option, the mother and father, according to the suicide/murder note sent to the police and the news media, decided on this course of action.

This tragic story is not unusual in these times. Many of us have relatives or friends who have lost their jobs, their homes, or their life savings in the past year, even if they escaped the tragic ending of the Lupoe family. We are currently experiencing the worst series of severe losses since the Great Depression of the 1930s.

In this article I will examine briefly what has happened and turn to the social teaching of the Church (STC) for help in understanding the situation and moving forward.

Like so many others, the Lupoes lost their home due to an onslaught of defaults on home mortgages, which made a hole in the dike and led to an awesome flood of bad economic news. Many people in recent years were given home loans even though their poor credit ratings made it unlikely they would be able to keep up with the payments. These loans were called subprime mortgages. One of the most common of these loans is the adjustable-rate mortgage. Bankers and brokers created these enticing loans, which started out with low payment rates, leading homebuyers to believe they could afford them. Then when the rates automatically increased two years later, they discovered they had no way of meeting their obligations.
Part of the responsibility certainly lies with the homebuyers. However, much more fault lies with the bankers and brokers, who were more interested in making money than in clearly explaining the conditions of the loan to prospective buyers, and with the government, which encouraged people to become homeowners and then failed to regulate the financial market. There is certainly enough blame to go around.

All of this was compounded by the practice of packaging mortgage loans and selling them to a largely unregulated new banking industry—referred to as the shadow banking system—which removed the loans from local banks and put them into the hands of anonymous investors sometimes continents away. I’m sure the Lupoes had no idea that their loan would end up being held by someone in New York or London or who knows where. Perhaps it didn’t matter to them, except for the fact that huge profits were being made in this largely unregulated part of the financial industry on their money. At least until lately, pension funds, money managers, foreign governments, and hedge funds were the only real winners in this industry.
When home values dropped, not only were many homeowners left holding loans that exceeded the value of their homes, but huge investment banks like Bear Stearns and Merrill Lynch were as well. As investment banks began to fail, the stock market collapsed. Many people and institutions lost money. Businesses began to fail, and jobs were soon to follow as money became scarce.

This is where the Lupoes were hit a second time. Like so many thousands in the last several months, they found themselves without jobs. Despite the enormous amounts of money given to financial institutions in the first bailout in September 2008 to keep loans flowing, few strings were attached. Instead of lending that money to boost that area of the economy, banks simply dropped it into the giant sinkholes they had become. Without loans, houses and automobiles stopped selling, which led to a whole lot of collateral damage—more jobs were lost, retail businesses got in trouble, home values dropped, and more homes were foreclosed on—a vicious cycle of economic woes that has now become familiar.
Where do we go from here? One area of reflection for Catholics has to be the STC. It has much to offer toward finding our way out of this mess.