Pope Francis and the Vatican issued a criticism of many aspects of the modern financial system in a new document published Thursday, raising specific concerns about trading practices, offshore tax havens, high public debt, and much more.
In the document, published by the Vatican’s offices responsible for doctrine and justice and peace, the pope says the economy and business matters have moral dimensions and calls particularly for universities and business schools to teach ethics.
The document, which generally features a tone that would appeal to critics of Wall Street and international finance, faults leaders for “myopic egoism” in failing to reform the financial system in the wake of the financial crisis. Deregulation, it warns, can lead to financial bubbles and crises.
Later in the document, the pope touches on several topics relevant to ongoing debates in the U.S.:
- The pope characterizes derivatives, which are financial contracts based on the underlying value of some asset, as introducing a “ticking time bomb” to the financial system through complexity. The document particularly criticizes derivatives traded between financial firms, rather than through centralized clearinghouses. The 2010 Dodd-Frank law sought to move such trading to clearinghouses and subject them to oversight by regulators.
- The rise of “shadow banking” has led to authorities losing control of the financial system, according to the Vatican. The term usually applies to banking activity that takes place outside of the official banking system, in which deposits are insured by the government and regulators oversee participants. Some U.S. regulators have called for additional powers to regulate shadow banking.
- Offshore financial activity has “become usual places of recycling dirty money, which is the fruit of illicit income (thefts, frauds, corruption, criminal associations, mafia, war booties etc.),” according to the document.
- The Vatican warns that financial advisers sometimes steer savers into inappropriate financial products to receive kickbacks or otherwise get an advantage for themselves. The financial industry fought hard against an Obama administration effort to impose a major regulation requiring that advisers working with tax-privileged accounts act in their clients’ best interests. That rule was recently struck down by a federal court.
- Government officials aren’t spared criticism. The text says the high public debt in many countries is the result of bad management or fraud and that it threatens the functioning of the economy.
