Tuesday, December 02, 2008
Muslim Pounds and Sense
The economy is in bad shape and we are all going to have to work harder to make ends meet.
As a result we are not going to have much time to think about why we find ourselves in this situation but, of course, that is exactly what we need.
So here I am on a plane from San Francisco to Chicago, sitting beside a dad and his daughter as they work their way very amicably through her high school history assignment, and I find myself with some time to devote thinking about our current economic woes.
There are, it appears to me, two main reasons why we find ourselves where we do.
The first is the fact that the unregulated flow of vast amounts of capital around the world earned such large commissions for the worlds leading financial institutions that they turned from financial engineers in to financial plumbers.
The second was having given up on what they use to do, creating wealth for their clients by thinking about how the world works and making smart investments, they still had to pretend to make smart investments. This they did by telling each other it was a great idea to lend our money in vast quantities to bank who in turn lent this money to people that any old-school bank manager could tell you would not be able or willing to make their repayments if times got tough. To make matters even worse they then sliced’n’diced these loan and bundled them with other financial instruments. This had the effect of breaking the link between our money and the asset it was supposed to be backed by and allowing people attribute wholly unreasonable values to these instruments freed from the constraints of the real world.
In the aftermath we hear much talk about the need for better regulation of the financial markets and we hear many experts pouring forth on this and that proposed solution, generally variations on a theme proposing a return to the good old days of government-centric top-down enforcement.
However, one approach that could be adopted and that is known to work is to follow the tenets of the Muslim faith as they pertain to financial matters.
Investors and funds that do are said to be Sharia compliant and, as many of you know, such funds do not invest in porn or gambling. However, they also do not invest in financial instruments whose value is not backed by a direct link to a tangible asset. As a consequence Muslim investors like to invest in property and traditional businesses with tangible assets.
If this person-centric and bottom-up approach were adopted it would be hard to see how institutions, no matter how unregulated by government, could inflict as much damage on the wider economy as they have managed to do in recent times.
In proposing this as a possible way forward, it must be recognized that in many ways Sharia compliant investment has hampered economic development in Muslim countries because it tends to discourage investment in the development of less tangible knowledge-based or service-based assets. It must also be recognized that Sharia law also systematically excludes women from fully playing their part in society and demonises followers of other faiths.
Ironically, one of the topics the father and daughter next to me on the plane have been considering is the great depression and how the US developed new economic models that were in their time very innovative and far seeing in an attempt to prevent such social and economic dislocation in the future.
Perhaps it is time to be even more innovative and even futher looking.
Donald Fitzmaurce
As a result we are not going to have much time to think about why we find ourselves in this situation but, of course, that is exactly what we need.
So here I am on a plane from San Francisco to Chicago, sitting beside a dad and his daughter as they work their way very amicably through her high school history assignment, and I find myself with some time to devote thinking about our current economic woes.
There are, it appears to me, two main reasons why we find ourselves where we do.
The first is the fact that the unregulated flow of vast amounts of capital around the world earned such large commissions for the worlds leading financial institutions that they turned from financial engineers in to financial plumbers.
The second was having given up on what they use to do, creating wealth for their clients by thinking about how the world works and making smart investments, they still had to pretend to make smart investments. This they did by telling each other it was a great idea to lend our money in vast quantities to bank who in turn lent this money to people that any old-school bank manager could tell you would not be able or willing to make their repayments if times got tough. To make matters even worse they then sliced’n’diced these loan and bundled them with other financial instruments. This had the effect of breaking the link between our money and the asset it was supposed to be backed by and allowing people attribute wholly unreasonable values to these instruments freed from the constraints of the real world.
In the aftermath we hear much talk about the need for better regulation of the financial markets and we hear many experts pouring forth on this and that proposed solution, generally variations on a theme proposing a return to the good old days of government-centric top-down enforcement.
However, one approach that could be adopted and that is known to work is to follow the tenets of the Muslim faith as they pertain to financial matters.
Investors and funds that do are said to be Sharia compliant and, as many of you know, such funds do not invest in porn or gambling. However, they also do not invest in financial instruments whose value is not backed by a direct link to a tangible asset. As a consequence Muslim investors like to invest in property and traditional businesses with tangible assets.
If this person-centric and bottom-up approach were adopted it would be hard to see how institutions, no matter how unregulated by government, could inflict as much damage on the wider economy as they have managed to do in recent times.
In proposing this as a possible way forward, it must be recognized that in many ways Sharia compliant investment has hampered economic development in Muslim countries because it tends to discourage investment in the development of less tangible knowledge-based or service-based assets. It must also be recognized that Sharia law also systematically excludes women from fully playing their part in society and demonises followers of other faiths.
Ironically, one of the topics the father and daughter next to me on the plane have been considering is the great depression and how the US developed new economic models that were in their time very innovative and far seeing in an attempt to prevent such social and economic dislocation in the future.
Perhaps it is time to be even more innovative and even futher looking.
Donald Fitzmaurce
# posted by Donald Fitzmaurice @ 18:55 
