There Is No Special Islamic Finance Finally Confirmed
New Dubai crisis increases tensions among each emirates and not so popular Dubai is again cursed in the Arab world. From economical view will be interesting to observe the unite gulf central bank project which has been in recent years finishing. However the crisis reveals another thing, that is the story behind glorified Sharia-compliant financial products.
Picture from Times Online
A year ago I’ve published an article saying that Islamic mortgage is nothing special, but just a common copied western concept of mortgage with different names which use interest; the biggest economical sin in Islam. Finally I am not the only one who noticed the same thing. NY Times today says:
a British banker from Barclays who had moved to the region to create an entire Shariah-compliance team. He shared tips about various ways to create “structured products” that would pass muster with Muslim investors. (To me, the investments looked like bonds, walked like bonds and talked like bonds — but he never called them that.) Some of the bonds that Dubai World is in jeopardy of defaulting on, by the way, are Shariah-compliant sukuk. Just don’t call them bonds.
Yes there is exactly the same situation with mortgage you can call it a profit sharing, a rent, a reselling principle, but for Allah’s sake not an interest! In fact there basically cannot be a mortgage without interest. The article goes on:
The Shariah Committee of the Accounting and Auditing Organization for Islamic Institutions, which is based in Bahrain, ended up changing the rules to make them stricter because of widespread abuse.
It raises a question what is the function of the committee when it’s were not able to realize obvious for such a long period of time? In the end famous British economist Willem Buiter says:
these were window-dressing pseudo-Islamic financial instruments that were mathematically equivalent to conventional debt and mortgage contracts
Yes I agree, it is nothing I haven’t already known a year ago.
The Berlin Wall Fell 20 Years Ago
Almost every political regime is based on violence and fear, we can just compare which one use violence more and which one less. Communism unfortunately chose violence, fear, restriction and totality in the first place of its own doctrine. For long 40 years the people in Easter Europe had been hearing that in the west capitalism exploited common people, yet when the Iron Curtain ended everyone wanted to go to West.
It was not about democracy as it was mainly a huge step for liberty, the liberty is unfortunately again under attack from many sources, but I am an optimist and I believe that freedom will be here with us another 20 years. Freedom prevails!
Michael Moore and Ron Paul about Capitalism
Michael Moore is an interesting man, in his new movie Capitalism: A Love Story is explained the root of capitalism, of course, this all just for 9.99$. I bet Michael’s next movie will be about “How capitalistic McDonald made me look this way”.
Ok without sarcasm I think he made a nice movie in order to make as much money as possible, which is interesting because this places him to the role of common greedy capitalist. He is definitely not an “independent” movie maker as he often like to present.
This is all ok, there has been many bad commercial movies, but Michael actually even did not get the meaning of Capitalism, such a basic error when the movie is supposed to describe capitalism. I understand there can be more “schools of capitalism”. But I do not think that schools which refuse bailouts, central banking and so on would be small. There are actually even politicians who got it right!
It is interesting that Michael later even admitted that we do not have a free market or capitalism. Notice that he complains about companies which want to take our choices, but in other way he want to take people’s choice about healthcare. If consistency is the basic for logic then he is definitely not consistent.
Now Michael tell me, how many times more have you earned with your new movie than the average employee?
Internet Access as a Legal Right?
Your neighbour just came to a small visit, he noticed your internet connection and realized “I want that too”. Yes he can choose some internet provider, he can find ideal speed/price ratio for him and apply for a connection. But that’s outdated, at least in Finland it is. Finland has become first country in the world having internet access as a legal right.
So instead of choosing an internet provider he will use his “right to the internet” and government makes the rest. I bet they will tax you, using your money for that connection, but it really doesn’t matter, doesn’t it?
CNN says that it is view shared by the United Nations, I think it is great. Dear United Nations what about my right to space flight, right to car, right to an island in pacific?
The Universal Declaration of Human Rights, article 3rd says:
Everyone has the right to life, liberty and security of person.
So stop taking people’s money, their property, product of their work their supplies which serves as instrument of personal security. Where are you going to take all the money from? I have not noticed that the Finnish government or the UN would be profitable institutions.
Murray Rothbard in his book the Ethics of Liberty with a reference to Franz Oppenheimer says:
There are only two means to the acquisition of wealth. One is the method of production, generally followed by voluntary exchange of such products: this is what Oppenheimer called the economic means. The other method is the unilateral
seizure of the products of another: the expropriation of another man's property by violence. This predatory method of getting wealth Oppenheimer aptly termed the political mean
Welcome in the world when violence is used for a “good” purpose, everyone needs the Internet!
Islamic Banking uses interest
“The concept of Islamic banking is essentially based on the idea that Islam prohibits riba, but permits trade and profit-loss-sharing arrangements.” *1
I don’t no why, because there is no fundamental economical reason to prohibit interest. Actually an economy which prohibits interest could face to a serious troubles and that’s something what an Islamic scholars have realized and developed the ”Islamic version of interest”. But I will try to explain why is critics of the west used interest concept needless and I will also point to a fact that the Islamic banking uses the same interest concept as the west banking system.
First, lets look what does interest mean:
“Interest is a fee paid on borrowed assets” *2
and Riba:
“The word “interest" by and large, is now understood as riba.
riba al-fadl: money is exchanged for money hand-to-hand, but in different quantities
riba al-nasiah: where money is exchanged for money with deferment.” *3
The word interest is most often used as a fee paid on borrowed money. But this is not necessary condition, because asset could be also for example some real estate. - interest paid on borrowed apartment is called a rent. (more about meaning of assets via wiki)
interest principle
The fee paid on borrowed assets is not constant. Rents in urban locations are usually very high compared to countryside rents. That’s because demand for estates in urban locations is bigger. The high rent is then a signal for investors about attraction of a locality. More attractive localities are naturally in aim of developers who try to construct more estates in those regions. (increase supply)
A fee paid on borrowed money is almost always expressed as a year percentage ratio (0,5% - size of interest is derived from amount of available capital) and it’s called an interest rate. The reason why is used percentage ratio is purely practical because it allows easily accountability or comparison. International interest rates markets (like LIBOR) then provides a quick capital flow across the whole world. Islamic banking due to the prohibition of interest rate doesn’t have access to those interbank markets neither do have similar simple Islamic interbank market.
There is also no immoral aspect of a fee paid on borrowed assets which would say prohibit interest rate, because every lender has to invest some time to reach assets which he could borrow. He also has to keep value of those assets. (house lenders use rents to house repairs or increasing house quality, money lenders use money from interest rates to cover coasts or to find the best investments)
What’s then a difference between an Islam banking and a West banking loan:
Home loans
The Islamic banking use two basics products Musharaka or more modern Musharaka al-Mutanaqisa. An Islamic bank works as the middle man between a money lender and a money borrower.
basic model of a Musharaka contract
Islamic bank instead of loaning a money, will buy a house and resell it to the borrower with a profit (look at the definition of interest or riba above, this profit is charge for deferment, but this should be forbidden). Part of this profit is then shared with its depositors.
In a more modern Musharaka al-Mutanaqisa contract a bank rent (rent - charge for deferment) house to a borrower, and the borrower is able to buy parts of this house. Size of the rent is based on the current equity share of the partnership. (Musharaka – fixed profit sharing, Musharaka al-Mutanaqisa – float profit sharing)
In order to protect against default, is used strict defined collateral like a house itself.
West banking use product called mortgage, it can have either fixed interest or float interest.
basic model of a mortgage contract
In the west banking model a bank lent money, borrowers will buy a house for them and this house is usually also used as a collateral.
The difference between the west and Islamic banking is not in interest usage, but in the fact that west banks use charges expressed by a percentage ratio and Islamic banking by absolute amounts.
West bank: you will pay loan + 0,5 % every year from your loan as a charge
Islam bank: you will pay a house value + 1000 USD as our profit
Where is then the difference? Nowhere, its the same thing expressed by two different ways. West banking uses unite interest rate system and Islamic banking system have for every kind of a loan some special model and special charge system.
Penalty for late payment is another criticized part, but there is again no moral reason for that. Just imagine if I rented a house for a one year, but used it for two years I should pay a rent for that second year too. That’s why in the western system exist penalty for a late payment, which still looks like a better option than imprisonment in Dubai debtors prisons (more info about escaping foreigners from Dubai here),
Those who still have some doubts about using interest in the Islamic banking can check SAMA website - “central bank of Saudi Arabia” there is a clear declaration that SAMA uses REPO operations as the key monetary policy action. Interest rates of those REPO operations is possible to see here.
Actually, the monetary and banking system in the Saudi Arabia is same as in the rest of world. Saudi banks accepts international Basel II Accord and keep some minimal reserves ordered by the central bank. SAMA website reports that minimal reserves are 7% which means banks must be immediately able to pay 7% of the customers’ deposits. But, I have checked a balance sheet of the Banque Saudi Fransi and their reserves were 6,22% in the Q4 2008 so it seems that SAMA either have not updated its websites or they do not care about it much. Second bank I have checked was the Arab National Bank and their reserves were almost 13% so there were everything fine. Average value of all 12 Saudi banks were according to SAMA 11.48%. This is still relatively good – for example Eurozone limit is 2%.
So as we can see Islamic banking is nothing special and sticker Shariah Compliant is just common commerce in order to lure on as much Muslim customers as possible. Only one difference is then that an Islamic bank should not invest into the prohibited stuff such as alcohol companies or pork farms.
*1, 3 - Islamic Financial Services - Islamic Economics Research Centre, Jeddah
*2 – Wikipedia – Interest
Americans are not in Iraq due to Oil
There has been many theories that Americans invaded Iraq due to Oil revenues, my problem is that the Iraqi oil revenues cannot cover the costs of war at all, so all those theories are based on the idea that they cannot do elementary math in Washington?
Americans are in Iraq because oil profits will pay everything
source of numbers is here
The USA would have to withdraw Iraq now and control all the Iraqi oil production for at least 140 years to cover all its direct costs and more than 500 years to cover total costs!
The Iraqi oil profits cannot pay the total war costs at all.
Americans attacked Iraq because Hussein did not want to use the dollar anymore
Buying power of the Iraqi oil is absolutely minimal compared to the whole American economy, there is also dozens of countries with bigger economy using dollar (China, Saudi Arabia, Singapore, Hong-Kong).
Or take a look at Kuwait, which is a larger economy than Iraq and stopped using the USD and Kuwaiti dinar has been re-pegged to a basket of currencies.
1 – Iraq war costs source – Reuters
2 – Iraqi oil revenues (the biggest annual revenue in the history – 2008) – Energy Information Administration
3 – Iraqi oil profits – my estimate based on profits of large OPEC companies - OPEC
Rumors about Replacing the Dollar in the Crude Oil Market
Today there appeared some speculations on the Independent that Arab states started a deal with Russia, France and China about replacing the USD in the crude oil market. However the rumors has been after a while completely denied by all supposed participants.
This is not a new thing, a year ago I pointed out that behind the peak oil price was actually the value of the dollar and as a proof I have shown the oil price nominated in gold which is much more stable.
This oil-dollar peg has been point of many conspiracy theories that the USA controls all those countries and forces them to use the dollar. Which is, of course, as the most of conspiracy theories a non sense.
Anyone can trade a crude oil in any currency he want to, using the FX market (spot conversion is a matter of seconds). And anyone can calculate the crude oil price in any currency, using basic math of the elementary school level.
So why all of them has used the dollar? Because it was really profitable for them. And because it does not seems that good anymore, there are some talks about changing the dollar leading position.
Consider this, The Saudi Monetary Agency gained more than 1 trillion Saudi ryials (cca 260 billions USD) just in 6 years due to the USD peg. All those money are saved somewhere all around the world, owned by someone in the government. (SAMA annual report, page 46). The same goes for China which gained much much more.
So talks about forcing someone are nonsense, non-US governments will use the USD as long as it is profitable. When it stop being profitable they will simply switch to something different, which is China doing now, so far it has not been much successful.
UPDATE: Just realized that behind this report is 9/11 “Truther” Robert Fisk, that explains all thought
Hard Irish Yes For Europe
Opinions change, this has been the core idea of the Irish referendum about the Treaty of Lisbon. The Irish once said no, but because it was politically incorrect they’ve made a new referendum next year. That’s the democracy of the 21st century – vote as long until it passes.
I love free move across the whole Europe, I love possibility to work anywhere in Europe without any limitation, but this is not the European Union, it is The Schengen Agreement. The European Union was created in order to ease economic cooperation across the European countries, but it has changed, it want to centralize and control Europe now.
I don’t want to pay another “European” bureaucrats in Brussels or Strasbourg, when I see all the bureaucrats here in my country I am really enough satisfied with them. I really don’t need to know how does the real banana looks like according to the EU. I really don’t need those 11 pages of articles just for banana market.
all the days they work on the banana formula there
The Irish referendum was probably the last chance how to stop them and how to stop centralization of Europe. Yes the Czech and the Polish president haven’t signed it yet, but they will as they are under heavy pressure from local governments.
But maybe the really really last change will be the British Conservative party which promised to make a referendum in Britain, unfortunately I don’t think it will change something. Decision has already been made, we do(not) need that treaty.
A Lesson On Freedom Of Association From New Zealand
Yesterday, Sir Roger Douglas had a speech about the Education Amendment Bill in the New Zealand Parliament. He greatly argued that in a free society an individual is free of association on all levels, including military service, labour unions or compulsory education.
The goal of a free society is to minimize violence, that’s why all forced associations must be abolished or at least very limited regardless how glorious their usefulness sounds.
By the way I’ve been quite surprised by huge money waste in this student associations on public universities, especially when New Zealand is ranked by Transparency International on the second best place in corruption and transparency level in the world.
He got it right
“They stole students money … They stole your money”
I cannot imagine how huge amounts are being wasted in different countries. I wish there were more politicians like Sir Roger Douglas.
Dogma versus Atheism
I’ve just seen this 2 years old British documentary which criticized atheism. Rod Liddle who is a moderator of the documentary also accused atheism of being same dogmatic as religion, comparing it to the regime of Soviet Union.
I consider myself as an atheist, and because atheism is the opposite of theism, meaning it is lack of belief therefore it does not mean I must necessarily refuse any higher creator (for example some race of Aliens who just study us as humans study ants). I don’t have a problem with this, but I think that creator as is described by Abrahamic religions simply cannot exists. Regardless to my evidences – this article is not about them, but about dogmas.
I don’t know why Rod Liddle suggested that connection to science and theory of evolution gave Hitler a moral apology for his actions (wasn’t Hitler a believer?). In fact if had Hitler used science he would be never able to do what he did. Science which talks about human morality is philosophy – concretely ethics.
And it had been known before Hitler was born that what is natural was not good or moral, actually it’s a logical fallacy. No as an atheist I really don’t see Sparta style as moral.
To say that Marxism is the result of non-belief seems to me also a bit strange, because it was a blind belief that the whole worker class is exploited by capitalist or bourgeoisie.
It does not matter whether you are a victim of Mohammed’s dogma of being chosen by Allah and killed in his execution of a whole tribe or another Islamic conquest. It does not matter whether you are a victim of Christian Inquisition, Christian conquests or Crusades itself. And it also does not matter whether you are a victim of Nazi dogma of superior Aryan race or communism dogma of exploited worker class – you are the victim of a dogma and that’s it.
Faiths are to be dogmatic and that’s the point all believes have some laws which they want to apply on others or a certain area (give me a tip about some religion which doesn’t if you know it, might some secular protestant Christianity?) .
The problem of dogma compared to opinion is that opinion can be easily changed when more information is available, dogma cannot.
In the end read this small text about abolition of Slavery which some consider to be product of Christianity (of course that other religions claims their religion is also against slavery – they were just 1000s years silent)
It is certainly true that the campaign against slavery and the slave trade was greatly strengthened by devout Christians, including the Evangelical layman William Wilberforce in England and the Unitarian minister William Ellery Channing in America. But Christianity, like other great world religions, lived comfortably with slavery for many centuries, and slavery was endorsed in the New Testament. So what was different for anti-slavery Christians like Wilberforce and Channing? There had been no discovery of new sacred scriptures, and neither Wilberforce nor Channing claimed to have received any supernatural revelations. Rather, the eighteenth century had seen a widespread increase in rationality and humanitarianism that led others—for instance, Adam Smith, Jeremy Bentham, and Richard Brinsley Sheridan—also to oppose slavery, on grounds having nothing to do with religion. Lord Mansfield, the author of the decision in Somersett’s Case, which ended slavery in England (though not its colonies), was no more than conventionally religious, and his decision did not mention religious arguments. Although Wilberforce was the instigator of the campaign against the slave trade in the 1790s, this movement had essential support from many in Parliament like Fox and Pitt, who were not known for their piety. As far as I can tell, the moral tone of religion benefited more from the spirit of the times than the spirit of the times benefited from religion.
Where religion did make a difference, it was more in support of slavery than in opposition to it. Arguments from scripture were used in Parliament to defend the slave trade. Frederick Douglass told in his Narrative how his condition as a slave became worse when his master underwent a religious conversion that allowed him to justify slavery as the punishment of the children of Ham. Mark Twain described his mother as a genuinely good person, whose soft heart pitied even Satan, but who had no doubt about the legitimacy of slavery, because in years of living in antebellum Missouri she had never heard any sermon opposing slavery, but only countless sermons preaching that slavery was God’s will. With or without religion, good people can behave well and bad people can do evil; but for good people to do evil—that takes religion. whole text here.
I would a bit modify it: for good people to do evil that takes blind rationalization, god(s) know the best is one them. Yes faith kills reason.
Motto
Recent Posts
- There Is No Special Islamic Finance Finally Confirmed
- The Berlin Wall Fell 20 Years Ago
- Michael Moore and Ron Paul about Capitalism
- Internet Access as a Legal Right?
Archives
- December 2009 (1)
- November 2009 (2)
- October 2009 (5)
- September 2009 (3)
- August 2009 (3)
- July 2009 (4)
- May 2009 (1)
- April 2009 (3)
- February 2009 (3)
- January 2009 (1)
- December 2008 (7)
Atheist Blogroll
