June Vol. 1, 2009
By Subhana A. Rahim
While recession woes and the economic crisis in the United States are at their greatest peak since the Great Depression, the need to find the source of America’s financial catastrophe and create preventative measures have become a necessity. The Senate responded to this need recently by adopting the Fraud Enforcement and Recovery Act of 2009 (FERA). This Act, which was introduced by Senator Patrick Leahy (D-VT) and Senator Chuck Grassley (R-Iowa), broadens the scope by which the government can investigate and prosecute financial institutions in the mortgage lending business. Previous statutes generally impose sentences and fines for infractions relating to conventional banks and financial institutions. This most recent legislation widens the range of financial institutions that are affected, by specifically including mortgage lending companies. It also imposes stiffer penalties and fines for mail and wire fraud associated with financial institutions. One component of the act calls for a bipartisan Financial Markets Commission, whose mission will be to examine the economic crisis from both international and domestic aspectsand will have full subpoena powers as well.
While proponents for this endeavor claim that this well- honed legislation leaves no stone unturned in terms of prosecution, critics of this Act argue that portions of FERA are redundant, overreaching and highly unnecessary as there are laws that are already in place that address the specific infractions mentioned in the amendments. For example, the verbiage regarding “bribery” and “false statements” are already potentially punishable by hefty fines and extended jail terms of up to $1 million and 30 years respectively. Detractors are also concerned with the high costs that the government will incur for holding lengthy commissions thereby eating away at taxpayers’ money. The House of Representatives’ legislation is expected to mimic that of the Senate’s regarding the establishment of the commission.
Filed under: Business/Economy, International, May Volume I - 2009, World | Tags: G20, IMF
By Noora Ahmad
Islamic Post Staff Writer(IP) –A major goal of boosting the power and influence of the International Monetary Fund (IMF) and other global lending institutions was accomplished at the G20 financial summit last month by doubling, and in some cases quadrupling lending capacity to assist nations weighed down by financial woes. A total of $850 billion was allocated by G20 nations in support of increased lending, along with an additional $250 billion culled from special drawing rights (SDRs) –a currency belonging to the IMF and not overseen by any regulating agency.
The Wall Street Journal printed an article entitled The G20’s Funny Money which lambastes SDRs as “bits of paper printed by IMF officials in the basement,” which nonetheless could commit the U.S. taxpayer to come to their support. In explaining how the SDRs work, the Journal notes that so far Congress has had to be consulted and that the last decision to increase the issuance of the pseudo-currency, taken by the Clinton Administration in 1997, had been blocked by the Congress. The Journal then quotes Ted Truman, a former Assistant Secretary of the Treasury, who he believes an actual allocation could be made by the US Treasury Secretary with only consultation with Congressional leaders, not a vote.
While SDRs are backed by the yen and the euro in addition to the dollar, management of the IMF’s currency will not be at the discretion of the countries in ownership of those currencies. Ambrose Evans-Pritchard, the international business editor of the Daily Telegraph, cites the clause calling for the issuance of $250 billion in SDRs as “a revolution in the global financial order.” He writes: “In effect, the G20 leaders have activated the IMF’s power to create money and begin global ‘quantitative easing.’ In so doing, they are putting a de facto world currency into play. It is outside the control of any sovereign body.” The BBC reports IMF managing director Dominique Strauss Kahn as having noted “that this was the first step to the IMF becoming a lender of last resort or, in effect, the world’s central bank.”
While no specific targets (besides Mexico) were mentioned in the G20 declaration on Delivering Resources Through The International Financial Institutions for the $850 billion in increased loans via development banks, roughly half of the $250 billion is set to “go directly to emerging market and developing countries.” In conclusion, the declaration on increased lending stated: “Emerging and developing economies, including the poorest, should have greater voice and representation.” This refers primarily to the emerging economies of Brazil and India, according to the BBC.
Other new administrative policies include the US potentially losing its veto power in the World Bank and IMF. More Western countries could find their voting rights “severely reduced,” again, as reported by the BBC. Even “the convention that an American heads the World Bank and a European heads the IMF will also now be abandoned, the G20 leaders say,” the BBC also stated.
An IMF statement after the summit listed other assumed duties:
“Economic forecaster. IMF economic forecasts were now the central reference point for countries planning how to respond to the cris
“Policy advisor. The IMF had become a partner for governments to discuss policies and help them analyze what policy responses to the crisis would work.
“Economic surveillance. The IMF will monitor policy implementation by governments around the world.”
Sources: BBC, LPAC, IMF, G20, Wall Street Journal
Filed under: Business/Economy, Interfaith, International, May Volume I - 2009, National, Religion, World
(IP)– This month, regulatory bodies are reviewing the excessive interest, or usury, being charged by credit card companies. After being pursued in an antitrust case for “non-compliance” to European Commission rules regarding cross border fees, MasterCard settled out of court. While, according to European Union regulators, the credit card company agreed to reduce fees that raise costs for retailers, the New York Times reports MasterCard said the reduction was simply provisional and that it would continue a broader battle over the level of the fees in court. Here at home, United States lawmakers moved, in turn, to provide people with credit card debt relief from abusive rate and billing practices, as reported by Market Watch. A new Credit Cardholders’ Bill of Rights would restrict retroactive rate increases on existing balances, double-cycle billing, and “due-date gimmicks,” said Rep. Carolyn Maloney, D-NY, who has spearheaded the legislation. Market Watch further noted, “The proposals approved by a House subcommittee are similar to final rules passed late last year by the Federal Reserve and other regulators… [In addition] a Senate committee approved its own set of credit card restrictions.”
This issue at stake for the European Commission and American lawmakers and regulators is the age-old question of controlling the flow of usury –the excessive rate of return charged by banks and lending institutions on interest-based loans. Financial experts recently criticized the wildfire spread of usury as being one of the major factors that led to the current economic crisis.
Usury had been strictly regulated in most countries until the late 1600s when usurious practices were first officially sanctioned by a head of state, William of Orange in Britain, who supported the establishment of the Bank of England –a private institution at the time. The practice of high rates of return gradually spread, but the institution was nevertheless widely viewed with distaste. Because it is easy for anyone –but particularly poor people and those in desperate circumstances– to find themselves in a reciprocating pattern of debt due to compound interest and the like, usury has been taken as a form of oppression. In this sense, secular and religious norms are in agreement. The major religions have been against such banking practices since their inception.
The First Council of Nicaea in 325, forbade clergy from engaging in usury which, at the time, meant interest of any kind. Pope Clement V made the belief in the right to usury a heresy in 1311. Islam has always forbidden interest, whether by modern definitions of usury or not, and continues to uphold the same prohibition. The Torah also carries prohibition of usury.
But in 2009, after many centuries, usurious practices seem to have overwhelmed religious awareness, as creditors consistently offer credit cards, mortgages and loans at extremely high rates of interest to people who are known to be unable to repay the principle, let alone the interest. The global economy has been headed toward its present state for many years, with few preventive measures having been taken against such forms of predatory business. Beginning in the 1960s deregulation of usury began to occur in the United States, and individual states initiated their own individual practices and laws regarding what were deemed usurious and illegal and what was not. In some states, debtors have been known to be charged in excess of 300% interest in extreme cases.
Author Thomas Geoghegan, was interviewed recently on DemocracyNow! regarding his work which recently appeared in Harper’s Magazine entitled “Infinite Debt: How Unlimited Interest Rates Destroyed the Economy.” In this excerpt from the interview, Mr Geoghegan explains in a simplified form how the “real economy,” or manufacturing, was in essence destroyed over time by the financial sector.
“If you’re able to charge 30 percent or, in a payday lender case, 200 or 300 percent, you don’t care so much if the loan —in fact, you actually want the loan not to be repaid. You want people to go into debt. You want to accumulate this interest. And this addicted the financial sector to very, very, very high rates of return compared to what investors were used to getting in the real economy, the manufacturing sector, General Motors, which would give piddling five, six, seven percent returns.
“So the capital in this country began to shift in the financial sector. That’s why the financial sector began to bloat up. That’s why we ended up, by 2006, having a third of all profits going into the banks and the financial firms and not into the real economy.”
If Mr Geoghegan’s “real economy” is based in the manufacturing and sale of physical goods, the financial sector would then be a virtual economy –one whose primary method of trade and profit are loans that, having scant basis in monetary gold or silver, are based upon the trustworthiness (credit) of the financial institution granting the virtual money.
But the hardship endured by honest people struggling to make a variety of monthly payments is not make-believe. The interest (sometimes called late fees) on car payments, business loans, credit cards, mortgages, student loans, and even hospital bills and cell phones is generally billed first and compounded with each failed due date until the full debt could become impossible to repay. The creditor is often able to recover the original debt, even with a decent profit, but the debtor doesn’t always get out of the clear. If not, before the creditor writes off the remaining debt on company taxes, the institution may then sell the remaining balance to a third party collection agency. At this point, the debtor must pay the transferred balance plus any additional collection fees (more interest).
While some loan practices are being reviewed by US lawmakers in favor of the consumer, a range of consumer, community and civil rights groups recently objected to the leading bill in Congress set to deal with the issue of payday loans. Consumers Union, Americans for Fairness in Lending and six other groups say the Payday Loan Reform Act of 2009, would actually protect the “predatory payday loan business model and will stall or stop the significant progress that has been made at the state level to curb usurious lending.” In a letter to members of Congress, the groups state “Although this bill shares the same title as H.R. 2871 in the last Congress, it will have the exact opposite impact on consumers.” The Washington Independent alleges the new bill to be “loophole-ridden” and faults lobbyist influence.
The Center for Responsible Lending says interest rate caps are the only solution to a worsening predatory situation, and will cost taxpayers nothing. “Payday loans carry annual interest rates of around 400 percent. They trap people in debt to the extent that the average borrower has nine payday transactions a year,” the Center reported. “[While] Barack Obama has… proposed a combination of cutting taxes and encouraging spending to aid in economic recovery… predatory lenders are stripping cash from the earnings of working people who fall into this same demographic –at astounding rates.”
This may not bode well for an already struggling US economy.
Filed under: Business/Economy, Front Page News, Interfaith, International, May Volume I - 2009, World | Tags: Islamic Finance
The Vatican recently claimed banks should look at the ethical rules of Islamic finance to restore confidence amongst their clients during this time of global economic crisis.
“The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service,” the Vatican’s official newspaper L’Osservatore Romano said.
Author Loretta Napoleoni and Abaxbank Spa fixed income strategist, Claudia Segre, say in the article that “Western banks could use tools such as the Islamic bonds, known as sukuk, as collateral.” Sukuk may be used to fund the “car industry or the next Olympic Games in London,” they said. They also said that profit share, gained from sukuk, may be an alternative to interest. They underlined that sukuk system could help automotive sector and support investments in the area of infrastructure. The Islamic sukuk system is similar to bonds of the western system; however, money is invested in concrete projects and profit share is distributed to clients instead of interest earned.
L’Osservatore Romano’s editor, Giovanni Maria Vian, said that “the great religions have always had a common attention to the human dimension of the economy,” Corriere della Sera reported.
Source: Brussels Journal.
Staff Writer Jamaal A. Waahid contributed to this report.
(IP) –The Dominican Republic Customs Director, Miguel Cocco, is urging actions to increase Dominican regional exports, saying the DR has been the big loser in regional trade, as reported by DR1. “For every US$10 the country exports to Central America, it imports US$90 from those countries. And for every US$18 exported to the Caribbean, Dominicans import US$82,” he was reported to have said at a trade export summit.
According to Dominican Republic President Leonel Fernandez, the island nation entered 2009 with a strong economy after small increases in remittances and tourist arrivals. “GDP grew 5.3 percent last year, slightly higher than the average for Latin America, he added. Remittances reached $3.1 billion, a 2.1 percent growth from 2007, while the number of tourist arrivals –nearly 4 million– grew 7 percent and generated $4.2 billion in revenue,” Dominican Today reported.
In commenting on the global crisis, Dominican Today reported the president as saying: “The Dominican Republic has been affected by the accumulation of adversities and calamities that extend across the planet as if it were a modern version of the Seven Plagues of Egypt.”
Dominican Today further reports the country is set to rely on an estimated $1.8 billion in loans from the World Bank, the Inter-American Development Bank and others to pay for projects related to education, health and energy, as noted by President Fernandez in his annual Independence Day address earlier this year.
Sources: DR1, Dominican Today
By Sabeerah Abdul Majied
Islamic Post Staff Writer
More than 70 world leaders participated in the Fifth Summit of the Americas in Port of Spain, Trinidad from April 17-19, 2009. It was the first time this prestigious event has been held in the Caribbean and in a CARICOM member state. The Summit is the only forum where the 34 democratically elected Heads of State and Governments of the Western Hemisphere meet to share their vision for the development of the hemisphere. The leaders deliberated on matters related to the political, economic, social, and security challenges confronting the region. Prime Minister Manning noted in an address to parliament that the summit has implications for, “the lives of some 2.8 billion people living in the Americas and the Commonwealth.”
Critics have raised issue with the tremendous cost to the tiny Republic –$2b according to Trinidad’s Newsday– for hosting the event. However the Prime Minister believes that it is a progressive vision which could yield development, progress and greater regional integration.
Preparation for the summit progressed with the readying of official venues such as the Hyatt Regency Trinidad and the Diplomatic Centre for the event. Further, two cruise ships anchored in the Port of Spain Harbor provided additional accommodation for delegates and other international participants. National security was upgraded to meet the standard required for hosting US President Barak Obama and other heads of state. Signs of preparation were most visible at the Piarco International Airport which accommodated the largest number of non- commercial aircrafts ever to land on its runway.
The theme of the Summit, “Securing Our Citizens’ Future by Promoting Human Prosperity, Energy Security and Environmental Sustainability” focused discussions on issues related to the global economic situation, environmental management, social protection and poverty eradication. Education, public security systems and entrepreneurship was also discussed. The collective responses and agreements will inform yet another conference- the Commonwealth Heads of Government Meeting which Trinidad will also host from November 27-29, 2009.
In 1994 the leaders of the Western Hemisphere met for the first summit in Miami on the initiative of President Clinton. Since then a 2nd summit was held in Chile (1998). This was followed by the 3rd summit in Canada (2001) and the 4th in Argentina (2005). The summits have provided a forum for sharing experiences and developing solutions to problems that affect the people of the Americas.
By Noora Ahmad
Islamic Post Staff Writer
(IP)– Economist Michael Kirsch declared last month the “false market” of globalization, the “corrupt” existing “speculation-based” international financial system to be “bankrupt,” and “the entire world system of globalization [to be] dead.”
If this is the case, as the Executive Intelligence Review (EIR) contributor believes, there are monetary entities clinging on to the coffin.
Market Superstition?
The World Bank released the World Development Report (WDR) 2009 earlier this year and called it: “Reshaping Economic Geography,” in which WDR Director Indermit S. Gill proposed that, by uncontrollable forces, “Markets favor some places over others.” However, such theories tend to lend more to “the delusion of globalization, and the superstition that the ‘magic of the marketplace’ determines value,” at least according to Mr Kirsch. He also laments the economic summits held late last year which gave more power to the International Monetary Fund, a global lending institution similar to the World Bank. This move helped pile on more of the same types of policies, causing economies to dip further, and quite drastically, while again lining the pockets of speculators.
Mr Gill stated, “The world’s most geographically disadvantaged people know all too well that [market] growth does not come to every place in the world,” as reported by the World Bank. But, Kirsch insists “there is no sane reasoning behind it.” “How could the market know the right price?” he said. “The market only knows the names of the speculators who have been using it to destroy the economies of nations over the last 40 years.”
Using the example of the recent conflict with Russia and the Ukraine over natural gas prices, Mr Kirsch quoted Russian Prime Minister Vladimir Putin as having stated that oil prices are “determined by the market and not by administrative decisions.” Kirsch calls that a fallacy. “This way of speaking reflects the belief that there is an inherent value, which the market knows and bestows upon a commodity; if you want to change the price, bad things will happen to your country. With what other belief would such barbaric behavior [of withholding heating fuel from the Ukraine in the dead of winter] be justified?”
But superstitions and food prices are an even more dangerous mix. In the face of the persistent international food crisis, WDR 2009 encourages mass migration into urban areas and away from agricultural centers because, as previously stated, “Markets favor some places over others.” Where the lending institution would profit from urbanization is an abundance of infrastructure lending to help facilitate migrations. The lending packages also include ‘conditionalities,’ which average 111 per nation and “undermine democracy,” according to a statement given to the London Observer by former Chief Economist of the World Bank Joseph Stiglitz. The World Bank’s rationale for mass migration from the food-producing countryside are: “No country has attained high income status without urbanizing,” and, “Growth seldom comes without the need to move closer to densely populated areas.” However, urban areas were also afflicted with the most food riots over the past six months.
Bypassing these issues, the World Bank warns that “Rural poverty rates are almost everywhere higher than in cities,” and, “Prosperity demands mobile people and products.” However, abandoning food security and flocking to urban areas, or even other countries, to work for international companies for a pittance is slavery to some, but continuing prosperity for others.
During the time period when hunger protests were still making headlines, the Financial Times suggested a more logical approach to bring income to rural-dwellers: Governments should dedicate more land to production and better the access to financing for growers who are taking their food to market, especially those selling gourmet and organic foodstuffs to a larger market. More recently, U.S. First Lady Michelle Obama emphasized the importance of agriculture by promoting the building of gardens at U.S. Department of Agriculture (USDA) facilities all over the world last month, in order to set an example for global communities.
“There must be a return to the American system’s concept of the role of government in guiding the implementation of needed scientific principles,” said Mr Kirsch. “Anything less, any mental pollution, such as a mystical belief in the magic of [Karl] Marx’s stages of capitalism, or the inclination to respect and protect ‘market forces’ as if they were part of nature, means sure death for the world economy.” which is now struggling to overcome the symptoms of globalism, which has already destroyed itself.
Filed under: Business/Economy, Front Page News, March Volume 2009, National, Politics
(IP)– Many Republicans are ready for war over President Barack Obama’s proposed federal budget, interpreting it as a plan to interject the government into corporate affairs. Republican Congressman Paul Ryan of Wisconsin says enactment of the Obama budget plan would lead to the largest expansion of government since Franklin Roosevelt’s New Deal. At the same time Republican statesmen are expressing their concern over the projected record-high deficit of $1.75 trillion for the next fiscal year, more than 12 percent of U.S. gross domestic product. “It is terrifying in the policy implications as well as mind-boggling in the numbers,” Senate Finance Committee member Jon Kyl (R-Arizona) told Fox News.
But political analysts have found ways to explain away both of the main arguments regarding an escalated deficit and government intervention. Lyndon LaRouche, chief economist of Executive Intelligence Review says the deficit argument is overplayed. A “diversion,” Mr LaRouche said, adding that the deficit before the new budget already has “no solution.” Matt Dallek, political historian at the University of California’s Washington Center takes a milder stance on government intervention: “Now on some level, we accept that the federal government for the most part, not everyone does, obviously, but we accept that the federal government has a role to play in a time of economic crisis.”
Mr Dallek’s logic is not acceptable to everyone, however. Many Republicans resent the scope of the new budget, even after a weeks long struggle of the Obama administration to pass the stimulus bill, the other part of the package to deal with the economic crisis.
However, White House officials point out that President Obama inherited the crisis, along with the federal deficit, from the previous administration. Director Office of Management and Budget, Peter Orszag, reiterated: “The economic crisis we’ve inherited raises the deficit by roughly $2 trillion (for this year and next year combined).” According to Mr Orszag, the crisis has raised the deficit, and the Obama administration has been left to deal with that in a way which is “fiscally responsible and not ‘big spending.’” “Irresponsible budgets and inexcusable practices are now in the past,” President Obama said during his weekly address March 7. The President also emphasized that, while the deficit will increase in the short run, reduction of the same amount is calculated for the next years.
In Peter Orszag’s notes to the public, he states the deficit reduction will partially come from “responsibly redeploying our military forces engaged in overseas contingency operations, as well as reforms that would allow us to get more for the money spent on defending the nation.” “The President is committed to responsibly winding the war,” wrote Orszag, “I don’t do foreign policy, but I can tell you this: ending wars saves money – and so the Administration’s budget includes savings from ramping down overseas military operations over time.” President Obama also signed a presidential memorandum earlier this month “to end unnecessary no-bid contracts and dramatically reform the way contracts are awarded — reforms that will save the American people up to $40 billion each year.” While defending massive short-term deficits as necessary during a severe economic recession, President Obama says his budget will shrink the revenue gap in subsequent years by eliminating unnecessary spending and raising income taxes on the wealthy.
Other methods of deficit reduction, according to Mr Orszag, include “returning fairness to the tax system by closing tax loopholes, eliminating subsidies for special interests, and returning to the pre-2001 tax rates for high-income families making more than $250,000 per year (over the next ten years, these revenue enhancements would reduce deficits by roughly $1 trillion).” The budget includes a tax cut for all but the wealthiest of workers and as White House Chief of Staff, Rahm Emanuel, told CBS’ Face the Nation program: “Ninety-five percent of Americans will have a tax cut. Nobody will see a tax increase for two years.”
Orszag also states the budget will make government “more efficient – for example, by eliminating unwarranted subsidies to middlemen on educational loans and reducing erroneous payments (these two steps would reduce deficits by almost $100 billion over the next ten years).” On ABC’s This Week program, the budget director enjoined: “Let us also count the benefits that families get through Pell [education] grants, the benefits that they will receive through constraining health care costs, the benefits they get from weatherizing their homes, and so on. This budget makes the vast majority of American families much better off.”
But still, “a weak economy reduces revenue and increases spending on automatic stabilizers like unemployment insurance,” Orszag stated. This also requires billions to stabilize financial markets, including the need for the $787 billion Recovery Act to “jumpstart” the economy.
But not everyone agrees that the economy can be jumpstarted. Mr LaRouche contends that what is needed is a restart: “What’s running the world today [is] a usury-ridden financier system, which is now breaking down. Putting the entire world system through bankruptcy reorganization will, in effect, eliminate the present Anglo-Dutch-Saudi empire, that is, the banker, the financier empire.”
“The fact of the matter is, that the United States is [already] bankrupt. The U.S. system is bankrupt. The U.S. government is bankrupt. And every part of the world is also bankrupt,” LaRouche writes. The solution to what he calls an impending New Dark Age is “to create [a] system of cooperation among nation-states, of the type envisaged by Franklin Roosevelt in 1944, end all traces of imperialism, end all globalization, and go back to the sovereign nation-state and its people.” Locally, LaRouche proposes that, after declaring bankruptcy and cancelling claims against the economy, “A new flow of credit [be created], under our Constitution, to ensure that the local chartered and local national banks are able to perform their traditional function, in cooperation with government, for creating a system of long-term credit, to generate the rebuilding of our economy: agriculture, industry, infrastructure.”
LaRouche emphasizes that, like the President’s high speed rail program, infrastructure is of the greatest importance to reviving jobs and the economy. The economist also points out: “We need to go back to more distribution of production away from a few large centers of mass industry, into regional development; smaller industries, more emphasis on closely-held corporations. We need to rebuild the idea of a community, where you can walk to work in a quarter-hour or half an hour each way, at most.”
While, the ideas of the EIR director suggest a restructuring of society, the President’s budget, as it stands, is a definite far leap for those who prefer the status quo of the last eight years. Because the US dollar is linked to, and financially supported by, so many of the world’s economies, “Whether this president succeeds or fails, he’s going to do it in historic proportions.” says Larry Sabato, who directs the Center for Politics at the University of Virginia. “It seems to me that in a sense, it is another New Deal or Great Society. You may support it. You may oppose it. But it is big.” -Sources: Treasury Dept. VOA, Whitehouse.gov, EIR
By Umm Abdul Malik
Islamic Post Staff Writer
President Obama had blistering remarks for insurance giant AIG , after hearing news of the financially troubled corporation’s intent to bestow $165 million dollars in bonuses to top executives – despite AIG’s receipt of billions in government bailout funds. “How do they justify this outrage to the taxpayers who are keeping the company afloat?” Obama asked, attributing its problems “to recklessness and greed.”
In January, the President blasted executive corporate spenders who, just months ago, were executive corporate beggars after reports surfaced that high-level executives of some of the very institutions heard pleading before Congress for financial aid, had lined their pockets with bonuses in excess of $18 billion dollars last year. “It is shameful…There will be time for them to make profits, and there will be time for them to get bonuses – now is not that time.” He said he had directed Treasury Secretary Timothy Geithner to “pursue every legal avenue to block these bonuses,” with hints on Capital Hill that in the best case scenario, the execs would simply refuse the money.
Mr Obama affirmed the fact that the corporate behavior contributing to the financial crash will take time to modify, but reformed it must be. “The American people understand that we have a big hole that we have to dig ourselves out of,” he said. “But they do not like the idea that people [financial firm executives] are digging a bigger hole, even as they are being asked to fill it up.” Change in the mode in which American businesses operate –and Wall Street executives in particular– is a major component of the economic reform strategy the Obama administration, along with Congress, have industriously crafted. “We expect that even as the reinvestment and recovery package moves forward — as I said, that’s only one leg of the stool, and that these other legs of the stool will be rolled out systematically in the coming weeks so that the American people will have a clear sense of a comprehensive strategy designed to put people back to work, reopen businesses and credit flowing again.”
“Part of what we’re going to need is for folks on Wall Street who are asking for help to show some restraint, and show some discipline, and show some sense of responsibility,” the President has been quoted as saying. “I know the American people are eager to get moving again — they want to work. They are serious about their responsibilities; I am, too, in this White House, and I hope that the folks on Wall Street are going to be thinking in the same way.”
By Raheemah Atif
Islamic Post Staff Writer
History was made last month in Denver Colorado, at an economic summit sponsored by the Obama administration, where President Barack Obama signed into law the American Recovery and Reinvestment Act of 2009. Originating with the President’s vision and call for sweeping legislation, the bill is the political offspring of intense bi-partisan negotiations, and provides a hefty $787 billion dollar infusion into the sagging U.S. economy.
“What I am signing is a balanced plan with a mix of tax cuts and investments. It is a plan that’s been put together without earmarks or the usual pork barrel spending. And it is a plan that will be implemented with an unprecedented level of transparency and accountability,” President Obama said before signing the bill into law. “And we expect you, the American people, to hold us accountable for the results. That is why we have created Recovery.gov –so every American can go online and see how their money is being spent.”
The general purpose of the bill is to stimulate the nation’s economic lifeline by providing funds for federal, state, and local/regional governments, with some funds eventually also reaching small businesses, and private citizens to help them weather the financial tidal wave whose ripples began when the subprime mortgage industry exploded. Vice President Biden, who accompanied the President to the energy summit, elaborated on just a few of the goals of the ARRA, “Starting today, our administration will be working day and night to provide more aid for the unemployed, create immediate jobs, building our roads and our bridges, make long-term investments in a smarter energy grid, and so much more.”
The conference report submitted to the House of Representatives in February is quoted in the Congressional Record as stating the general aim of the bill as “making supplemental appropriations for job preservation and creation, infrastructure investment, energy efficiency and science, assistance to the unemployed, and state and local fiscal (monetary) stabilization.” Many states, including California and Tennessee, face serious budget deficits requiring major cuts in programs across the board, including social services, education, and lost jobs across an array of state and regional governmental sectors; the ARRA will funnel monies directly to states to distribute as earmarked by the bill. President Obama also confirmed the intention of the federal government to remain fully open regarding the disposal and use of the recovery bill funds.
“With a recovery package of this size comes a responsibility to assure every taxpayer that we are being careful with the money they work so hard to earn. And that’s why I’m assigning a team of managers to ensure that the precious dollars we’ve invested are being spent wisely and well; and …we’re going to hold governors and local officials who receive the money to the same high standard.”
Highlights of the Bill
Assistance for low-income citizens, unemployed – The bill will provide funds to states for unemployment benefits extensions, to help provide medical coverage for the unemployed through Cobra healthcare plans, and job training programs; funds are also earmarked to help states with their Medicaid and food stamps programs, temporary welfare payments to needy citizens, as well as funds for weatherization programs, home heating subsidies, and community action agencies (these provide emergency assistance for utility/rent payments and other services), payment increases will also be scheduled for recipients of SSI, veterans on pensions and disability payments, retired state employees and railroad workers.
Education –the bill provides funds to assist states in meeting budget and to head-off cuts in education; funds are earmarked for Head Start programs, special education, to increase teachers’ salaries, as well as for increase in the Pell Grants by $400, for the continuation of the No child Left Behind program, and for school modernization.
Security –funds are delegated for state governments for overall security, hiring of police officers and the purchase of equipment, security equipment at airports and U. S. seaports.
Department of Defense –allocated funds are for use in building and repair of Defense Department buildings, maintenance of National Guard facilities, increase of claims processing staff, medical care for military and family members, and housing for service members.
Taxes – the bill provides for numerous areas of tax reform, including a $500 per person/$1000 per couple tax credit for 2009 and 2010, with about $20 less in withholding deducted from workers’ paychecks towards the end of 2009. Included is provision to prevent very wealthy citizens from avoiding payment of taxes due to deductions and other superfluous tax breaks. The Earned Income Credit will be increased for 2009; another reform will give more low-income citizens expanded access to the Child Tax Credit. Significant changes were made in the areas of college tuition refunds, home-buying credits, home energy credits, and credits for small businesses that lost money during 2009.
President Obama closed his post-signing address by reiterating the challenge before government and the American people as well. “None of this will be easy. The road to recovery will not be straight. We will make progress and there may be some slippage along the way. It will demand courage and discipline. It will demand a new sense of responsibility that’s been missing from Wall Street all the way to Washington. There will be hazards and reverses. But I have every confidence that if we are willing to continue doing the critical work that must be done –by each of us, by all of us– then we will leave this struggling economy behind us, and come out on the other side, more prosperous as a people.”
Filed under: Business/Economy, January Volume I- 2009, National | Tags: Bailout
By Noora Ahmad
Islamic Post Staff Writer
Barry Ritholtz, author of the forthcoming book, Bailout Nation, gave an estimate of United States bailout costs so far: $4.6165 trillion. While Mr. Ritholtz calls the figure conservative, he did not hesitate to note, “The current Credit Crisis bailout is now the largest outlay in American history.”
The financial historian says the only single expenditure which came close to four trillion dollars was World War II, whose original cost was $288 billion, but when adjusted for inflation would have cost $3.6 trillion today.
With regards to the current war spending, Ritholtz’s estimate about the cost of the Iraq invasion was considerably lower than the figure given by former vice president of the World Bank, Joseph Stiglitz. According to the world-renowned economist, the cost of the Iraq war came up to 3.3 trillion U.S. dollars in February of 2008. This would mean that dollars spent Iraq war alone come close to those needed to rescue the financial services of United States.
Mr. Ritholtz also calculated other major expenditures in American history, adding them together with adjusted inflation rates. Yet, he says, they still do not add up to the 2008 bailouts.
The Colorado Independent reports that, according to Ritholtz, “Fixing the credit crisis will cost more than buying half the country, fighting three costly wars, saving the country from the last depression, fixing the last home loan crisis, building the middle class, exploring space and putting a man on the moon,” even by current fiscal standards.
Here are Ritholtz’s estimated figures:
“•Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
•Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
•Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
•S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
•Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
•The New Deal: Cost: $32 billion, Inflation Adjusted Cost: $500 billion ,
•Invasion of Iraq: Cost: $551 billion, Inflation Adjusted Cost: $597 billion*
•Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
•NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion
TOTAL: $3.92 trillion”
“It is wasteful, very wasteful,” retiree William Dwyer told Reuters about Citigroup’s $300 billion bailout during random interviews in New York City on the subject. After the U.S. Treasury bailout of Citigroup, taxpayers lament the 20-year recently sealed contract in which the financial institution pays $400 million to the New York Mets for the rights to name its new stadium Citi Field. Market analysts claim, however, that the company still must advertise if it wishes to come out of the slumps and help restart the economy.
Filed under: Business/Economy, January Volume I- 2009, World | Tags: Islamic Finance
Positive Economic Benefit May Outweigh Opinions of Opponents
By Raheemah Atif
Islamic Post Staff Writer
Western financial analysts are leaving no stone unturned in the quest for a cure for their potentially terminal banking/investment leviathan, including close examination of the Islamic system of finance. ArabNews reported that representatives of the U.S. Treasury Department, along with a goodwill ambassador, attended a press conference late last year, where they expressed keen interest of the United States to learn how Muslims operate banking and financial commerce within the confines of Sharia, the Islamic legal codes. American economists are admitting that there are salient features of Islamic finance structures that are indeed worthy of inclusion within a new cache of concepts with which to build a less vulnerable financial system for western capitalists, and their international financial associates.
Robert M. Kimmitt, U.S. Deputy Treasury Department Secretary and U.S. Ambassador Ford Fraker met in an official capacity with finance officers, various investors and bankers, in preparation for the G-20 summit, which includes member nations Indonesia, Malaysia, and Turkey. Kimmitt noted at that time, “Islamic banking…is a subject that is often dwelt in the public and private sectors.”
American stock-trading firms, such as Charles Schwab and TD Ameritrade, are offering Shariah-compliant investments in U.S ventures like Western Digital, Southwest Electric, and Apple Computer; so are investment companies like Azzad Ethical Midcap Fund, and Amana Mutual Funds Trust. And Visa International, the largest payment solutions company in the world, is offering Muslim customers of Al Hilal Islamic Bank an array of Shariah-compliant credit and debit products in a new partnership with Al-Hilal.
Not all Americans, however, understand the benefit that Islamic financial strategies could bring to western finance – as voiced on Foxnews.com, by critic Frank Gaffney, who mistakenly equates gleaning some viable economic ideas with the influence of Islam in the American way of life.
Nevertheless, Fox News pointed out that, whatever the case may be, the government of the United States is interested in the Islamic commercial and financial structure.
An “Islamic Finance: 101” course was held in Washington, D.C., in early November to enlighten government officials regarding the rudiments of Islam’s financial system. The no-interest finance method, with its additional moral investment parameters, boasts worldwide participants and products –as witnessed by Nicholas Kaiser of the Amana Mutual Funds Trust of Washington state. Mr. Kaiser’s financial products reportedly meet Shariah requirements. “Our shareholders are American,” claims Kaiser. We don’t take money from non-Americans because of money-laundering laws. We check and screen and verify every shareholder,” he remarked. Mr. Kaiser, who disagrees with Mr. Gaffney’s assertion of a threat to the American way of life, continued: “We simply take people’s money, invest it and give it back to them when they want it. We don’t try and convert the country. We don’t have any religious position. We aren’t evangelical. We aren’t zealots. We’re money managers.” “I happen to be Episcopalian,” he added.
Finance experts estimate the Islamic banking industry is pumping hundreds of billions of dollars into the world economy – a small percentage of the total global commerce, but possessing great potential with growth of more than 30% in 2007.
Filed under: Business/Economy, December Volume 1 - 2008, Front Page News, International | Tags: Brad Sherman, G20, Havel, Kucinich, Paul Craig Roberts
By Muhammad Ahmad
Islamic Post Staff Writer
President-elect Barack Obama made a rare pre-inaugural call in November for the support of Congress, when it reconvenes January 6, for a two-year economic stimulus program. The announcement reflects the seriousness of the situation, an “economic crisis of historic proportions,” in the words of the president-elect, and worse than previously believed. President-elect Obama has emphasized that aides, like New York Federal Reserve President, Timothy Geithner, who is now the treasury secretary designate, are to seek the consultation of congress for the passing of the bill so that, following the January 20 inauguration, his team can “hit the ground running” on the long road to repair the economy.
Although the team has been working closely with President Bush to ease the transition, the president-elect opted out of the November 15th G20 summit in Washington, D.C. The summit was expected to “discuss cooperative measures for responding to the global economic meltdown and ways to prevent future crises,” as stated by the AFP. The agenda was set primarily by leaders in the European Union.
Some believe the G20 summit, which included names like Brazil, South Korea and Indonesia, along with the United States and the usual European players, was in a rush to pile on more of the same fiscal policies that lay at the root of the current problem. In an interview with The Associated Press, Vaclav Havel, the former President of Czechoslovakia, emphasized leaders should pay more attention to the lessons of the current crisis before moving forward. “It’s a warning against the idea that we understand the world, that we know how everything works,” said Mr. Havel. “It’s a warning against the pride of economists who think they understand everything and have the whole world… mapped out.”
In the opinion of the former democratic leader of the eastern European nation, who was instrumental in toppling communism, in that country, in the late 1980’s, “the major problem is where modern civilization is going.”
He could be correct.
Western European leaders, headed by France and the United Kingdom, heralded a new world financial and monetary order just before the summit, one which would give more regulatory powers to the International Monetary Fund.
While the EU Observer reported the final conclusions of the Washington summit “came well short of delivering any construction of a new global financial architecture,” the summit did, however, agree to grant more powers to the International Monetary Fund, the global symbol of financial lending bound by “conditionalities,” or preconditional performance targets.
Before the summit, British prime minister, Gordon Brown, spoke of “very large and very radical changes.” According to Mr. Brown, the summit was set to address plans in which the bailouts of financial institutions –$2.3 trillion dollars in the case of the European Union– would simply be preliminary moves to “global action as sweeping as that which gave birth to the United Nations, the World Bank and the IMF in the 1940s.”
Yet, critics state that the bailouts, even as a first step, hardly address the problem. Paul Craig Roberts, former Assistant Secretary to the U.S. Treasury, said, “All it [the bailout] does is take troubled financial assets off the books of the banks and puts them on the books of the United States Treasury, that is [to say], puts them on the taxpayers’ books.”
While governments in Latin America have been criticized severely for nationalizing natural resource industries, that had been primarily in the hands of foreign investors, the European Union now owns majority shares of European banks, and the U.S. Federal Reserve’s purchase of $125 billion in banking assets means that it now owns 55% of the country’s banking assets.
Two of the most well known nationalizations of private entities are the buyout of primary lenders, Fannie Mae and Freddie Mac, as well as the country’s largest insurance company, American International Group (AIG).
Anthony Perez of the Epoch Times reported, “Despite growing criticism, U.S. Treasury Secretary Hank Paulson defended the U.S. bailout plan as ‘necessary.’”
“Government owning a stake in any private U.S. company is objectionable to most Americans—me included,” Secretary Paulson recently said. “Yet, the alternative of leaving businesses and consumers without access to financing is totally unacceptable.”
The EU has also faced an overwhelming amount of backlash from their efforts towards a new order, with EU leaders reportedly risking their political standing for the European bailouts.
Apparently the same goes for U.S. congressmen, whose approval rating was only 18% before the economic crisis, and by some estimates has now fallen to 10%.
“From a capitalistic standpoint,” Representative Dennis Kucinich told Fox News from Capitol Hill, “[the bailout] actually destroys the idea of a free market economy.”
A more palpable solution, said former Assistant Treasury Secretary Roberts, lies with mortgage defaults. “The only way to address the problem is to address it at the homeowner level,” the former assistant secretary to the Treasury said, “What they should have done is what they did in the 1930s during the Great Depression. They created a homeowners loan corporation. They refinanced all the mortgages and they saved the housing sector.”
Part of President-elect Obama’s stimulus package includes help for the millions of Americans who remain in jeopardy of losing their homes.
“We will review the implementation of this Administration’s financial program to ensure that our government’s efforts are achieving their central goal of stabilizing financial markets, while protecting taxpayers, helping homeowners and not unduly rewarding the management of financial firms that are receiving government assistance,” stated the president-elect in his first press conference after winning, by a landslide, on the premise of change.
–Shahida Rasheed and Abdul Hamid A. Aziz contributed to this report.
SPEAKING ON THE ECONOMY, What the critics said about the first bailout, as other rescue attempts ensue:
CONGRESSMAN DENNIS KUCINICH OF OHIO: “We are now facing the perfect financial storm. The elements are the deficit spending for the war … the lack of serious investment in our country and now $700 billion to Wall Street. We are being hollowed out.”
CALIFORNIA CONGRESSMAN, BRAD SHERMAN: “A few members [of Congress]were even told that there would be martial law in America if we voted no. That’s what I call fear mongering, unjustified, proven wrong.”
PAUL CRAIG ROBERTS, FORMER ASSISTANT SECRETARY TO THE U.S. TREASURY: “All it [the bailout] does is take troubled financial assets off the books of the banks and puts them on the books of the United States Treasury, that is [to say], puts them on the taxpayers books.”
Filed under: Business/Economy, December Volume 1 - 2008, Interfaith, International, World | Tags: Islamic Banking, Islamic Economics, Islamic Finance, Sharia
Usury-Free Sharia Compliance Proves a Blessing as Islamic Investing and Banking Thrives, Despite Tailspin of Interest-Based Systems
By Umm Abdul Malik
Islamic Post Staff Writer
While the Federal Reserve, U. S. Treasury, European Union, G-8 and scores of financial experts work tirelessly to organize, and re-organize a multi-billion dollar financial parachute for the plummeting interest-based financial system, Islamic investing and banking is proliferating by leaps and bounds, and even flourishing –so stated Credit Suisse senior banking associate, Fares Mourad, in a recent Reuters report. Credit Suisse of Switzerland, a prominent European wealth management institution, affirms that its Islamic banking business is growing by double digits. The crisis of the banking world has actually boosted Islamic financial commerce, luring investors who seek assets that are not affected (and are not predicted to be affected) by the havoc that has hit the rest of the financial world.
“If you invest in Islamic finance products, you tend not to be sensitive to developments (ups, downs, and crashes) in interest rates. I’ve seen asset managers in the United Kingdom who are saying they would like to include Islamic investments in their total asset allocation,” Mr. Mourad intimated to European Wealth Management correspondent, Douwe Miedema, even though investors keen on strict adherence to the Islamic laws regarding commerce and financial transactions do not have as broad a variety of financial instruments with which to maneuver as their interest-bearing counterparts in the general marketplace.
Islamic Economic Principles are Rooted in Revelation.
The framework for Islamic financial dealings is contained within the text of the Holy Qur’an, and the laws derived from the commands of the Almighty Creator that are contained in the sacred text. Many of the injunctions related to commerce and finance were introduced to the society of the Holy Last Messenger of Islam, Muhammad, may the peace of the Almighty be upon him, and were immediately implemented as guidelines for Islamic living, as they were supported by Divine sanction and authority.
The foremost pillar of Islamic finance, and the source of much of its allure, is the prohibition of charging or taking interest. Another regulation requires risk-sharing between the extender of venture capital and the entrepreneur.
In addition, Islamic investing dictates that businesses be legal in Islam, i.e., “Sharia-compliant:” in no way involved in production, sales, or trading of: pork or its by-products; alcoholic products; immoral or lewd products, literature, and media; interest-based banking and financial services like insurance.
An umbrella of social responsibility covers the Islamic financial system and those who conduct their business under its cover. To further illustrate, there is no profit for the investor if there are losses for the business. A key element to the current global financial disaster is businesses devoid of profit in a situation exacerbated by the charging of interest on principle.
The Dow Jones Islamic Index.
With the ranks of Muslim investors swelling rapidly as the Muslim population in the United States tops six million, and as overseas Muslim investors seek Sharia-compliant investment opportunities and financial products, the Dow Jones financial news corporation compiled the first American Shari-compliant index – companies whose business practices conform to Islamic standards.
In 1999, Dow Jones employed a board of six Sharia scholars who would review and screen companies. Merck & Co., Pfizer Inc., Microsoft, and Hewlett-Packard were among the 1,800 companies out of a total of 5,000 that were included in the first Islamic index. There are now more than 60 Dow Jones Indexes that track and chart Sharia-compliant stocks and bonds.
Eric Meyer, Connecticut financial advisor with the investment fund Shariah Capital, advises that western financial institutions and banks need to have Shariah-compliant products or risk losing market share. Some investment firms retain a Shariah Board to review and determine whether a particular type of financial transaction complies with the Islamic law.
As more banks offer Muslim and other customers Islamic lending and investment options, more advisors trained in the intricate, and sometimes complex, rules that govern Islamic finance are in demand. Three prominent companies advise clients regarding Islamic investing: Saturna Capital, Azzad Asset Management, and Allied Asset Advisors.
The fundamentals of the economic system developed by the Muslim world over centuries has indeed provided the modern world unexpected guidance at a critical period in time, illustrating the Divine Wisdom in a way of conducting commerce with conscience and social responsibility.
Filed under: Business/Economy, December Volume 1 - 2008, International, World | Tags: oil
By Khalida Khaleel
Islamic Post Staff Writer
As oil prices plummet, and gloomy predictions prevail, some oil-producing countries are feeling the impact more than others after the rapid 3 month decrease in the price per barrel from $147 to $55 (at press time); while in some areas, the oil industry is being bailed out with tax dollars.
In one such instance, the Russian government pledged $50 billion to help refinance the foreign debt of oil and gas companies in the country in an attempt to curtail the effects of the global economic crisis upon its oil industry.
For its part, OPEC has decided to cut production slightly to maintain profits in the face of the apparent decrease in oil demand. It had been said that consumers worldwide are simply spending and traveling less, causing gas prices to plummet. Whether or not it is fair to the consumer, the intergovernmental oil monopoly, OPEC, “ Wants You to Pay More for Gas,” as was bluntly described in a Time Magazine headline from October .
As regards Venezuela, analysts have raised questions about the likelihood of the nation surviving the squeeze, which began, according to industry definitions, the moment the price of oil dropped below the $70 per barrel mark. Bloomberg’s headline predicted: “Chavez Ambitions in Venezuela May Fade With Oil Price;” although the Venezuelan president may yet disagree (See VENEZUELAN ECONOMY, C4, Col. 5)
But the outlook is not predicted to be gloomy for everyone.
Like their Russian counterparts, major oil companies in Britain and the United States are also being given a helping hand against financial disaster, in this case, by the Iraqi Ministry of Oil. In closed-door talks held in London, 34 petrol giants, including Shell, British Petroleum (BP), Exxon Mobil and Chevron, met with Hussain al-Shahristani, Iraq’s Minister for Oil, to bid on contracts to help extract 115 billion barrel of proven oil. The bid is a landmark for the war-torn country, whose oil resources have not been sold as such since 2003.
According to the UK Telegraph, “Iraq was at the forefront of world-wide oil production until the Ba’athist regime nationalized the industry in the 1970s. Although Saddam Hussein made deals with French, Russian and Chinese oil companies in the 1990s, United Nations sanctions barred the country’s re-emergence as a leading source of energy supplies.”
The daily news outlet also quoted aides at the Park Lane meeting in London as saying, “the location was deliberately chosen to demonstrate that Iraq had shed its old pre-occupations about foreign powers dominating the industry, which generates ninety per cent of its annual income.”
In an article entitled, “Iraqis Have Money but Lack Know-How in Spending It,” the Associated Press claims “Iraq’s government has an unusual money problem as much of the world grapples with a credit crunch — it can’t spend its oil riches fast enough.”
This conclusion was reached as the result of a U.S. Government Accountability Office report which estimated Iraq could arrive at a $79 billion budget surplus by the end of the year considering, “oil revenues and unspent funds from previous budgets.”
Filed under: Business/Economy, International, Sept/Oct Volume - 2008, World | Tags: Pakistan
Nasimah A. Aziz
By Umm Sanaa, Islamic Post Staff Writer
Sabirah A. Shakir
The International Qur’anic Open University (IQOU) has announced the sponsorship of two American students to attend its South Asia campus in Lahore, Pakistan. Naseemah A. Aziz and Saabirah A. Shakir are set to explore business opportunities for merchandising through import and export training. Already undergraduates of IQOU and teachers of conversational Arabic, this new experience will serve as a wonderful compliment to their education and a great benefit to their communities.
The business courses are another example of how the Vice Chancellor of the International Qur’anic Open University, His Eminence, El Sheikh Syed Mubarik Ali Shah Gilani, has set a standard for his students to excel at both Islamic and secular education. This well-rounded curriculum is key to the achievements of IQOU students over the years.
Upon successful completion of their studies, Ms. Aziz and Ms. Shakir are expected to purchase merchandise rare in this part of the world. Kashmiri shawls and clothing, as well as Pakistani Islamic fashionable garments and hand-stitched embroidered items. They will also be looking to buy decorative calligraphic wall ornamentations, hand crafts, marble ornaments and unique products from the Sindh region. All items are to be brought back to the Americas as the foundation for a business beginning with a huge Islamic marketplace bazaar called namaish.
IQOU students are well-known for their serious academic ambitions, and are applauded for their commitment to sustaining the knowledge through teaching and other practical applications. These two young ladies will be no exception as family members and peers swell with delight thrilled at the possibilities the trip brings.
