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.
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.