Thursday, December 18, 2008
Will an Obama Administration Reverse the Tide?
by Michel Chossudovsky
Global Research, November 9, 2008
Most Serious Economic Crisis in Modern History
The October 2008 financial meltdown is not the result of a cyclical economic phenomenon. It is the deliberate result of US government policy instrumented through the Treasury and the US Federal Reserve Board.
This is the most serious economic crisis in World history.
The "bailout" proposed by the US Treasury does not constitute a "solution" to the crisis. In fact quite the opposite: it is the cause of further collapse. It triggers an unprecedented concentration of wealth, which in turn contributes to widening economic and social inequalities both within and between nations.
The levels of indebtedness have skyrocketed. Industrial corporations are driven into bankruptcy, taken over by the global financial institutions. Credit, namely the supply of loanable funds, which constitutes the lifeline of production and investment, is controlled by a handful of financial conglomerates.
With the "bailout", the public debt has spiraled. America is the most indebted country on earth. Prior to the "bailout", the US public debt was of the order of 10 trillion dollars. This US dollar denominated debt is composed of outstanding treasury bills and government bonds held by individuals, foreign governments, corporations and financial institutions.
"The Bailout": The US Administration is Financing its Own Indebtedness
Ironically, the Wall Street banks --which are the recipients of the bailout money-- are also the brokers and underwriters of the US public debt. Although the banks hold only a portion of the public debt, they transact and trade in US dollar denominated public debt instruments Worldwide.
In a bitter twist, the banks are the recipients of a 700+ billion dollar handout and at the same time they act as creditors of the US government.
We are dealing with an absurd circular relationship: To finance the bailout, Washington must borrow from the banks, which are the recipients of the bailout.
The US administration is financing its own indebtedness.
Federal, State and municipal governments are increasingly in a straightjacket, under the tight control of the global financial conglomerates. Increasingly, the creditors call the shots on government reform.
The bailout is conducive to the consolidation and centralization of banking power, which in turn backlashes on real economic activity, leading to a string of bankruptcies and mass unemployment.
Will an Obama Administration Reverse the Tide?
The financial crisis is the outcome of a deregulated financial architecture.
Obama has stated unequivocally his resolve to address the policy failures of the Bush administration and "democratize" the US financial system. President-Elect Barack Obama says that he is committed to reversing the tide:
"Let us remember that if this financial crisis taught us anything, it’s that we cannot have a thriving Wall Street while Main Street suffers. In this country, we rise or fall as one nation, as one people." (President-elect Barack Obama, November 4, 2008, emphasis added)
The Democrats casually blame the Bush administration for the October financial meltdown.
Obama says that he will be introducing an entirely different policy agenda which responds to the interests of Main Street:
"Tomorrow, you can turn the page on policies that put the greed and irresponsibility of Wall Street before the hard work and sacrifice of men and women all across Main Street. Tomorrow you can choose policies that invest in our middle class and create new jobs and grow this economy so that everybody has a chance to succeed, from the CEO to the secretary and the janitor, from the factory owner to the men and women who work on the factory floor.( Barack Obama, election campaign, November 3, 2008, emphasis added)
Is Obama committed to "taming Wall Street" and "disarming financial markets"?
Ironically, it was under the Clinton administration that these policies of "greed and irresponsibility" were adopted.
The 1999 Financial Services Modernization Act (FSMA) was conducive to the the repeal of the Glass-Steagall Act of 1933. A pillar of President Roosevelt’s "New Deal", the Glass-Steagall Act was put in place in response to the climate of corruption, financial manipulation and "insider trading" which resulted in more than 5,000 bank failures in the years following the 1929 Wall Street crash.
Bill Clinton signs into law the Gramm-Leach-Bliley Financial Services Modernization Act, November 12,
Under the 1999 Financial Services Modernization Act, effective control over the entire US financial services industry (including insurance companies, pension funds, securities companies, etc.) had been transferred to a handful of financial conglomerates and their associated hedge funds.
The Engineers of Financial Disaster
Who are the architects of this debacle?
In a bitter irony, the engineers of financial disaster are now being considered by President-Elect Barack Obama's Transition Team for the position Treasury Secretary:
Lawrence Summers played a key role in lobbying Congress for the repeal of the Glass Steagall Act. His timely appointment by President Clinton in 1999 as Treasury Secretary spearheaded the adoption of the Financial Services Modernization Act in November 1999. Upon completing his mandate at the helm of the US Treasury, he became president of Harvard University (2001- 2006).
Paul Volker was chairman of the Federal Reserve Board in the l980s during the Reagan era. He played a central role in implementing the first stage of financial deregulation, which was conducive to mass bankruptcies, mergers and acquisitions, leading up to the 1987 financial crisis.
Timothy Geithner is CEO of the Federal Reserve Bank of New York, which is the most powerful private financial institution in America. He was also a former Clinton administration Treasury official. He has worked for Kissinger Associates and has also held a senior position at the IMF. The FRBNY plays a behind the scenes role in shaping financial policy. Geithner acts on behalf of powerful financiers, who are behind the FRBNY. He is also a member of the Council on Foreign Relations (CFR)
Jon Corzine is currently governor of New Jersey, former CEO of Goldman Sachs.
At the time of writing, Obama's favorite is Larry Summers, front-runner for the position of Treasury Secretary.
Harvard University Economics Professor Lawrence Summers served as Chief Economist for the World Bank (1991–1993). He contributed to shaping the macro-economic reforms imposed on numerous indebted developing countries. The social and economic impact of these reforms under the IMF-World Bank sponsored structural adjustment program (SAP) were devastating, resulting in mass poverty.
Larry Summer's stint at the World Bank coincided with the collapse of the Soviet Union and the imposition of the IMF-World Bank's deadly " economic medicine" on Eastern Europe, the former Soviet republics and the Balkans.
In 1993, Summers moved to the US Treasury. He initially held the position of Undersecretary of the Treasury for international affairs and later Deputy Secretary. In liaison with his former colleagues at the IMF and the World Bank, he played a key role in crafting the economic "shock treatment" reform packages imposed at the height of the 1997 Asian crisis on South Korea, Thailand and Indonesia.
The bailout agreements negotiated with these three countries were coordinated through Summers office at the Treasury in liaison with the Federal Reserve Bank of New York and the Washington based Bretton Woods institutions. Summers worked closely with IMF Deputy Managing Director Stanley Fischer, who was later appointed Governor of the Central Bank of Israel.
Larry Summers became Treasury Secretary in July 1999. He is a protégé of David Rockefeller. He was among the main architects of the infamous Financial Services Modernization Act, which provided legitimacy to inside trading and outright financial manipulation.
Larry Summers and David Rockefeller
"Putting the Fox in Charge of the Chicken Coop"
Summers is currently a Consultant to Goldman Sachs and managing director of a Hedge fund, the D.E. Shaw Group, As a Hedge Fund manager, his contacts at the Treasury and on Wall Street provide him with valuable inside information on the movement of financial markets.
Putting a Hedge Fund manager (with links to the Wall Street financial establishment) in charge of the Treasury is tantamount to putting the fox in charge of the chicken coop.
The Washington Consensus
Summers, Geithner, Corzine, Volker, Fischer, Phil Gramm, Bernanke, Hank Paulson, Rubin, not to mention Alan Greenspan, al al. are buddies; they play golf together; they have links to the Council on Foreign Relations and the Bilderberg; they act concurrently in accordance with the interests of Wall Street; they meet behind closed doors; they are on the same wave length; they are Democrats and Republicans.
While they may disagree on some issues, they are firmly committed to the Washington-Wall Street Consensus. They are utterly ruthless in their management of economic and financial processes. Their actions are profit driven. Outside of their narrow interest in the "efficiency" of "markets", they have little concern for "living human beings". How are people's lives affected by the deadly gamut of macro-economic and financial reforms, which is spearheading entire sectors of economic activity into bankruptcy.
The economic reasoning underlying neoliberal economic discourse is often cynical and contemptuous. In this regard, Lawrence Summers' economic discourse stands out. He is known among environmentalists for having proposed the dumping of toxic waste in Third World countries, because people in poor countries have shorter lives and the costs of labor are abysmally low, which essentially means that the market value of people in the Third World is much lower. According to Summers, this makes it far more "cost effective" to export toxic materials to impoverished countries. A controversial 1991 World Bank memo signed by of Chief Economist Larry Summers reads as follows (excerpts, emphasis added):
DATE: December 12, 1991 TO: Distribution FR: Lawrence H. Summers Subject: GEP
"'Dirty' Industries: Just between you and me, shouldn't the World Bank be encouraging MORE migration of the dirty industries to the Less Developed Countries? I can think of three reasons:
1) The measurements of the costs of health impairing pollution depends on the foregone earnings from increased morbidity and mortality.... From this point of view a given amount of health impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages. I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.
2) The costs of pollution are likely to be non-linear as the initial increments of pollution probably have very low cost. I've always though that under-populated countries in Africa are vastly UNDER-polluted, their air quality is probably vastly inefficiently low compared to Los Angeles or Mexico City. Only the lamentable facts that so much pollution is generated by non-tradable industries (transport, electrical generation) and that the unit transport costs of solid waste are so high prevent world welfare enhancing trade in air pollution and waste.
3) The demand for a clean environment for aesthetic and health reasons is likely to have very high income elasticity. [the demand increases when income levels increase]. The concern over an agent that causes a one in a million change in the odds of prostrate cancer is obviously going to be much higher in a country where people survive to get prostrate cancer than in a country where under 5 mortality is is 200 per thousand.... "
Summers stance on the export of pollution to developing countries had a marked impact on US environmental policy:
In 1994, "virtually every country in the world broke with Mr. Summers' Harvard-trained "economic logic" ruminations about dumping rich countries' poisons on their poorer neighbors, and agreed to ban the export of hazardous wastes from OECD to non-OECD [developing] countries under the Basel Convention. Five years later, the United States is one of the few countries that has yet to ratify the Basel Convention or the Basel Convention's Ban Amendment on the export of hazardous wastes from OECD to non-OECD countries. (Jim Valette, Larry Summers' War Against the Earth, Counterpunch, undated)
The 1997 Asian Crisis: Dress Rehearsal for Things to Come
In the course of 1997, currency speculation instrumented by major financial institutions directed against Thailand, Indonesia and South Korea was conducive to the collapse of national currencies and the transfer of billions of dollars of central bank reserves into private financial hands. Several observers pointed to the deliberate manipulation of equity and currency markets by investment banks and brokerage firms.
While the Asian bailout agreements were formally negotiated with the IMF, the major Wall Street commercial banks (including Chase, Bank of America, Citigroup and J. P. Morgan) as well as the "big five" merchant banks (Goldman Sachs, Lehman Brothers, Morgan Stanley and Salomon Smith Barney) were "consulted" on the clauses to be included in the Asian bail-out agreements. [Note: These are 1997 denominations of major financial institutions]
The US Treasury in liaison with Wall Street and the Bretton Woods institutions played a central role in negotiating the bailout agreements. Both Larry Summers and Timothy Geithner, were actively involved on behalf of the US Treasury in the 1997 bailout of South Korea:
[In 1997] "Messrs. Summers and Geithner worked to persuade Mr. Rubin to support financial aid to South Korea. Mr. Rubin was wary of such a move, worrying that providing money to a country in dire straits might be a losing proposition..." (WSJ, November 8, 2008)
What happened in Korea under advice from Deputy Treasury Secretary Summers et al, had nothing to do with "financial aid".
The country was literally ransacked. Undersecretary of the Treasury David Lipton was sent to Seoul in early December 1997. Secret negotiations were initiated. Washington had demanded the firing of the Korean Finance Minister and the unconditional acceptance of the IMF "bailout".
A new finance minister, who happened to be former IMF and World Bank official, was appointed and immediately rushed off to Washington for "consultations" with his former IMF colleague Deputy Managing Director Stanley Fischer.
"The Korean Legislature had met in emergency sessions on December 23. The final decision concerning the 57 billion dollar deal took place the following day, on Christmas Eve December 24th, after office hours in New York. Wall Street’s top financiers, from Chase Manhattan, Bank America, Citicorp and J. P. Morgan had been called in for a meeting at the Federal Reserve Bank of New York. Also at the Christmas Eve venue, were representatives of the big five New York merchant banks including Goldman Sachs, Lehman Brothers, Morgan Stanley and Salomon Smith Barney. And at midnight on Christmas Eve, upon receiving the green light from the banks, the IMF was allowed to rush 10 billion dollars to Seoul to meet the avalanche of maturing short-term debts.
The coffers of Korea’s central Bank had been ransacked. Creditors and speculators were anxiously awaiting to collect the loot. The same institutions which had earlier speculated against the Korean won were cashing in on the IMF bailout money. It was a scam. (See Michel Chossudovsky, The Recolonization of Korea, subsequently published as a chapter in The Globalization of Poverty and the New World Order, Global Research, Montreal, 2003.)
"Strong economic medicine" is the prescription of the Washington Consensus. "Short term pain for long term gain" was the motto at the World Bank during Lawrence Summers term of as World Bank Chief Economist. (See IMF, World Bank Reforms Leave Poor Behind, Bank Economist Finds, Bloomberg, November 7, 2000)
What we dealing with is an entire " old boys network" of officials and advisers at the Treasury, the Federal Reserve, the IMF, World Bank, the Washington Think Tanks, who are in permanent liaison with leading financiers on Wall Street.
Whoever is chosen by Obama's Transition team will belong to the Washington Consensus.
The 1999 Financial Services Modernization Act
What happened in October 1999 is crucial.
In the wake of lengthy negotiations behind closed doors, in the Wall Street boardrooms, in which Larry Summers played a central role, the regulatory restraints on Wall Street’s powerful banking conglomerates were revoked "with a stroke of the pen".
Larry Summers worked closely with Senator Phil Gramm (1985-2002),chairman of the Senate Banking committee, who was the legislative architect of the the Gramm-Leach-Bliley Financial Services Modernization Act, signed into law on November 12, 1999 (See Group Photo above). (For Complete text click US Congress: Pub.L. 106-102). As Texas Senator, Phil Gramm was closely associated with Enron.
In December 2000 at the very end of the Clinton mandate, Gramm introduced a second piece of legislation, the so-called Gramm-Lugar Commodity Futures Modernization Act, which paved the way for the speculative onslaught in primary commodities including oil and food staples.
"The act, he declared, would ensure that neither the sec nor the Commodity Futures Trading Commission (cftc) got into the business of regulating newfangled financial products called swaps—and would thus "protect financial institutions from overregulation" and "position our financial services industries to be world leaders into the new century." (See David Corn, Foreclosure Phil, Mother Jones, July August 2008)
Phil Gramm was McCain's first choice for Secretary of the Treasury.
Under the FSMA new rules – ratified by the US Senate in October 1999 and approved by President Clinton – commercial banks, brokerage firms, hedge funds, institutional investors, pension funds and insurance companies could freely invest in each others businesses as well as fully integrate their financial operations.
A "global financial supermarket" had been created, setting the stage for a massive concentration of financial power. One of the key figures behind this project was Secretary of the Treasury Larry Summers, in liaison with David Rockefeller. Summers described the FSMA as "the legislative foundation of the financial system of the 21th century". That legislative foundation is among the main causes of the 2008 financial meltdown.
There can be no meaningful solution to the crisis, unless there is a major reform in the financial architecture, implying inter alia the freezing of speculative trade and the "disarming of financial markets". The project of disarming financial markets was first proposed by John Maynard Keynes in the 1940s as a means to the establishment of a multipolar international monetary system. (See J.M. Keynes, Activities 1940-1944, Shaping the Post-War World: The Clearing Union, The Collected Writings of John Maynard Keynes, Royal Economic Society, Macmillan and Cambridge University Press, Vol. XXV, London 1980, p. 57).
Main Street versus Wall Street
Where are Obama's "Main Street appointees"? Namely individuals who respond to the interests of people across America. There are no labor or community leaders on Obama's list for key positions.
The President-elect is appointing the architects of financial deregulation.
Meaningful financial reform cannot be adopted by officials appointed by Wall Street and who act on behalf of Wall Street.
Those who set the financial system ablaze in 1999, have been called back to turn out the fire.
The proposed "solution" to the crisis under the "bailout" is the cause of further economic collapse.
There are no policy solutions on the horizon.
The banking conglomerates call the shots. They decide on the composition of the Obama Cabinet. They also decide on the agenda of the Washington Financial Summit (November 15, 2008) which is slated to lay the groundwork for the establishment of a new "global financial architecture".
The Wall Street blueprint has already been discussed behind closed doors: the hidden agenda is to establish a unipolar international monetary system, dominated by US financial power, which in turn would be protected and secured by US military superiority.
Neoliberalism with a "Human Face"
There is no indication that Obama will break his ties to his Wall Street sponsors, who largely funded his election campaign.
Goldman Sachs, J. P. Morgan Chase, Citigroup, Bill Gates' Microsoft are among his main campaign contributors.
Warren Buffett, among the the world's richest individuals, not only supported Barak Obama's election campaign, he is a member of his transition team, which plays a key role deciding the composition of Obama's cabinet.
Unless there is a major upheaval in the system of political appointments to key positions, an alternative Obama economic agenda geared towards poverty alleviation and employment creation is highly unlikely.
What we are witnessing is continuity.
Obama provides a " human face" to the status quo. This human face serves to mislead Americans on the nature of the economic and political process.
The neoliberal economic reforms remain intact.
The substance of these reforms including the "bailout" of America's largest financial institutions ultimately destroys the real economy, while spearheading entire areas of manufacturing and the services economy into bankruptcy.
Tuesday, November 18, 2008
Islam is not only teach religion. Islam teach ideology, economics, trades, law, theology, rituals, human relations and all other aspects of life. Just wondering how Islamic Banking existed in Europe.
For more info on Islam please refer to http://islam101.org/ or any related websites.
I have no intention to give any opinion on this but just to share this information to see either any solution to World Financial Crisis that have started in USA - I leave to you to analyze it. Started since 1971 the world have face again and again the problem that I guess never exist before that time -'Financial Crisis'. All Policies that mostly invented after it, have proven to be failure. - RedzuanK
Why has the Muslim world failed to develop?
The Muslim world with its vast resources continues to generate much interest among economists, thinkers and policy makers. The Muslim world since the end of the Uthmani Khilafah has had its borders drawn and redrawn after various powers interfered in the running of its affairs. The Muslim world includes the Arabian Peninsula, Turkey, North Africa, Pakistan, Bangladesh and the south eastern countries of Malaysia and Indonesia.
Development economics is a branch of economics, which deals with how simple forms of organisation can transfer to complex forms of organisation and production. Development is seen as the ability to increase production without any consideration applied to its distribution. Economists do make a distinction between growth and development - growth is seen as more of the same goods and services whilst development is the structural and technological infrastructure behind the production. In terms of GDP, the measurement used to calculate the value of total production of goods and services, the Muslim world is second only to China with growth rates of 7% in some countries. These are growth rates most European countries would be proud of. However reading between the figures reveals many problems.
If we define development as the building of the necessary infrastructure to fulfil the basic needs of the people such as food, clothing, shelter, security and education, here the Muslim worlds comes in at the bottom of the list. Wealth in the Muslim world suffers from huge misdistribution.
The Middle East for example relies heavily upon oil revenue's therefore it is affected greatly by changes in oil prices. Very little oil revenue actually trickles down to the population but rather ends up in US bank accounts. Prince Alwaleed Bin Talal Alsaud of the Saudi monarchy is valued at over $20 billion with half of his wealth invested in the US.
In the Arab world one in five Arabs still live on less than $2 a day. And, over the past 20 years, growth in income per head, at an annual rate of 0.5%, was lower than anywhere else in the world except sub-Saharan Africa.
In Pakistan 40% of land is in the hands of 23 families.
Government investment in infrastructure and public services is minimal considering the large population of the Muslim world.
The Muslim world's elections are at best a farce, with autocratic kings and presidents only rescinding their authority when they die.
Half of the Muslim world is treated as lesser legal and economic beings, and more than half the young, burdened by joblessness and un-Islamic economic policies want to get out of their country as soon as they can.
The role of the IMF and World Bank in countries such as Pakistan, Turkey, Indonesia, Bangladesh and Egypt has directly aided some of the underlying economic problems. The general solution provided by such institutions is the engaging of trade to climb out of poverty and for development. In reality there are a number of obstacles placed by the developed nations that ensure developing nations will never reach a level where they can compete. What this actually means is that Western goods should be imported rather than allow imports from poorer countries. The theory is that only via trade will nations pull themselves out of poverty. Whilst encouraging the third world to lower their market barriers such as tariffs and quotas on various goods, the Western nations do not do the same for their markets. Western economies have not been developed by such subscribed policy, as outlined by Dr Ha Joon Chang in his book "Kicking away the ladder." The continued failure of the World trade organisation clearly shows the unwillingness by Europe and the US to lower its trade barriers whilst at the same time lobbying India and China to remove their barriers.
This situation in the Muslim world stems from the colonial era and is summed up best by David Fromkin, Professor and expert on Economic History at the University of Chicago: "Massive amounts of the wealth of the old Ottoman Empire were now claimed by the victors. But one must remember that the Islamic empire had tried for centuries to conquer Christian Europe and the power brokers deciding the fate of those defeated people were naturally determined that these countries should never be able to organize and threaten Western interests again. With centuries of mercantilist experience, Britain and France created small, unstable states whose rulers needed their support to stay in power. The development and trade of these states were controlled and they were meant never again to be a threat to the West. These external powers then made contracts with their puppets to buy Arab resources cheaply, making the feudal elite enormously wealthy while leaving most citizens in poverty.
"The absence of any organised way of generating wealth and allocating wealth has created a situation where everyone in the Muslim world needs to fend for themselves and attempt to make the best out of a chaotic situation. This just compounds the problem further as many resort to bribery, stealing and fraud to make ends meet. This shows that the people in the Muslim world are not inherently corrupt or born to steal, rather as can be seen with the Gulf States many Muslims when given the opportunities are hard working and can be relied upon.
The question that really needs to be answered is where we begin to develop the Muslim world. The Muslim world fails in applying a set of consistent polices and this has resulted in such nations being unable to unify the populace on the direction of the economy. Many policies by the rulers are time specific or usually motivated by the political climate of the time. The unfortunate result of this is that a whole host of contradictory policies are applied within the Muslim world and hence the nation doesn't move in the same direction. Although Pakistan has the worlds largest untapped coal reserves it imports over 2 million tonnes of coal a year to meet its energy needs. Across the Muslim world there exist manufacturing companies and mining companies. However the contract to mine the Muslims world's precious resources always go to foreign companies.
The development of the Soviet Union is a good example of how consistent polices lead to development. Socialism emerged as a very powerful force across Europe and many were attracted to it after witnessing the wide disparities in wealth distribution in Capitalist nations. The Communists after gaining power due to the failures of the Tzar set about implementing a five year plan starting in 1928, in order to build a heavy industrial base.The five year plan was a list of economic goals that was designed to strengthen the USSR's economy between 1928 and 1932, making the nation both militarily and industrially self-sufficient.
The five year plan was to harness all economic activity to the systematic development of heavy industry, thereby transforming the Soviet Union from a primitive agrarian country into a leading industrial and military power. Carrying the plan out, the Stalin government poured resources into the production of coal, iron, steel, railway equipment, and machine tools. Whole new cities, such as Magnitogorsk in the Urals, were built with enthusiastic participation of young workers and intellectuals. This ambitious plan fostered a sense of mission and helped mobilise support for the regime. The Soviet Union played a direct role in the defeat of Hitler in World War 2 - which launched the Soviet Union to superpower status.
Islam is the only common denominator between everyone in the Muslim world. Islam has a glorious history in the region and propelled the Muslims from the deserts of Arabia to the far reaches of the earth. Therefore this would be the place to begin deriving economic policies for the Muslim world. These policies would be accepted by all Muslims as they are from Islam and would actually bring confidence in the Islamic rules once people see they can work.
Practically this means that Islam should be applied in the Muslim world and Islam's polices on trade, ownership, companies, public finance, investment, currency and poverty elimination would need to all be applied. The derivation of such polices from the same foundations would ensure no contradictions occur as they are all coming from the same basis. All foreign policies from Socialism, the Capitalist free markets, Nasserism, Kemalism and any other ‘ism' should be removed as these have proven to be failures.
Friday, November 7, 2008
Many economists have offered theories about how financial crises develop and how they could be prevented. There is little consensus, however, and financial crises are still a regular occurrence around the world.
Type of Financial Crisis:
- Banking crises
When a commercial bank suffers a sudden rush of withdrawals by depositors, this is called a bank run. Since banks lend out most of the cash they receive in deposits (see fractional-reserve banking), it is difficult for them to quickly pay back all deposits if these are suddenly demanded, so a run may leave the bank in bankruptcy, causing many depositors to lose their savings unless they are covered by deposit insurance. A situation in which bank runs are widespread is called a systemic banking crisis or just a banking panic. A situation without widespread bank runs, but in which banks are reluctant to lend, because they worry that they have insufficient funds available, is often called a credit crunch.
Examples of bank runs include the run on the Bank of the United States in 1931 and the run on Northern Rock in 2007. The collapse of Bear Stearns in 2008 is also sometimes called a bank run, even though Bear Stearns was an investment bank rather than a commercial bank. The U.S. savings and loan crisis of the 1980s led to a credit crunch which is seen as a major factor in the U.S. recession of 1990-1991.
- Speculative bubbles and crashes
Economists say that a financial asset (stock, for example) exhibits a bubble when its price exceeds the value of the future income (such as interest or dividends) that would be received by owning it to maturity. If most market participants buy the asset primarily in hopes of selling it later at a higher price, instead of buying it for the income it will generate, this could be evidence that a bubble is present. If there is a bubble, there is also a risk of a crash in asset prices: market participants will go on buying only as long as they expect others to buy, and when many decide to sell the price will fall. However, it is difficult to tell in practice whether an asset's price actually equals its fundamental value, so it is hard to detect bubbles reliably. Some economists insist that bubbles never or almost never occur.
Well-known examples of bubbles (or purported bubbles) and crashes in stock prices and other asset prices include the Dutch tulip mania, the Wall Street Crash of 1929, the Japanese property bubble of the 1980s, the crash of the dot-com bubble in 2000-2001, and the now-deflating United States housing bubble.
- International financial crises
When a country that maintains a fixed exchange rate is suddenly forced to devalue its currency because of a speculative attack, this is called a currency crisis or balance of payments crisis. When a country fails to pay back its sovereign debt, this is called a sovereign default. While devaluation and default could both be voluntary decisions of the government, they are often perceived to be the involuntary results of a change in investor sentiment that leads to a sudden stop in capital inflows or a sudden increase in capital flight.
Several currencies that formed part of the European Exchange Rate Mechanism suffered crises in 1992-93 and were forced to devalue or withdraw from the mechanism. Another round of currency crises took place in Asia in 1997-98. Many Latin American countries defaulted on their debt in the early 1980s. The 1998 Russian financial crisis resulted in a devaluation of the ruble and default on Russian government debt.
- Wider economic crises
Main articles: Recession and Depression (economics)
A downturn in economic growth lasting several quarters or more is usually called a recession. An especially prolonged recession may be called a depression, while a long period of slow but not necessarily negative growth is sometimes called economic stagnation. Since these phenomena affect much more than the financial system, they are not usually considered financial crises per se. But some economists have argued that many recessions have been caused in large part by financial crises. One important example is the Great Depression, which was preceded in many countries by bank runs and stock market crashes. The subprime mortgage crisis and the bursting of other real estate bubbles around the world is widely expected to lead to recession in the U.S. and a number of other countries in 2008.
Nonetheless, some economists argue that financial crises are caused by recessions instead of the other way around. Also, even if a financial crisis is the initial shock that sets off a recession, other factors may be more important in prolonging the recession. In particular, Milton Friedman and Anna Schwartz argued that the initial economic decline associated with the crash of 1929 and the bank panics of the 1930s would not have turned into a prolonged depression if it had not been reinforced by monetary policy mistakes on the part of the Federal Reserve, and Ben Bernanke has acknowledged that he agrees.
* [source: wikipedia]Now let us see what are they say on the Financial Crisis:
1. Muhammad Yunus
A Nobel Prize-winning academic turned micro-finance banker for the poor has important advice for Washington. Muhammad Yunus believes that the government bailout of the banking system is but the first step in redesigning the global credit system. In the end, Yunus believes that a new self-correcting market system will have to be created.
In 1983, Muhammad Yunus set up the Grameen Bank in Bangladesh and ushered in the era of micro-finance and social entrepreneurship. By offering tiny amounts of credit to poor people, mostly women, to finance small businesses, he contradicted the established banking norms of the day. As a consequence, he received an unrelenting barrage of criticism from bankers and economists. Today, however, Grameen Bank, which won the Nobel Peace Prize jointly with Yunus in 2006, has a portfolio of loans a lot more solid than the portfolios of most large, global commercial banks—and Dr. Yunus is smiling. "Our system is based on trust, not collateral or guarantees, and still the people pay back," he said recently in an interview with BusinessWeek. "Conventional banking has always been represented as a perfect, self-correcting system. We see that it is not. It is collapsing as banks run to the government for a bailout."
And that is a huge mistake, says Yunus, who holds a PhD in economics from Vanderbilt University. In the past, government charity didn't help alleviate poverty in Bangladesh or most of the Third World. Instead, market-driven micro-finance offerings from Grameen Bank and others have enabled millions of people to get themselves out of poverty. It's also a system with a very good pay-back history: Poor people pay back their loans at average or above-average rates.
In the same way, government bailouts of the existing banking system are not a long-term solution either, says Yunus. "The solution is for the market to find a solution, not for the government to bail out a defective system." Yunus argues that a new banking system, based on market principles, with proper government regulations, but not ownership, needs to emerge from the current crisis. In the same way, the financial system, working through the markets, has to be enabled to redesign itself and emerge as a regulated system that operates outside of government control.
2. Tun Dr Mahathir Mohammad (Malaysian 4th Prime Minister)
Indeed West banks & financials system already failed. The World has to evaluate to replace it to other system such as Islamic banking and trading with peculiar currency such as Gold Dinar.
Gold will have value anywhere in this world. Gold Dinar is suggested to payment purposes only on international trade.
Bail-outs are not going to work. We have seen that already. Even partial or complete nationalization of banks and other financial institutions will not really help in turning things around.
3. Harun Yahya (Adnan Oktar - A prominent Turkish intellectual)
The situation that has appeared in the markets as a result of the recent economic crisis in America especially and the developed countries of Europe, has been seen as “Darwinism finance - literally the survival of the fittest for the banks,” by some sections of the foreign press. Some press organs have even claimed that “Darwinism rules the market” in the countries in question.
This description stems from the concept of the “strong overcoming the weak” that lies at the root of Darwinian thinking. The fact is, however, that the concept of the strong overcoming the weak is not one that came into being just when Darwin said it. It is not Darwinism that brought the concept into being. Therefore, an imaginary Darwinist concept is not justified by the survival of the strongest banks in the market, and the situation does not constitute an example of Darwinism.
The first cause of the financial crisis that has hit the entire world is the interest system. This, made unlawful by our Lord, has been shamelessly implemented as it has been depicted as attractive in societies based on self-interest only, and people thought they would never come to harm from it but would always make profits. Under the attractive-seeming appearance of the interest system, people were encouraged to invest their money in banks rather than in the direction of production or investment. Since there is no production or flow of capital in a system in which people hide their money in banks, in safes or under the mattress, financial troubles such as high costs of living, inflation or economic collapse are the inevitable result. That is what happened in the global financial crisis in question; the halt in production, the absence of a money flow and money being kept in banks to earn interest caused the economy to collapse.
Some people, greedy to accumulate goods and money out of concern for the future and a love of material things, are unwilling to spend the money they possess, and are parsimonious with it. These people’s policies are generally built on the increasing weakening and elimination of the weak while they save and become increasingly strong and rich. For that reason, they have no compunctions about exploiting the poor, never give alms, never behave generously, never spend money even on themselves, but constantly save up against some unknown day in the future. The fact is, however, that because of the lack of production, this money that they generally keep in reserve and think will bring them profits through the interest system is unable to keep pace with inflation and loses value. This money has never produced the anticipated abundance. Stagnant production has always been the consequence of this money excluded from the markets out of parsimony.
It is impossible for such a financial crisis to arise in the absence of an interest-based financial system, where people are not parsimonious and hide their money away, when they employ it generously for production, when they make proper use of the money in their possession, when they give alms and, most important of all, when they submit to Allah and believe with all their hearts that it is Allah Who will bestow money and wealth. It is impossible for people to become poor under such a system. When the rich help the poor, the poor will also have purchasing power. That will make production necessary. When manufacturing rises and people have purchasing power, factories will operate and sales will rise to high levels. The markets will immediately revive and money kept in banks and under mattresses that benefits nobody at all will enter the markets again. The poor will grow richer, and the rich will grow richer still. The abundance caused by the re-emergence of money that had been hidden away will, of course, be very great. This is the only solution capable of solving the problems facing all the countries of the world.
Well that are what they says.
I believe the world can look for solution to seek for the justice-based financial sytem.
What say ya? any opinion?
Tuesday, October 7, 2008
Call it the consequences of irresponsible American invasions, call it the irrational exuberance of short sellers, call it the catastrophe of subprime lending, call it the mismanagement of leveraged products, blame it as you may, American markets are facing unprecedented meltdown and doomsayers see little promise in the federal bailout package. Ironically, the Wall Street has noticed that Shariah-compliant investments--which avoid speculative risk and debt-ridden greed--have fared much better in these troubled markets. In the past few years, Shariah-compliant investments in Western markets have grown to more than half a trillion dollars.
Islamic financing is attracting huge academic curiosity. Many experts participating in the 8th Harvard University Forum on Islamic Finance held this past April wondered if Islamic financing could have prevented the meltdown that American markets are facing primarily due to mortgage debt and mortgage-backed securities—now known as "toxic investments." This legal commentary highlights the two fundamental principles of Islamic financing that I presented at the Forum.
High Risk Investments
The Quran prohibits al-Maysir or speculative risk, warning the faithful to avoid games of chance in which the probability of loss in is much higher than the probability of gain (2:219). Shariah-compliant investments, therefore, avoid speculative risk, including interest rate options, naked equity options, futures, derivative and numerous leveraged products purportedly designed to hedge investments. Many of these financial products attract speculators in hopes of making quick money. When trusted fund managers, under institutional pressures to show profit, resort to speculative risk, hedge investments turn into suicidal strategies for financial destruction.
In pursuit of greed and thrill, straightforward investments in companies engaged in socially useful activity has become unattractive, even boring, because of their presumably lower rate of return—frequently a self-fulfilling prophecy. Billions of dollars are dumped into companies that promise huge profits but produce nothing. While Islam would allow risking investments in socially beneficial research projects, it prohibits investments in companies peddling alcohol, tobacco, pornography, debt, and weapons—products that undermine our health and safety.
Some investment strategies rampant in the markets are not only morally corrupt but socially harmful. Short sellers, for example, make money when companies collapse and close. Turning the conventional logic of investment on its head, short sellers wish companies to crash rather than prosper for they make most money when companies go bankrupt, workers and employees lose jobs, and pension funds evaporate through declining company stock. Such cynical investments, touted as useful forces that balance the market, are contrary to Islamic law.
In addition to prohibiting high risk investments, the Quran also prohibits no risk investments. The prohibition against riba, interest on loans, is strictly forbidden. Islam does not prohibit passive investments. Nor does it prohibit giving interest-free loans. Debt is not contrary to Islamic law. Charging interest is. Although some experts argue that usury, and not interest, is prohibited under Islamic law. Most Muslim scholars agree, however, that interest on loans is contrary to the Shariah.
Refuting arguments that money has time value or that interest is analogous to profit, the Quran offers a categorical principle that “trade is permitted but interest is not.” (2:275). The prohibition against interest was revealed not only to save the poor from unscrupulous lenders but also to deter investors who demand a set return on their investments and decline to take the risk of engaging in useful trade.
Contrary to Islamic principles, lending in general and subprime lending in particular was predestined to harm American financial markets for two distinct reasons. First, debt braced with high interest was being extended to persons who simply could not afford to pay back loans. This was usury. Second, the real estate mortgage was no longer a prudent investment decision, since numerous investors were trading in real estate with inflated prices. Investment bankers and other geniuses on Wall Street were securitizing mortgage debts, turning them into interest-bearing securities. These fancy securities began to fail when their underlying assets were foreclosed or deflated. The debt turned deadly and its holders bankrupt.
Between the prohibited limits of maysir (speculative risk) and riba (no risk), however, Islamic Law permits creativity in financial markets where investors mobilize surplus monies for the production and distribution of halal (Kosher) goods and services. These permissible markets are neither risk-free nor prone to irresponsible risk. Though innovative and authentic, the markets are infused with the values of fairness, transparency, and reasonable profits. They are free of predatory practices that corrupt transactions with greed and inflict hardship on the poor, the elderly, and the novice.
The federal bailout package that the Bush Administration is selling as a quick cure of all problems will only aggravate the underlying cancer of interest-bearing debt. It is unlikely that the infusion of more money will reform institutions and companies built on layers of interest-bearing debt. When the best and the brightest are engrossed in finding ways to make money with money, and no more, the system may look creative and intelligent but it is geared toward shared destruction.
Ali Khan is Professor of Law at Washburn University in Topeka, Kansas.
Thursday, July 3, 2008
NEW YORK: The US dollar slumped to a two-month low against the euro on Wednesday on a report that the US private sector lost 79,000 jobs last month, raising fresh fears about the health of the world's largest economy. Traders were also anticipating a move on Thursday by the European Central Bank to raise eurozone interest rates a quarter of a point to 4.25 percent, which could boost the euro further against the dollar. The single European currency fetched 1.5876 dollars at 2200 GMT after 1.5796 on Tuesday. The dollar declined to 105.84 yen from 106.10. The ADP private sector employment index, seen as an indicator of how closely watched figures for overall US job creation on Thursday might look, showed that US companies shed 79,000 jobs in June, far more than had been forecast. The news provided a further excuse to sell the dollar, with the euro bolstered ahead of the widely expected ECB rate hike on Thursday. "Conditions in the labour market are still weakening, albeit gradually," said Paul Ashworth of Capital Economics. "The economy is a long way from being out of the woods yet." The market will pay close attention to ECB president Jean-Claude Trichet's press conference, following the interest rate decision on Thursday, for clues as to whether the ECB will have room for further rate hikes later in the year. Although recent statistics have suggested that the eurozone economy is starting to falter, strong producer price data earlier on Wednesday showed that inflationary pressures - the ECB's main concern - continue to mount. Markets were bracing for volatility with the ECB decision coming the same day a key report on US non-farm payrolls is released in Washington. Analysts expect the report to show a loss of 60,000 jobs in June. "The ECB press conference and the (labour) report will either neutralise each other or be a toxic combination for the US dollar," said Kathy Lien at Forex Capital Management. In late New York trade, the dollar stood at 1.0141 Swiss francs after 1.0199 on Tuesday. The pound was at 1.9925 dollars from 1.9950. - AFP/de
Tuesday, June 24, 2008
The "New Seven Sisters"
- Saudi Aramco (Saudi Arabia)
- JSC Gazprom (Russia)
- CNPC (China)
- NIOC (Iran)
- PDVSA (Venezuela)
- Petrobras (Brazil)
- Petronas (Malaysia)
Friday, June 20, 2008
Iranian Presidential Advisor: Lowering Dollar Reserves Important
The Iranian government's decision to convert its dollar-denominated foreign reserves to non-dollar reserves is critical and needs to be properly publicized by the country's officials, Mujtaba Samereh-Hashemi, Iran's Senior Presidential Advisor, told reporters at the end of a cabinet meeting.
The conversion prevented a decrease in the value of Iran's foreign reserves, considering the more than 20% depreciation of the dollar against major currencies, Samereh-Hashemi added.
Since last year, Iran's oil transactions have been conducted in euro and yen, as the dollar has been completely replaced by these two major currencies.
PRESSTV, Iran, June 18, 2008
Ahmadinejad Says Glut In Oil Market, Calls For Setting Up Oil Bourse, OPEC Bank
Iranian President Mahmoud Ahmadinejad said today that there was a glut in the oil market, and called for an oil bourse and an OPEC bank to be set up in order to optimize the situation in energy market.
Ahmadinejad was speaking at the 29th meeting of the Council of Ministers of OPEC Fund for International Development, currently underway in Isfahan, in which high-ranking officials from 12 OPEC member countries are participating.
Ahmadinejad added, "I repeat my suggestion made six months ago at the OPEC summit in Riyadh, to create a basket of credible currencies which would be the basis for oil transactions.... A combination of the world's valid currencies should become a basis for oil transactions or OPEC member countries should determine a new currency for oil transactions."
He noted that the final way to solve existing problems was establish a justice-based political and economic system.
Source: IRNA, Iran, June 17, 2008
"It is a great relevant suggestion from Ahmadinejad isn't it? A JUSTICE-BASED POLITICAL & ECONOMIC SYSTEM. Until today we heard no respond from OPEC especially Saudi Arabia. Just imagine if oil transaction or international trading are no longer or lesser conducted in USD. It is main reason Iraq was invaded. And now Iran face a same problem as Iraq. The good thing is, it is not easy for US to invade Iran as what they did in Iraq. The main factor why too many country still using USD for international trade is simple; US military threat."-redzuank
"Since currently worldwide oil sales are denominated in U.S. dollars, changes in the value of the dollar against other world currencies affect OPEC's decisions on how much oil to produce. For example, when the dollar falls relative to the other currencies, OPEC-member states receive smaller revenues in other currencies for their oil, causing substantial cuts in their purchasing power. After the introduction of the euro, pre-invasion Iraq decided it wanted to be paid for its oil in euros instead of US dollars causing OPEC to consider changing its oil exchange currency to euros, although after Iraq's invasion, the interim government reversed this policy, and the subsequent Iraq governments stuck to the US dollar. Member states Iran and Venezuela have undergone similar shifts from the dollar to the Euro."
Thursday, June 19, 2008
Financial Times July 14 2006
In about 1220 a canonist named Hispanus proposed that, although usury
was prohibited, a lender could charge a fee if his borrower was late in
making repayment. The period between the date on which the borrower
should have repaid and the date on which he did repay, Hispanus termed
"interesse", literally that which "in between is".
Soon, the money lenders of Europe were adding to the church's
theological dilemmas with the Contractum Trinius. Here, the lending
party would invest money with a merchant on a profit and loss sharing
basis, insure himself against a loss of capital and sell back to the
merchant any profit above a specified amount. In isolation each of these
contracts was viewed as permissible by the church scholars, but their
combination produced an interest-bearing loan in all but name.
Today, those who wish to make a living from lending money are adopting
the same approach to defeat the usury prohibition in Islam. Combining
Islamically permissible contracts to produce interest-bearing loans has
become the specialism that is "Islamic banking". The fact that some
leading Islamic scholars are being paid hundreds of thousands of dollars
to give religious judgments by the very institutions whose products they
are judging is, to say the least, a conflict of interest. But the
problems run deeper than this. Even if 98 out of 100 scholars judge that
a product is prohibited, an Islamic bank can employ the two who permit
it. In effect, the banks are able to choose the rules of the game while
telling everyone else that they are only following scholarly advice.
Overarching these issues of moral hazard and legal semantics, looms the
more fundamental question of whether Islamic finance can be practised
within an interest-based monetary framework.
Today's monetary system developed from the practices of European
goldsmiths in the 17th century who accepted deposits of gold coins for
safe-keeping. Receipts for such deposits would often be issued in
"bearer" form and, with growing public familiarity, these came to be
accepted in payment for goods and services. The receipts had become an
early form of "bank money".
The goldsmiths were now in a position to transform themselves into money
lenders, but when the public came to borrow money it was paper receipts
not gold coins that the goldsmiths loaned them. This policy had the
great advantage that receipts could be manufactured at almost no cost,
while gold itself could not be. William Paterson, a founding director of
the Bank of England, was well aware of the commercial implications. "The
Bank hath benefit of interest on all moneys which it creates out of
nothing", said Paterson of his new bank in 1694.
Why, if the banker truly had the power to manufacture money, did he not
simply print receipts and spend them on his own consumption? The answer
was largely one of commercial risk. Spent receipts would in due course
return to the bank for redemption in gold, gold which never existed in
the first place. By lending the receipts instead, the banker could
charge interest on the amount lent. Upon repayment, the receipts could
be destroyed as easily as they had been manufactured, but the interest
charge would remain as revenue. Thus, loans at interest and private
sector money creation became the two core components of commercial
The gestation of products within this very un-Islamic framework has
resulted in the ultimate mutant, an Islamic personal loan at 7.9 per
cent annual percentage rate courtesy of the Islamic Bank of Britain. How
different this is from the original vision of Muslim economists.
I propose that by segregating the payment transmission and money
creation functions, and by sharing profits and losses instead of seeking
interest payments come-what-may, bankers' motivations would be much more
closely aligned with those of their clients. A link would be
re-established between the financial sector and the real sector, with
beneficial consequences beyond the economic domain.
The resources and infrastructure of whole nations are increasingly being
sacrificed on the altar of interest-bearing debt. If Islamic banking
adopts a genuinely Islamic paradigm it can offer a solution to a world
hungry for alternatives. If it does not, it will enjoy a brief life as a
get rich quick bandwagon and then disappear into the relics of financial
The writer is author of The Problem With Interest
Thursday, June 12, 2008
Bretton Woods system
The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states. The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent nation-states.
Preparing to rebuild the international economic system as World War II was still raging, 730 delegates from all 44 Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire for the United Nations Monetary and Financial Conference. The delegates deliberated upon and signed the Bretton Woods Agreements during the first three weeks of July 1944.
Setting up a system of rules, institutions, and procedures to regulate the international monetary system, the planners at Bretton Woods established the International Bank for Reconstruction and Development (IBRD) (now one of five institutions in the World Bank Group) and the International Monetary Fund (IMF). These organizations became operational in 1946 after a sufficient number of countries had ratified the agreement.
The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value—plus or minus one percent—in terms of gold and the ability of the IMF to bridge temporary imbalances of payments. In the face of increasing strain, the system collapsed in 1971, following the United States' suspension of convertibility from dollars to gold.Until the early 1970s, the Bretton Woods system was effective in controlling conflict and in achieving the common goals of the leading states that had created it, especially the United States
Wednesday, June 11, 2008
"By BURT HERMAN, Associated Press Writer
SEOUL, South Korea - What began with high school students worried about the safety of U.S. beef has swelled into a major challenge to the government of new South Korean President Lee Myung-bak — culminating in protests of 80,000 people Tuesday who failed to be placated by his entire Cabinet offering to resign.
In weeks of street rallies by angry critics of Lee, what had been seen as the former businessman's strengths have instead been blasted as weaknesses. Nicknamed "The Bulldozer" for decisively pushing through projects as a Hyundai construction CEO and Seoul mayor, Lee has instead been labeled by protesters as a "dictator" who fails to heed public opinion and panders to American interests.
His December election win ended a decade of liberal rule and was seen as bringing more professionalism to the presidency, and also healing strained ties with the United States. But a string of Cabinet appointments in which nominees were forced to resign amid allegations of real estate speculation and other irregularities even before he took office in February made for a political honeymoon that went by with blinding speed even for South Korea, a country where rushing is a way of life.
That rush to succeed was whyelected Lee in a campaign where he cruised to a landslide victory on hopes he would inject new life into the country's economy. But with the global slowdown dragging on South Korea's export-driven economy and rising food prices fueling inflation, Lee found himself quickly hedging promises that the country could soon regain its earlier dynamism.
He planned to dig a canal down the center of the peninsula in a showpiece project to boost transport and tourism, but professors and environmentalists lined up against the idea.
Given all that, disappointment was already simmering when Lee's government pushed through a last-minute agreement to resume U.S. beef imports just before he met for his first summit within April. Beef imports had been banned for most of the time since 2003, when a case of mad cow was discovered in cattle in the U.S., closing what had once been the third-largest market for American exports.
High school students were concerned that the cheaper U.S. imports would be used in their school lunches without their knowledge, despite government pledges to enforce labeling of meat for the country of its origin.
Both Seoul and Washington insist U.S. beef is safe, citing the Paris-based World Organization for Animal Health.
"I certainly feel comfortable in assuring the consumers in the United States, as well as abroad, that this product is as safe as safe can be," U.S. Agriculture Secretary Ed Schafer said Tuesday.
The thousands of uniformed high schoolers carrying candles in calm vigils quickly grew into daily rallies — sometimes violent — as more groups latched on to the anti-Lee cause, raising issues about a range of policies including reforms for health care and the educational system.
Protests are a way of life in Korea and riot police are a common sight in the city center.
Still, Tuesday's protest — the largest-yet over the beef issue with 80,000 people — was on a scale not recently seen here. Police used shipping containers to block the capital's central thoroughfares to prevent crowds from marching to the nearby presidential Blue House.
Rallies continued until early Wednesday and police said they arrested about 20 protesters on charges of occupying major Seoul streets and causing traffic congestion. Candlelight vigils were planned for Wednesday night, according to police and protest organizers.
Tuesday's protest came on the anniversary of pro-democracy struggles that intensified in the late 1980s and eventually caused the downfall of's military-backed regime.
Earlier in the day, thousands of conservative, pro-government activists demonstrated near the site of the anti-U.S. beef rally.
The entire Cabinet offered to resign earlier Tuesday, but Lee did not say whether he would accept their departures. The president is accorded a healthy amount of power in the constitution, and the government reshuffle was not expected to affect Lee's ability to serve out his single, five-year term.
But even before he really got going, "The Bulldozer" is stuck in neutral and what he will be able to accomplish in office has been thrown into doubt.
Burt Herman is chief of bureau in Korea for The Associated Press."
Another unfair policy. Are we going to feed these Mad Cows?
Tuesday, June 10, 2008
A Gold Dinar is a gold coin first issued in 77 AH (696-7 CE) by Caliph Abd al-Malik ibn Marwan. The name “dinar” is derived from denarius, a Roman currency. The weight of the dinar is 1 mithqal (4.25 grams).
First Dated Coins
The first dated coins that can be assigned to the Muslims are copies of silver Dirhams of the Sasanian Yezdigird III, struck during the Caliphate of 'Uthman, radiallahu anhu. These coins differ from the original ones in that an Arabic inscription is found in the obverse margins, normally reading "In the Name of Allah". The subsequent series was issued using types based on drachmas of Khusru II, whose coins probably represented a significant proportion of the currency in circulation. In parallel with the later Khusru-type Arab-Sasanian coins first issued under the Well-Guided Caliphs of Islam, a more extensive series was struck with Khusru's name replaced by that of the local Arab governor or, in two cases, that of the Caliph. Historical evidence makes it clear that most of these coins bear Hijra dates. The earliest Muslim copper coins are anonymous and undated but a series exists which may have been issued during the Caliphates of 'Uthman or 'Ali, radiallahu anhum. These are crude copies of Byzantine 12-nummi pieces of Heraclius from Alexandria.
The First Silver Dirham
By the year 75 AH/ 695 CE Abd al-Malik had decided on changes to the coinage. A scattering of patterned pieces in silver exist from this date, based on Sasanian prototypes but with distinctive Arabic reverses. This experiment, which maintained the Sasanian weight standard of 3.5-4.0 grams was not proceeded with and in 79 AH/698 CE a completely new type of silver coin was struck at 14 mints to a new nominal weight of 2.97 grams. Unlike the contemporary gold coinage, this figure does not seem to have been achieved in practice. The average weight of sixty undamaged specimens of 79-84 AH is only 2.71 grams, a figure very close to that for a unique coin of 79 AH struck with no mint name (as was the standard procedure for the gold Dinars produced in Damascus). These new coins which bore the name of 'Dirham', established the style of the Arab-Sasanian predecessors at 25 to 28 mm. in diameter. Their design is composed of Arabic inscriptions surrounded by circles and annulets. On each side there is a three or four line legend with a single circular inscription. Outside this are three line circles with, at first, five annulets surrounding them. The side normally taken as the obverse has as its central legend the Kalima or shahada: "There is no god except Allah alone, there is no partner with Him'. Around it is the mint/ date formula reading "In the Name of Allah: this Dirham was struck in [mint name e.g. Damascus] in the year [e.g. 79 AH]". The reverse has a four line central inscription taken from the Surah 112 of the Quran; "Allahu Ahad, Ahallu-Samad, Lam yalid wa lam yulad wa lam yakul-lahu kufu-an ahad"'. The marginal legend states: "Muhammad is the Messenger of Allah, he was sent with guidance and the religion of truth to make it prevail over every other religion, averse though the idolaters may be" (Quran 9:33)
The First Gold Dinar
The gold coins were first struck to the contemporary standard of 4.4 grams and with one or more Arabic Standing figures on the obverse and an Arabic legend on the reverse. Dated coins exist from 74 AH and are named as 'Dinars'. These experimental issues were replaced in 77 AH, except in North Africa and Spain, by completely epigraphical designs very similar to the designs adopted for the silver pieces but with a shorter reverse legend and no annulets or inner circles. This type was used without appreciable change for the whole of Umayyad period, the coins being struck to a new and carefully controlled standard of 4.25 grams. This weight was reputed to be based on the average of the current Byzantine solidi, was called a mithqal, a term used earlier for 1/72 of a ratl. Evidence of the importance attached to the close control of the new Dinars is provided by the existence of glass weights, mainly from Egypt. They usually show the governor's name, sometimes the date but all marked with coin denomination.
The issues in gold from North Africa began as copies of the coins of Heraclius and his son (but with an abbreviated Kalima in Latin), the reverse 'cross on steps' losing in most cases its cross piece. Dinars, halves and thirds were struck, all to the new weight standard. Later coins are dated by the Indiction Number Method, from Indiction II (85/4) changing to the Hijra date in Roman numerals in 94 AH with Arabic phrases appearing in the field from 97 AH. In the year 100, North Africa came into line with the eastern issues although the mint is named as Ifriquiyah. The legends are shorter and the reverse has a new central inscription: "In the Name of Allah, the Merciful, the Compassionate". This was used also on the coins from Al-Andalus, and on the half and third Dinars, most of which show no mint but may well have been struck in Al-Andalus.
|Face Value||Purity||Weight||Weight Toz*||Diameter|
|1 Dinar||91.7% Gold||4.25 grams||0.1367 Toz||23 mm|
|2 Dinars||91.7% Gold||8.50 grams||0.2733 Toz||26 mm|
|8 Dinars||91.7% Gold||34.00 grams||1.0932 Toz||32 mm|
|1 Dirham||99.9% Silver||3.00 grams||0.0965 Toz||25 mm|
|5 Dirhams||99.9% Silver||15.00 grams||0.4823 Toz||27 mm|
|10 Dirhams||99.9% Silver||30.00 grams||0.9646 Toz||41 mm|
|* The exact weight of the coins is defined in grams; conversion to approximate troy ounces is given for informational purposes.|
What are the Dinar & Dirham
The Islamic Dinar is a specific weight
of 22k gold equivalent to 4.25 grammes.
The Islamic Dirham is a specific weight
of pure silver equivalent to 3.0 grammes.
According to Islamic Law...
The Islamic Dinar is a specific weight of 22k gold (917.) equivalent to 4.25 grams.
The Islamic Dirham is a specific weight of pure silver equivalent to 3.0 grams.
Umar Ibn al-Khattab established the known standard relationship between them based on their weights: "7 dinars must be equivalent to 10 dirhams."
"The Revelation undertook to mention them and attached many judgements to them, for example zakat, marriage, and hudud, etc., therefore within the Revelation they have to have a reality and specific measure for assessment [of zakat, etc.] upon which its judgements may be based rather than on the non-shari'i [other coins].
Know that there is consensus [ijma] since the beginning of Islam and the age of the Companions and the Followers that the dirham of the shari'ah is that of which ten weigh seven mithqals [weight of the dinar] of gold. . . The weight of a mithqal of gold is seventy-two grains of barley, so that the dirham which is seven-tenths of it is fifty and two-fifths grains. All these measurements are firmly established by consensus." Ibn Khaldun, Al-Muqaddimah
How are the Islamic dinar used?
1.- The Islamic Dinar can be used to save because they are wealth in themselves.
2.- They are used to pay zakat and dowry as they are requisite within Islamic Law.
3.- They are used to buy and sell since they are a legitimate medium of exchange.