Dogmatism of Islamic Finance: Middle-East standards vs Malaysian-standards

This Vellfire business is made unnecessarily complicated by lack of an initial uninformed choice. Choice was of financing from Rajhi waving the Middle-Eastern corner against Maybank Islamic waving the Malaysian standards. Below are my findings:

1. Standards
Rajhi uses BBA - ie Bank purchases car and sells to customer at upside with staggered financing payments. Pure sale-purchase agreement and opts out of the hire-purchase conditions. The SPA absorbs any of the conditions within the HP Act that does not contravene the Syariah to protect the bank.

Maybank uses the typical Malaysian standard that tacks on Syariah-compliant contracts to existing transaction.

This is where philosophies differ. Whilst Rajhi's standards are stricter and more compliant given the fundamental structure of the transaction, are we to say that the contracts entered with Malaysian islamic banks are not? If so, where? Is it in the intention of the banks as a hillah? If so, who decides on this? Is this allowed on the basis of daruriyyah, which incidentally is difficult to ascertain, just as it is difficult to ascertain hillah on the part of the bank.

I would suggest that the daruriyyah is in the form of having a stronger Islamic bank presence against the conventional bank presence, and to argue one is better than the other is futile and only encourages meaningless cannibalisation of the same niche customer market. In this situation, the preference is with the Middle East standards only if other criteria are evenly matched. To use an inappropriate word in this case, I would suggest that the customer is agnostic in terms of standards as long as there is Syariah compliant acknowledgment by an established and reputable Islamic finance regulator.

2. Customer orientation and protection
The BBA allows banks to set a security deposit if required. I'm not sure of the equivalent in the AITAB but I dont recall of any such conditions. The other departure will be the purchase price with the dealer, where the Bank will pay full amount regardless of booking fee, in which case customer will have to bear ther burden of recovering the booking fee from the dealer later. To note that even in the BBA, a JPJ K3 form allowing repossession is similarly required.

These departures need to be communicated to the customer as well as the dealer upfront, as in this case, I'd need to bear the risk of non-retrieval of the booking fee, especially so when there are certain conditions that I have agreed with Jack how the final product will look like, ie pro-bono accessories of LCD, colour change, and what have yous have been agreed beforehand.

At the same time the rates are 2.48% pa, much higher than what I had asked for at 2.45%. And without ascertaining with me, the loan tenure was set at 9 years when I was actually considering 6 years. Maybank didnt flinch when I asked 2.40% and eventually agreed on 2.42%.


3. Services
This is the weakest area of the lot. After 2 weeks of haggling, I've yet to cross the finish line. With clearer expectations, I would be able to understand these changes but perhaps not at this stage. With 4 people running around and motivation flagging when Saudi dignitaries are expected to visit and all, I need to pull the trigger.

My promise though was this - I'll be back to consider them when the time comes later.

Tolled Roads and National Embarassments!

Tolled Road Solutions

1.       Asas Serba has come up with a RM50b dividend bond proposal to fund its takeover of all the expressways in Malaysia, and also promises a 20% reduction of tolls as part of the proposal. Is is feasible? Sure. But that is not the question.

2.       Why are expressways lucrative? Most international funding agencies cite the PPP / PFI arrangement of tolled roads as workable. BUt the real question was how it was structured that was positively lopsided so as to create a disadvantaged party in the Government.

3.       Malaysia's structure allowed for the concessionaire to cite a construction cost, which already included a substantial margin. In return for the financing risks undertaken by the concessionaire, the toll concession will be for an agreed period, say 20 years, with builtin adjustment formulas to compensate the concessionaire for the maintenanc, upgrading, operations and also for inflationary pressures over the period.

4.       This is not dissimilar to the first-generation IPP structures, and certainly provides the concessionaire with an advantage for it to diversify into other areas such as YTL's forays into global markets knwoing that there is a stable, recurring cash cow back home that could protect it from risks inherent in foreign deals. Anyways, YTL's foray into regulated markets meant that it was still cautious enough, and the sweetheart deals it could conclude with dodgy clauses about appointing key personnel from the other party to juicy posts meant that it could live well off the initial deal.

5.       Quite why UEM, Renong, and now Khazanah has been unable to take advantage of PLUS is another

5. issue. The latter may well need PLUS to cover for the other dodgy deals that it has inherited.

6.       Where's the sweetheart deal in toll roads that Asas Serba is so interested in? The secret probably lies in the capital structure. Why bonds? This will be a fully leveraged deal - but the finer details is where Asas Serba is hoping to clinch it. And beware the valuation for all the expressways and the concession period that it is asking for. In all probability, the public would do well to consider if it intends to forsake the multiple generations beholden to tolls for a 20% reduction Asas Serba is throwing about.

7.       For whatever the deal’s worth, the question is who’s paying? Government saves on compensation payments, and lest we forget, it’s not the Government’s – it’s the rakyats. Now who will pay for the sweetheart deal for Asas Serba? For sure, the existing private shareholders for the toll concessionaires will receive a premium to facilitate their decision to sell for the profitable routes, and the less profitable ones will still walk away with their money’s worth.

8.       The solution isn’t replacement like-with-like. The solution is for expropriation, and the rakyat owns it. If Asas Serba, without track record and just a few sheets of A4 people can expect to raise RM50b, why not sovereign government of Malaysia?, Let it be that once toll concessions end, we can expect that there will no longer be continual payment in perpetuity, whereas now exits are deferred by concession extensions.

Musa Hassan - the embarassing IGP, Syam - the more embarassing Minister in charge

9.       The issue here is justice. If you can dispense justice, and there is integrity and professionalism in how you dispense your responsibilities, there are no embarassing questions you need to fend off. And if the IGP of Malaysia 'merajuk' - bloody hell, what hope do we have? We may as well have Rafidah Aziz there. And if the Minister echoes and supports this embrassing turn of events - ei... malu la!

10.   I have serious reservations abt Syam and his pronouncements. More often than note, he just hits the wrong nerves. He’s just so out of touch – and if this is the best UMNO can offer… bloody hell!

People and their set ways - resetting is not easy

Bismillah

1.       Society is so badly fragmented these days, and any thoughts of leaving a permanent impact on positive change leaves such an immense sense of the gargantuan effort required. Take for example, brutal killing and murder of babies, for that is what they are. Try changing that, and immediately you get the sense of the hopelessness of change. Where is the hope? When people raise the moral code as a preventive measure, there is a general outcry deriding imposition of Islamic values on liberals and non-muslims. Yet, the initiatives of handing out condoms are seen as the panacea for rampant zina amongst teenagers. The general paralysis analysis is too great that any effort as those done by raudhatusakinah needs to be given fullest support. Cynicism must be dampened fo hope to flourish. The littlest contributions must be promoted to give hope that these efforts are not done in vain.

2.       Then you have Islamic finance – trying to build upon the ruins of a capitalist system that breeds unfettered greed. CDS, CDO, derivatives, arbitrage, etc – positive purpose of risk management offset by lack of regulations allowing speculators to build upon loopholes, seen as backed by the rigour of an intellectual analysis but in truth no more than gambling against uncontrolled circumstances. Islamic finance allows for the risk of participating in these transactions with an asset-backed capital as a solution, when you lose you lose your own pants, not as part of a leveraged debt now termed as OPM, the loss is somebody else’s. Obama chasing after the miscreants in Goldis is a fantastic piece of news of clear thinking. Let the investors shit in their pants. They have had it easy for far too long.

3.       NEM promoting innovation et al. Already cynics are moving out of the woodwork when this initiative should be supported and expanded where able. Such is the crisis that we have in Malaysia that a major crossroads such as this is being seen as mere sloganeering, but failure to execute could have dire implications. A slowing economy will leave powerful forces tugging at the fraying strands of social cohesion. IN a way, I agree with Dr Halili if the opinion he expresses are true. In this case, weaken the empty “sloganeering” opposition, and strengthen the forces to keep Malaysian society intact for as long as we can.

4.       Tech development isn’t easy. Tech transfer leakages are occurring where people see opportunities to benefit. The system needs to change. MOSTI are regulators, not beneficiaries.

5.       New neighbours seem to be a bit nosy too.

Global financial system reform

1.       The ribawi-based financial system, the lubricant of economic growth in the developed world and therefore a major mechanism and tool to prolong their economic and political hegemony is under surveillance.

2.       Britain, the Great prefixing its moniker long gone, is now slowly trying to fulfill a global leadership vacuum it lost painfully when Blair was playing lapdog to Bush Jr, and clearly by playing the moral high ground in climate change and the global financial revamp issues. In climate change, it is trying to be the middleman between Obama’s US insisting on self-regulation and the rest of the world who insists the world’s largest polluter should have to answer to some form of polluting taxation.

3.       Now, Adair Turner is cranking up the pressure on the global financial system, insisting it has grown too big for its good and too complex to be controlled.

4.       He has his own ideas, but perhaps the is not yet a ready admission that the alternative should really an equity-based financial instrument which curbs excessive growth of financial instruments based on underlying asset values, aka Islamic finance. Asset bubbles and systemic shocks are painful manifestations of the interest-based system, and it’s interesting that Turner even raised the issue that taxation is leaning towards interest by taxing profits after interest.

5.       Jewish interest groups make it impossible to change their forte in interest management, obtaining unpronounceable amounts of profits since before the days of Rothschild’s and such. Ford’s Zionist Protocols could have something on this – but as ever, I am cynical of what could come out of this. Until and unless the D-8 of the OIC, the OIC itself, the rest of the developing world acknowledge that they too can partake in global leadership and compete on equal footing with the great powers, I doubt they could transform themselves into paragons of virtue and goodness. Bubbles have come, and they have gone, and it still remains as it were. Interest groups reign supreme, and the shadow players behind the scenes are the supremos.

6.       There is so much to do to bring back justice to the world.

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The agenda for a global finance revamp 06 Nov 2009

By David Wessel - The Wall Street Journal Asia 

Date Published : 06 Nov 2009

The repair of the global financial-regulatory system is too important to future prosperity to be left to technocrats and bankers. But the substance is so arcane and complicated that few politicians or informed citizens can grasp the issues, let alone choose solutions.

That puts a premium on public-spirited insiders who think and speak clearly enough for the rest of us to understand, even if only to disagree with their diagnoses and remedies. It is that talent that makes Adair Turner, chairman of Britain's uber-regulator, the Financial Services Authority, worth listening to.

The U.K. didn't, as Lord Turner puts it, have "a good war." A couple of its big banks and several smaller ones imploded. It had a housing boom and bust. Its people put savings in Icelandic banks that collapsed. Its economic engine, finance, is sputtering. Its recession was deep.

And what had been seen by many in the U.S. as a model -- a central bank that stuck to setting interest rates and a single regulator that oversaw banking, securities markets and insurance -- is discredited. The rising Conservative Party wants to undo the structure built a decade ago by now-Prime Minister Gordon Brown and would fold financial supervision into the Bank of England.

Lord Turner, 54 years old, a Cambridge-educated former Merrill Lynch executive and McKinsey consultant, didn't arrive at the FSA until September 2008, well after FSA mistakes that contributed to the crisis. That liberates him to preach without first confessing sin, and preach he does. In a conversation in the London offices of the Climate Change Commission, which he also chairs, he was animated, even passionate, even though he had flown overnight from Washington. The word, according to Lord Turner:

-- One, finance got too big. "We must be more willing to ask . . . whether the financial system is delivering its vital economic functions as efficiently as possible, or whether parts of it can, and before the crisis did, swell beyond their economically efficient size," he said in a recent speech. He clearly favors the latter view: There was more "clever finance" and more trading than desirable to keep the world economy humming. Hence his willingness to consider a global tax on financial transactions, to the horror of many of his peers and the banking establishment.

-- Two, there was too much debt in the system. "There is a huge bias in the tax system towards debt," he said, largely because companies can deduct interest payments before computing taxable profits. "If we can't change that, then the regulatory approach needs to lean against that." Hence all the talk of reducing the leverage of financial firms. While U.S. and U.K. households and businesses did borrow more during the boom, the big run-up was in borrowing among financial firms matched by a huge increase in trading relative to the value of underlying economic activity, he observes. When bankers bellyache, he refers them to point one above.

-- Three, regulators failed to curb excesses, but politicians hardly encouraged aggressive regulation. The cry for "better regulation" meant less regulation, both in the U.K. and U.S. The diagnosis of Britain's economic woes was that regulation was stifling entrepreneurship, he said. No politician asked the FSA: "Why aren't you doing more to restrain this boom?" Few, if any, politicians can point to a speech made three years ago that asked why regulators weren't restraining lending or regulating with less of a "light touch."

-- Four, erecting a wall between ordinary deposit-taking and lending, on one hand, and trading on the other is impractical and unwise. Economies benefit when banks turn loans into securities or hedge their positions -- to a point. But by forcing banks to hold capital in the trading operations to provide thicker cushions to absorb losses -- he calls it "a bias towards conservatism" in trading beyond what is necessary for ordinary banking -- speculative trading will migrate away from banks toward hedge funds and the like, a change Lord Turner welcomes. That makes banks less risky (with smaller profits in boom times and smaller losses in busts), but he said it requires more oversight of big trading firms which, history proves, can endanger the whole system.

-- Five, for all the angst about the slow pace of postcrisis repair of the financial system, global regulators are making surprising progress toward consensus on a new regulatory regime. "We are attempting in 18 months to do changes far more radical than we did in Basel II that took between 12 and 15 years and dealt with some of the areas which proved to be less important," Lord Turner said, referring to the pact regulators reached in the Basel Committee on Banking Supervision that didn't avoid the crisis. Pushed by the newly empowered Financial Stability Board, the process, he said, "has worked better than I would have expected," he said.

Britain, of course, hasn't the clout to rewrite the rules of banking unilaterally. Lord Turner may not have precisely the same job in a year's time, if the Conservative Party takes power and sticks to its promise to abolish the FSA. But with a trenchant voice, he is helping to set the agenda for the most significant revamp of financial regulation in more than half a century.

Residuals - Ekuinas

Ekuinas - Funny name as it reminds me of horse-racing. Perhaps in the spirit of MIHAS’s halal beer, we can also have halal gambling? But I digress.

Not too sure what the proposition is to create another PE funding scheme in tourism, education and O&G, but it does look like a brilliant opportunity to tap into innovations and quality management products within the larger GLCs. We could possibly deploy the funds into “real” fundamental changes rather than “financial” funded opportunities, which after the hype, slowly descends into a tormenting, lingering death when unable to find the appropriate management directions to create lasting change. Food for thought?

Madoff, Jews, Judaism and Money

An interesting article relating the close proximity between Jews and money, and in Madoff’s case, the deception and betrayal of a Jew to his co-religionists.

For a muslim, Jews and Christians are taught as People of the Book, given enlightenment by God before they chose a path for their religion for themselves. In Islam, whilst the teachings are preserved through the pristine Quran and Sunnah, the transmission of teachings of which are historically and academically proven, and the choices of muslims is now down to their own control of their personal will and desires. But I digress.

In the Seerah, we find how the Prophet treated the Jews of Bany Qurayzah (tbc) with kindness, before the ultimate act of betrayal of abrogating a peace treaty at the darkest hour of a potential siege on the muslims in Madinah during the height of the Battle of the Ditch forced the Prophet’s hand to show how to deal firmly when an act of trust is betrayed. And being the confused being that I am, though I think the Jewish double-standard and hyprocritical business dealings being justified through their Rabbis is proof of the fact that they have strayed from the right path, I absolutely admire their ability to have a stranglehold on business and finances in any society since time immemorial.

There was a though a pretty senseless comment made at this site which reads as below,

I’m surprised that this article has not triggered the standard Jew-bashing vitriol yet. Come on, let’s hear it from the marauding masses!

Which seems to suggest that the commentator has been taken in by Israel’s Zionist agenda. Anyone with some sense of justice would be able to look beyond Israel’s continued surreptitious, merciless and underhanded colonizing war against defenceless, down-trodden Palestinians, while portraying themselves as the victims of terrorism with their control on the global media. And this is backed by the UN through UN resolutions ever since the illegal occupation in 1948. And the negotiations with the ‘wildmen of the Arab world’ is to create a legal Israel state, thereby conveniently leaving out the argument of forceful occupation 60 years ago to legitimately consider Israel as a legal nation on the basis of the might of Israels’ friends. Amidst all these political maneuverings, principles, justice and truth are ridden roughshod. In Madoff’s case, from the Judaism perspective, and I say this cognizant of others in Judaism who deplore the Israeli political machinery that brings with it many predictions of Armageddon contained in the Talmud, it would seem that if you live by the sword, you die by the sword. You can’t have double standards in life.

Although I suppose my comments here is proof that I am anti-semitic and vitriol?

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http://www.themalaysianinsider.com/index.php/world/14739-in-madoff-scandal-jews-feel-an-acute-betrayal

In Madoff scandal, Jews feel an acute betrayal

NEW YORK, Dec 24 — There is a teaching in the Talmud that says an individual who comes before God after death will be asked a series of questions, the first one of which is, “Were you honest in your business dealings?”

But it is the Ten Commandments that have weighed most heavily on the mind of Rabbi David Wolpe of Sinai Temple in Los Angeles in light of the sins for which Bernard Madoff is accused of.

”You shouldn’t steal,” Rabbi Wolpe said. “And this is theft on a global scale.”

The full scope of the misdeeds to which Madoff has confessed in swindling individuals and charitable groups has yet to be calculated, and he is far from being convicted.

But Jews all over the country are already sending up something of a communal cry over a cost they say goes beyond the financial to the theological and the personal.

Here is a Jew accused of cheating Jewish organizations trying to help other Jews, they say, and of betraying the trust of Jews and violating the basic tenets of Jewish law. A Jew, they say, who seemed to exemplify the worst anti-Semitic stereotypes of the thieving Jewish banker.

So in synagogues and community centres, on blogs and in countless conversations, many Jews are beating their chests — not out of contrition, as they do on Yom Kippur, the Day of Atonement, but because they say Mr Madoff has brought shame on their people in addition to financial ruin and shaken the bonds of trust that bind Jewish communities.

“Jews have these familial ties,” Rabbi Wolpe said. “It’s not solely a shared belief; it’s a sense of close communal bonds, and in the same way that your family can embarrass you as no one else can, when a Jew does this, Jews feel ashamed by proxy. I’d like to believe someone raised in our community, imbued with Jewish values, would be better than this.”

Among the apparent victims of Madoff were many Jewish educational institutions and charitable causes that lost fortunes in his investments; they include Yeshiva University, Hadassah, the Jewish Community Centers Association of North America and the Elie Wiesel Foundation for Humanity.

The Chais Family Foundation, which worked on educational projects in Israel, was recently forced to shut down because of losses in Madoff investments. Many of Mr Madoff’s individual investors were Jewish and supported Jewish causes, apparently drawn to him precisely because of his own communal involvement and because he radiated the comfortable sense of being one of them.

“The Jewish world is not going to be the same for a while," said Rabbi Jeremy Kalmanofsky of Congregation Ansche Chesed in New York.

Jews are also grappling with the implications of Madoff's deeds for their public image, what one rabbi referred to as the “shanda factor,” using the Yiddish term for an embarrassing shame or disgrace. As Bradley Burston, a columnist for haaretz.com, the English-language website of the Israeli newspaper Haaretz, wrote on Dec 17: “The anti-Semite’s new Santa is Bernard Madoff. The answer to every Jew-hater’s wish list. The Aryan Nation at its most delusional couldn't have come up with anything to rival this.”

The Anti-Defamation League said in a statement that Madoff’s arrest had prompted an outpouring of anti-Semitic comments on websites around the world, most repeating familiar tropes about Jews and money.

Abraham H. Foxman, the group’s national director, said that canard went back hundreds of years, but he noted that anti-Semites did not need facts to be anti-Semitic.

“We’re not immune from having thieves and people who engage in fraud,” Foxman said in an interview, disputing any notion that Mr Madoff should be seen as emblematic. “Why, because he happens to be Jewish, he should have a conscience?”

He added that Madoff’s victims extended well beyond the Jewish community.

In addition to theft, the Torah discusses another kind of stealing, geneivat da'at, the Hebrew term for deception or stealing someone’s mind.

“In the rabbinic mind-set, he’s guilty of two sins: one is theft, and the other is deception,” said Burton L. Visotzky, a professor at the Jewish Theological Seminary.

“The fact that he stole from Jewish charities puts him in a special circle of hell,” Rabbi Visotzky added. “He really undermined the fabric of the Jewish community, because it’s built on trust. There is a wonderful rabbinic saying — often misapplied — that all Jews are sureties for one another, which means, for instance, that if a Jew takes a loan out, in

some ways the whole Jewish community guarantees it.”

Several rabbis said they were reminded of Esau, a figure of mistrust in the Bible. According to a rabbinic interpretation, Esau, upon embracing his brother Jacob after 20 years apart, was actually frisking him to see what he could steal. “The saying goes that, when Esau kisses you,” Rabbi Visotzky said, “check to make sure your teeth are still there.”

Rabbi Kalmanofsky said he was struck by reports that Madoff had tried to give bonus payments to his employees just before he was arrested, that he was moved to do something right even as he was about to be charged with doing so much wrong.

“The small-scale thought for people who work for him amidst this large-scale fraud — what is the dissonance between that sense of responsibility and the gross sense of irresponsibility? he said.

In a recent sermon, Rabbi Kalmanofsky described Madoff as the antithesis of true piety.

“I said, what it means to be a religious person is to be terrified of the possibility that you're going to harm someone else,” he said.

Rabbi Kalmanofsky said Judaism had highly developed mechanisms for not letting people control money without ample checks and balances. When tzedakah, or charity, is collected, it must be done so in pairs.

“These things are supposed to be done in the public eye,” Rabbi Kalmanofsky said, “so there is a high degree of confidence that people are behaving in honourable ways.”

While the Madoff affair has resonated powerfully among Jews, some say it actually stands for a broader dysfunction in the business world.

“The Bernie Madoff story has become a Jewish story,” said Rabbi Jennifer Krause, the author of “The Answer: Making Sense of Life, One Question at a Time,” “but I do see it in the much greater context of a human drama that is playing out in sensationally terrible ways in America right now.”

“The Talmud teaches that a person who only looks out for himself and his own interests will eventually be brought to poverty,” Rabbi Krause added.

“Unfortunately, this is the metadrama of what’s happening in our country right now. When you have too many people who are only looking out for themselves and they forget the other piece, which is to look out for others, we’re brought to poverty.”

According to Jewish tradition, the last question people are asked when they meet God after dying is, “Did you hope for redemption?”

Rabbi Wolpe said he did not believe Madoff could ever make amends.

“It is not possible for him to atone for all the damage he did,” the rabbi said, “and I don’t even think that there is a punishment that is commensurate with the crime, for the wreckage of lives that he’s left behind. The only thing he could do, for the rest of his life, is work for redemption that he would never achieve.” — NYT

turmoil, tsunami and armageddon? - causes

Well - I could spend some time to really understand and try to predict the right way of overcoming this, but the sheer complexity of the whole issue means it'll take time to comprehend, let alone undertake the necessary structural changes.

For a start, this is a brilliant encapsulation of the effects of greed, not a technical description of the mechanics of the failure, that I presume will be well covered in other areas - but also fittingly describes the failure of ribaa'...

http://timesbusiness.typepad.com/money_weblog/2008/10/10-people-who-p.html#more
Minsky:Dr. Michael Hudson - global research dot ca wrote:"A generation ago, for instance, Hyman Minsky gained a following by describing what he aptly called the Ponzi stage of the business cycle. It was the phase in which debtors no longer were able to pay off their loans out of current income (as in Stage #1, where they earned enough to cover their interest and amortization charges), and indeed did not even earn enough to pay the interest charges (as in Stage #2), but had to borrow the money to pay the interest owed to their bankers and other creditors. In this Stage #3 the interest was simply added onto the debt, growing at a compound rate. It ends in a crash.This was the flip side of the magic of compound interest – the belief that people can get rich by "putting money to work." Money doesn’t really work, of course. When lent out, it extracts interest from the "real" production and consumption economy, that is, from the labor and industry that actually do the work. It is much like a tax, a monopoly rent levied by the financial sector. Yet this quasi-tax, this extractive financial rent (as Alfred Marshall explained over a century ago) is the dynamic that is supposed to enable corporate, state and local pension funds to pay for retirement simply out of stock market gains and bond investments – purely financially and hence at the expense of the economy at large whose employees are supposed to be gainers. This is the essence of "pension-fund capitalism," a Ponzi-scheme variant of finance capitalism. Unfortunately, it is grounded in purely mathematical relationships that have little grounding in the "real" economy in which families and companies produce and consume.Mr. Paulson’s bailout plan reflects a state of denial with regard to this dynamic. The debt overhead is self-aggravating, becoming less and less "solvable" and hence more of a quandary, that is, a problem with no visible solution. At least, no solution acceptable to Wall Street, and hence to Mr. Paulson and the Democratic and Republican congressional leaders. The banks and large swaths of the financial sector are broke from having made bad gambles in the belief that money could be made to "work" under conditions that shrink the underlying industrial economy and stifle wage gains, eroding the market for consumer goods. Debt deflation reduces sales and business activity in general, and hence corporate earnings. This depresses stock market and real estate prices, and hence the value of collateral pledged to back the economy’s debt overhead. Negative equity leads to bankruptcy and foreclosures."He also states:The main impact will be to reinforce the concentration of wealth in the hands of creditors (the wealthiest 10 percent of the population) rather than wiping out financial assets (and debts) through the bankruptcies that were occurring as a result of "market forces". Is it too much to say that we are seeing the end of economic democracy and the emergence of a financial oligarchy ­ a self-serving class whose actions threaten to polarize society and, in the process, stifle economic growth and lead to the very bankruptcy that the bailout was supposed to prevent?Everything that I have read in economic history leads me to believe that we are entering a nightmare transition era. The business cycle is essentially a financial cycle. Upswings tend to become economy-wide Ponzi schemes as banks and other creditors, savers and investors receive interest and plow it back into new loans, accruing yet more interest as debt levels rise. This is the "magic of compound interest" in a nutshell. No "real" economy in history has grown at a rate able to keep up with this financial dynamic. Indeed, payment of this interest by households and businesses leaves less to spend on goods and services, causing markets to shrink and investment and employment to be cut back."
We all should be organizing to take our democracies back.