Thursday, October 20, 2011

Europe can learn from Islamic finance, says Luxembourg's Finance Minister

Entering its 6th year, the IFN 2011 Issuers & Investors Asia Forum,(previously known as the Malaysian Islamic Finance Forum) has emerged as the industry’s leading and largest annual event.

Europe can learn and gain from Islamic finance, given that financial institutions under it, have remained stable against the backdrop of the eurozone debt crisis.

Luxembourg's Minister of Finance, Luc Frieden, in a keynote address at the IFN 2011 Issuers & Investors Asia Forum noted that despite the credit crunch that has impacted Europe's banks, Islamic financial institutions had weathered the global crisis and emerged to be the most well managed.

"Therefore, we can learn a lot from Islamic finance and from Asia, as we have much in common.

"The key elements in Islamic finance that we need in the world today, particularly in Europe, are stability, financial partnership, provision of excessive risk and speculation as well as ethical principles," he added.

He said in Islamic finance, the financial relationship between the lender and borrower, had assured the "partnership mentality", which was found to lead to certain stability.

Explaining the need to avoid excessive risk taking place, Frieden said this is among the key goals of Europe and is an important feature found in Islamic finance.

"The provision against speculation and gambling which is prohibited in Islamic finance, is what we can concentrate on," he added.

He also said the element of ethical principles should not be limited to the Islamic finance industry alone. Frieden gave an assurance that Europe would find a solution to the debt-crisis that had led to volatility in the global economy.

"There's no one easy solution and one meeting can't solve the crisis. We have embarked on a step-by-step process to solve the problems.

"We will find a solution to the Greek issue. The Euro will be a currency you can count on in the future and see growth," he said.

He said Asia and Europe must join forces for the development and prosperity of the global economy.

"Therefore, Asian investors should look at Europe for trade and investment purposes, going forward," he added. Link the star

Sunday, October 02, 2011

Another "Black Swan" Approaching

According to a forecast from the Economic Cycle Research Institute(ECRI) as reported on CNN Money the US economy is heading for another double dip recession. "It's either just begun, or it's right in front of us," said Lakshman Achuthan, the managing director of ECRI. "But at this point that's a detail. The critical news is there's no turning back. We are going to have a new recession."

This new crisis comes just three years after the global financial and economic crisis. As opposed to the 2008 crisis that started in the US with the collapse of Lehman Brothers, this time Europe is at the centre of the crisis- the Euro Zone in particular has rocked the financial markets because their sovereign debt crisis.

Nassim Nicholas Taleb, author of the best-selling book “The Black Swan,” said he’s more concerned about prospects for the U.S. than Europe because the country lacks awareness of its fiscal woes.

“The difference between Europe and the U.S. is the consciousness of the problem,” Taleb, a New York University professor, said at a news conference in Tokyo organized by Bank of America Corp. “There’s no consciousness in the U.S.” about the fiscal deficit, he said.

Global financial-market turmoil intensified this quarter as Europe’s sovereign debt crisis deepened and the U.S. economy showed signs of slowing. Standard & Poor’s cut the U.S.’s credit rating for the first time in August, criticizing lawmakers for failing to cut spending or raise revenue enough to reduce record budget shortfalls.

Demonstrations have been taking place in Greece, Spain and Portugal against austerity measures and joblessness since early this year. Now the Wall Street of the US has also been hit by the waves of protest- the protesting issues include the 2008 bank bailouts, and high unemployment. Wall Street protesters carried posters which read “Protesters have rights defend 'Occupy Wall Street'” and chanted slogans including, "Stand up. Fight back," "We got sold out. Banks got bailed out" and "We are the 99 percent."

The term “Black Swan,” popularized by Mr. Taleb refers to a statement of impossibility, or to an event so unlikely that it defies comprehension.

In the past decade, there are quite a few examples of financial “Black Swan” events. Among them are the housing bubble and sub-prime mortgage crisis that derailed the banking system, the demise of Lehman Brothers in 2008, the BP oil spill and the Dow Jones flash crash, which had the Dow reeling with a 1000 point move on May 6, 2010.

Since events of these magnitudes are all previously unheard of in history, their repercussions ripple for years to come.


Now we need to heed to the warning that another Black Swan is unfolding.


As Nassim Nicholas Taleb,the author of The Black Swan wrote:

“We have never lived before under the threat of a global collapse. The financial ecology is swelling into gigantic, incestuous, bureaucratic banks — when one fails, they all fall. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur . . . I shiver at the thought.”

America's laissez-fare ideology of capitalism practised during the subprime crisis and the European state welfare model that has gone so wrong in Greece are under pressure to redefine and create a new social compact. Capitalism is the system that has created the extraordinary wealth and enabled the modern development of the western civilisation. But the free market has also created the biggest wealth gap between the rich and poor. If states have to intervene to bail out banks deemed too-big-to-fail and save countries from bankruptcy as in the case of Greece, then a new balance between the state and market is needed.

Q&A: Greek debt crisis. link
Late -2000s financial crisis. wikepedia