Friday, May 9, 2008

Letters Edition #3 - Letter from Law Student interested in 'Sane Finance'

Quote of the week:
‘Now that China is such an engine of global growth, it urgently needs to improve its economic data. Only a madman would drive a juggernaut at full speed with a faulty speedometer, a cracked rear-view mirror and a misty windscreen.’ – The Economist

Of course, The Economist is never really wrong, just not totally right this time. Just add USA after China in the above quote and voila - you have the Global Economy encapsulated in a short, pithy quote that you can use at your next dinner party to impress your future spouse with your intimate knowledge of high finance. I say add the US because the Fed stopped reporting some money supply data some time ago that was too embarrassing. China, on the other hand, is never embarrassed; and there you have two sides of the same coin.

Also, the Ittihad Weekly is now also available as a Blog at: . You can add your comments directly onto the website, but I would be most pleased if you continue to write directly to me as well. We must not allow technology make me obsolete just yet.

Letter of the Week (Commentary will be back next week for sure IA):

Letter No. 1:

Mr. Jawad:

I hope I am not wasting your time, but I would like to reply to the individual who sent you the letter.

I am not a Muslim, nor am I a Canadian; I am an American, with a Bachelor's degree in Accounting, working on a JD. The reason I point that out is that my professors in undergraduate studies constantly tried to tell us all, "Change your thinking. Debt is not bad. Debt is good; debt is necessary."

As a rational person, I found this reasoning uncomfortable, after all, what is debt but selling tomorrow to indulge today? But with a grain of salt, I accepted that this was the way my world worked.

I started talking to one of your employees, Siddiq, many years ago, and he patiently explained the concept of Islamic Finance, something completely alien to the financial education I had been indoctrinated into. I still don't understand everything, but I do know one thing: My professors lied to me, debt IS bad.

I can illustrate that with frightening certainty. I'm in an American law school as we speak and I watch the evils of debt there every day. The average American law student graduates with more than $50,000 in student loans on top of the debt Americans find necessary to survive. This debt changes the very pattern of the lawyer's reasoning. Many can't afford to work helping low income families, or work for the government prosecuting criminals or defending the innocent. Instead, they flock to giant corporate law firms or start businesses trying to bleed money out of the innocent through personal injury lawsuits. Lawyers have a terrible reputation for being immoral, social parasites. But the irony of it is, it's not the nature of the people in the profession causing this-- IT'S THE DEBT!

Thanks to my exposure to your company and its ideas, I'm completely atypical for a law student. I have no student loans at all, and I just finished paying off and cancelling my last credit card. I still have a mortgage, but it will be the next to go, as quickly as I can get out from under it. That gives me the freedom to pursue the law in a moral way, defending the innocent and standing up for what is right. To me, that is a far greater luxury than a bigger house or steak on the table.

I love your newsletter, and reading it is the high point of my week. You really shouldn't call it "Islamic Finance," you should call it "Sane Finance," because the way we do business in the western world really is insane. It's not about religious ideas, it's about logic. A good idea is a good idea no matter its source.

I love your witty, intelligent cynicism. To me it is a sign that you truly care about Islamic Finance because you care more about its future than its present reputation. I also love having something to read that challenges my mind, something that I find quite rare.

Keep up the good work, I'll be waiting for the next issue, and I'll put down everything to read it, even though I'm studying for finals.

J Schneider
Response to Letter No. 1:

Dear Ms. Schneider,

Hope you are well. I am beyond merely thankful for your exceedingly generous and insightful email. One hardly knows where to begin, so I guess the beginning will have to do. Your letter is not a waste of my time - it actually speaks to the very reason for why we are given time in this life at all. I found your letter both inspiring and humbling - your idea and expression of how the freedom to pursue a moral end in life is a luxury beyond mere wealth, is intensely powerful. I pray that we will be able to learn from your example and apply this philosophy in our own lives.

While I am humbled and turn to water with embarrassment that you find both enjoyment and value in the ideas that we try and discuss, I am consoled by the fact that I am quite undeserving of this praise. I truly think that most of the ideas I regurgitate in my admittedly cute fashion are actually timeless truths that have survived the onslaught of both religion (in the narrow sense of the word) and Logic (even at its most expansive). In this sense, my contribution is miniscule compared to my responsibilities as a ‘financial-type’. I think it is much more accurate to say that it is the inherent elegance of the subject matter we call Islamic Finance that forces itself upon our minds and hearts with such clarity. This is despite, not because of, my feeble attempts at being convincing. Since we are on the subject of praise however, it is much better to recognize the contributions of Siddiq, who introduced (re-introduced?) you to the subject, and the rest of the team here that actually tries to develop solutions while I provide comic relief. Above all though, credit is due to our shareholders, who had the foresight to put their hard-earned savings into our company when we were just an idea that carried no guarantee of monetary success. It is truly their vision and their ‘walking the walk’ that allows us the luxury to speak about these issues today. Their original investment of time and money allows us to strive for a moral life even while working in Finance, which is a gift for which no amount of thanks or credit is adequate repayment.

Nevertheless, since I am unable to leave things well enough alone, I would like to expand on your letter and nitpick just a wee bit. Your example of how debt works its way into the lives of young lawyers and thus affects the development of Law is indeed a frightening and eye-opening example of how debt take us away from what we really want to be doing with our lives. Indeed, if we were only to ask ourselves whether we go to work in order to fulfill our human potential or to pay the mortgage, the results would probably be shameful.

Also, your tongue-in-cheek suggestion that we should start calling this ‘Sane Finance’ (a term that I think you should copyright ASAP) is gratifying, but ultimately a bit problematic. One problem is that my sanity is in such obvious short supply that my calling this type of finance ‘Sane’ will undermine its credibility, not add to it. The second and main reason I insist on not allowing the concept of sanity to take over from Islam though, is that in my opinion, there is something deeper at work here than either logic or sanity. The idea that usury is not a healthy use of money is contentious depending on which system of logic is being used so this is an argument that is somewhat unwinnable with an appeal to pure logic. At the end of the day, it really is about values such as economic justice and I do not think that the removal of the term ‘Islam’ from the conversation would be fair on that score. The fact of the matter is that even though as Muslims we have been no better than our brothers and sisters from other faiths (for whom usury was also forbidden) in our involvement with conventional finance, ‘Islam’ as a body of knowledge or as a source of inspiration still has not compromised on the issue of usury. This point bears careful repeating: ‘Islam’, as one of the bodies of knowledge and law in the world still has not compromised on the unacceptability of usury and is therefore one of the last conceptual / religious or faith-based challenges to its widespread institutionalization. Many Muslims (and many value-less institutions) are sadly trying to get around the rules, but the rules are still there, plain for all to see. Removing the word ‘Islam’ from the discussion would be a disservice to a Faith that has brought us to this point. It would also do harm to our ability to connect with groups such as the Christian Council for Monetary Justice on the basis of Faith. Also, even though Islam is an Abrahamic faith that is sort of taking a stand on this crucial issue, the fact is that this stand is somewhat tenuous these days. This should encourage us to keep both sanity and Islam within Islamic Finance, not disavow Islam as one of the most proximate sources of our moral logic. Finally, please rest assured that I do not say any of this with a sense of superiority or self-congratulation, but rather with a sense of tragedy. The road is long and in the grand scheme of things, we have only just begun to understand how our present debt-based system sells out all our tomorrows. I only wish that we were better at fulfilling the potential of economic justice that is plainly there in our faiths, not in a narrow, exclusionary sense, but as good people, for all people; regardless of source, as you say.

I thank you once again for your thoughtful, insightful and exceedingly generous letter and wish you the very best in a long, meaningful career that God-willing will remain unsullied by the ravages of both debt and compromise. I also wish you the best of success in your finals. Your letter and success with your debt situation inspires me personally and I know will resonate with and inspire other readers as well. Perhaps through such dialogue, we can all learn to make the connection between our astronomically high levels of debt and our equally unforgivable failure at fulfilling our responsibilities to one another and the Divine.

MAP Canada is hosting an event for young businesses on the 10th of May (tomorrow). Some great local entrepreneurs from successful public (and private) businesses will be there to speak and provide mentorship to the up and coming successes of tomorrow. Within a set of true luminaries, MAP Canada has also taken a humungous risk and invited your humble correspondent as a speaker. I hope that many of you will attend. My contribution to the festivities are supposed to address the question of ‘How to Raise Capital for Your Business’, so you know there will be some fireworks. This is a volunteer organization that deserves our support and it is always interesting to see where the community is headed economically. Lunch will also be served. Please register here

There is also a conference in NY that our Senior Management will be attending. Our CEO’s topic of discussion will be on the ‘Ethical Dimensions of Islamic Finance’ and how the one cannot and should not be divorced from the other with ease. The One being Ethics and the other being Islamic Finance, which in better times were explicitly known to be irrevocably connected. For those who can make it to NY, it may be an excellent working holiday and an educational experience. Please Register Here for your 15% discount.

Finance News:

1. The ROB collects some of the best financial blogs in one convenient place ... read more here

2. UBS declares yet another $10+B loss and cuts 5,500 jobs ... I wonder if all the Aunties that proudly tell me ‘My son is a banker!’ and ask me ‘why don’t you work for a bank?’ are quivering in their sandals at the thought of banking becoming less than fashionable ... read more here

3. The Economist makes a case for caution when thinking of investing green ... a very interesting (and short) read ... read more here

4. Best argument yet for letting women run the family finances ... research shows that is much more difficult to defraud women than it is to defraud men. Men, it seems, always getting caught up in the heat of the moment and investing / losing money based on emotions ... read more here

Economic News:

1. Rob Carrick wakes up and sees inflation ahead ... the timing of his columns would be comical if it wasn’t so tragic ... read more here

2. The Chairman of the FED has a plain-speaking style, but he seems to be making a career out of stating the obvious ... he thinks home foreclosures would hurt the economy, you think? ... read more here

3. It is not usual for the Ittihad Weekly Briefing to be ahead of The Economist but I think we managed it by two weeks this time on the subject of commodity prices and the falling dollar. Nevertheless, this is yet another excellent article from the good folks at my favourite source of economic analysis. It is just too bad that their political leanings are so totally messed up ... read more here

Islamic / Middle East / Emerging Markets:

1. This hardly made the news, but that is because in North America, we are fascinated by North America. A Bahraini fund investing in Eastern Europe? Does that mean Eastern Europe has peaked? ... read more here

Interesting but not all Finance:

1. What! Such a strong link between Finance and Warfare?! ... Including juicy news about the US political system? - and here we thought financial decisions were all politically-neutral, or was it that all political decisions were financially neutral? ... read more here

2. Albertan Oil Sand companies on trial for environmental damage ; a case that has riled up the public after the recent death of over 500 ducks as they landed on an open toxic pond. Perhaps one of you can find some meaning in the fact that China is having a similar problem at what was once one of its most beautiful lakes .

3. Wondering what our best and brightest political minds think about on Parliament Hill? No, not the economy. No, not the various wars we are involved in. No, not the First Nations colonial situation. No, not even the lack of a coherent trade policy with the BRIC countries. Think of something to do with toilets and plumbing .

4. One of the best short articles on communication I have ever read ... lays out core principles of communication (defined as the delivery and the receipt of the intended message) for those in business, but can be adapted for other circumstances ... read more here

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