Quote of the week:
'Not since the Depression has a larger share of Americans owed more on their homes than they are worth. With the collapse of the housing boom, nearly 8.8 million homeowners, or 10.3 percent of the total, are underwater. That is more than double the percentage just a year ago, according to a new estimate of the damage by Moody's Economy.com.' - Edmund L. Andrews and Louis Uchitelle at the NY Times: Rescues for Homeowners
Commentary for the Week:
Sustainability and Finance:
We have recently been hearing quite a bit about how we need to begin to live sustainable lives and create sustainable economies. There are even many movements that have been spawned from this imperative, including 'The Inconvenient Truthers' and Socially Responsible Investing (SRI). But what is sustainability, really? If it means plundering the Earth for all we can on an annual basis while hoping oil prices stay down, then surely we want no part of it. If however, sustainability means living lives that contribute at least as many resources to posterity as the amount we take out, then sure - we are all for it. Framed in this way, finance - which essentially underwrites and monetizes resources, has an important part to play in sustainability. Looking at it in other ways, even if they are Carbon-Neutral, simply confuses the issue.
The problem as it exists today is twofold. First, we are addicted to economic growth. If our economies do not expand by a certain percentage, the worthwhile-ness of life comes into question. People start jumping off bridges, the latest Ferrari remains un-leased and politicians get voted out by a vengeful public. What binds us to this addiction is of course inflation, which slowly and steadily saps our purchasing power such that the lordly sums we survived on as kids seem quite piddly and insignificant with the wisdom of old age. The second problem is our incessant borrowing from future generations. We borrow today, that which we can never pay back tomorrow. Governments borrow to finance wars, corporations borrow to extract or re-order allocation of resources and people borrow to live in houses and drive cars that they cannot afford.
While many focus on consumer behaviour as a large driver of environmental damage, very few have made the connection to how the practice of borrowing on interest speeds up our usage of the planet's resources and ends us up with inflation too boot. The philosophy of 'Why wait to consume tomorrow what you can borrow for and consume today' is facilitated and encouraged by our financial system. It is not just a matter of inexplicable and irrational 'Consumer Behaviour'. We are able to over-consume and over-spend because we have to borrow to merely be 'normal'. So the question now arises about who it is that we are borrowing from. Although the more regular readers among you will be bracing for yet another perhaps inappropriate harangue against our beloved banks, the reality is sadly a bit more complex. Although Banks and other lenders are the face of the loan, the ultimate lender is not an institution. The lenders are future generations. As we borrow gynormous (I am told that this word means even bigger than enormous) sums and mis-spend them, the resources available to future generations come under enormous pressure and are reduced. Will they pay back our loans or will they be able to invest in their own future? The last thing we should want to leave them with is having to repay government, corporate and personal debt though further borrowing from their future generations - which is sadly how we operate today.
A lot of people ask me why usury is forbidden in Islam (and also other faiths). This may be one of the good reasons why. As you make lending more and more profitable, you skew the payoffs to market participants. If you add to that the fact that it is not the market that is dictating this but rather the Central Authorities who keep pumping money into the scheme so that lenders are never chastised (subprime anyone?), you see how the game is rigged. Looking at it this way gives a whole new meaning to the old adage that we have not inherited the Earth from our ancestors, we have borrowed it from our children. I wonder what interest rate is enough to satisfy an unborn child ...
1. A glimpse into one the company founded by the most successful money manager in Canada ... must read ... read more here
2. Yet another successful Canadian company sold to private buyers ... read more here
3. The Caisse declares a $2B loss on its 'investments' ... read more here
4. Excellent article on who gets left holding the bag when derivative trading goes bad ... read more here
1. What happens when funds that promise an absolute return uncorrelated with public markets begin to suffer absolute losses all together ... read more here
2. Battling the coming Bear market ... read more here
Islamic & Middle East Finance:
1. Morgan Stanley says GCC banks with Shariah assets will hold 18% of world financial system assets by 2012 ... read more here
1. Beautiful story about Toyota's founding family ... (are you the best in the world, your country or the best in town?) ... read more here
2. The Cartoon that captures it all ... see it here