Monday, August 11, 2008

Globalization of Chaos

Quote of the week:
'Do a Goodly Act and cast it into the river; the Divine will recompense thee in the desert'. - Muslihuddin Abu Muhammad Abdullah ibn Mushrifuddin Sa'di

Office for Rent Immediately:
As we have recently moved all our staff to the glass-enclosed cage that we call our head office, we have an entire fully furnished, gorgeous, non-glass enclosed office for rent in a Medical Building at the corner of Sheppard Ave. and McCowan. The rent is so minimal that I don't think we should even talk about it - much better to speak about how gorgeous the office is. As for the salient features of the space, other than the beautiful windows, the spacious Board-Room, the Corner offices and the nice faux mahogany furniture, there is even a nice, clean and neat private washroom that we will throw in for free. As this is a Professional Building (not just any building mind you, this one is a professional), it would be most suitable for a growing real estate, accountancy or legal practice. You can visit the space and see the endless possibilities that this new location presents for your business by clicking
here. Please do not email or call me directly - if you do, we will charge extra for the washroom.

Commentary of the week:

Globalization of Chaos:

So much has been written about the credit crunch that it is difficult to add anything to our understanding of what has happened and what is happening in financial markets without being drowned out by the voice of the crowd. Although it is difficult to add anything new to the debate without seeming totally off the wall; being categorized in that manner has never fazed your humble correspondent before and as all of you have no doubt been waiting for the IWB for 2 weeks now, noblesse oblige.

While many people ascribe our latest economic woes to improper lending practices in the US and the overinvestment into overvalued real estate, the meaning of all this is not usually discussed within a global framework. While links between a home-buyer who is buying an overpriced home in a Floridian swamp, the price of food and Central Bank interest rate policy within the US and Canada have perhaps been addressed in previous IWB's, there is another angle we may have missed until now. A news item came out recently that spoke about how Central Bankers from across the Globe had gotten together and were fretting about the risks to the 'financial system' as a whole and were encouraging each other to act in some kind of controlled, harmonious manner in order to complement each other's moves and guide their local systems through this crisis in a manner that causes the least amount of pain to their respective constituents. The idea here is that as long as the Banks continue to sing the same song, nobody will be left holding the bag at the end and they will all be able to pass the buck without anyone going out of business and (this is key here) without any major political upheaval. To us enlightened few of the IWB readership of course, surely this sounds too good to be true.

While it is true that international cooperation on financial issues has come a long way from the failure of the Hertstatt Bank in the 1970's and has become fairly seamless for the quick hither-thither movement of money, it is much less harmonious during times of trouble. Furthermore, as relations become less harmonious (and there was a hint of this as Asian CB's became openly critical of the Fed), the buck gets passed onto the most unlikeliest of candidates. So while the fault began in the US perhaps, the people suffering the most for example, may be seniors on fixed incomes in Sub-Saharan Africa; or it may be the Palestinians, who have to contend with hyperinflation in food prices to further compound all their other problems.

This is what I mean when I speak of the Globalization of Chaos. We have slowly opened up our local economies to each other's goods and services in order to enjoy lower prices and better variety of products, have allowed an uncontrolled globalization of vital commodity markets; and have also allowed consolidation of entire sectors within large conglomerates. We have not however, loosened the grip of local currencies, interest rates and the infrastructure of monetary control on the imagination of our local authorities and they continue to labour under the assumptions that tinkering here and there with short-term rates will guide our economies towards even growth. As such, we are now left in the twilight zone of being able to control local economic policy, but not the local economic outcome of those policies (let alone the outcomes for the global economy). Furthermore, because of the uneven ways in which globalization has worked - we only control the financial, no longer the real.

Even if local authorities act in concert, it remains questionable whether they can manage inflation, economic growth and their local financial sectors at the same time. Furthermore, as the tightening of credit necessitates absolutely the sacrifice of some unsuspecting party, we have to figure out who the unfortunate people or countries that will be left holding the bag are likely to be. One has theories of course, so here is one that is somewhat plausible. As the larger, more powerful countries of the G-8 try and control inflation, keep their financial sectors from imploding and keep the economy growing to boot - they will necessarily create further pressure on real markets such as the ones for agriculture, transportation and resources, which are fully globalized already. While the political skill and management infrastructure within the G-8 might be able to put a damper on population unhappiness here at home, the effects of our economic policies here will create unrest in countries that are politically weak. This is already happening in areas of Sub-Saharan Africa and places in the Middle East and is likely to get much worse as the lack of an economic cushion in poorer countries creates deep unhappiness and perhaps even something more in a people squeezed between declining incomes due to faltering economies and higher food and fuel prices. If one remembers correctly, the consolidated bailout for the banks in the US has been to the order of almost $200B, but given who is most likely to suffer at the end of all this - at what price really, are we saving our beloved lenders?

Upcoming Events:

Barzakh Cemetery Services, a charitable, non-profit organization led by Muslim women, has invited yours truly to speak about family financial matters from a Muslim perspective at 3:00 pm on the 23rd of August at the Northwood Community Centre, 15 Clubhouse Court, located here. The event is designed to address issues such as Wills, Taxes and the way to approach the complete financial planning process - so it may be worthwhile for you to attend. Usually I am invited to speak about Islamic Finance, but this presentation will IA be about Financial Planning in general and some of the challenges involved for us as Muslims. I have been told that one of the severest problems within the Muslim community is not really the lack of wealth, but the lack of financial sophistication - so this event should go some way towards addressing this critical issue. Lastly, as this is an educational presentation and we are just helping BCS, you will not need to write Ittihad a cheque at the end. You might still want to support BCS as a community organization however, so please don't leave your chequebook at home altogether. As seating is limited, please RSVP by replying to this email.


Finance News:

1. Is this the future of home prices in North America? ... read more here

2. 5 mistakes to avoid in Real Estate ... read more here

3. UBS settles a case with the State Regulators for $19B over deceptive sales practices towards average consumers ... read more here

4. Seven websites to 'make you a better investor' ... read more here

5. Did you know your CPP funds were invested in Tobacco stocks?! ... shocking really ... read more here

6. A risk manager explains the Credit Crunch from an 'insider's' perspective ... read more here

Economic News:

1. Inflation in the US is now showing up in the official numbers also ... read more here

2. Merrill Lynch economist has terrible outlook for the Canadian Housing Market, particularly in the West ... read more here

3. Warren Buffett, one of the richest people in the world because of his investing abilities, lambasts US economic policies ... read more here

4. A report on the way out of the financial crisis. (Sheer hubris, of course) ... read more here

Islamic / Middle East / Emerging Markets:

1. Dubai buys into Cirque Du Soleil ... read more here

2. Middle East stock markets the only ones with positive outlooks? ... read more here

Interesting but not all Finance:

1. Nice profile of one of the better financial authors in the world these days ... read more here

2. The bribery and corruption case against Saudi officials in Britain ends with a miscarry of justice ... read more here

3. Game Theory - In Theory and in Practice ... read more here

4. The largest machine in the world is about to come online. Funny that it is designed to find the smallest 'things' in the universe ... read more here

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