Wednesday, September 17, 2008

Casino Finance

Quote of the week:
'If the industry introduces too many new products, cynics will argue that sharia is being twisted for economic ends-the scholars are being paid for their services, after all. But if it fails to innovate, the industry may look too medieval to play a full part in modern finance.' - The Economist.
Please read this article about the industry and notice how smoothly, coolly and with such great perceived expertise on the matter, The Economist has painted us as medievalists unfit for modern finance. Too funny really ... as if modern finance is somehow better than medieval finance.

Some articles from the IWB have been picked up by the International Business Times. Please click here and vote on how great the articles are. Do be shameless and liberal with your praise.

Commentary of the week:

'Quick and Easy' Islamic Finance:

Regular readers of the IWB know that letting yours truly in at Financial industry conferences is always a bit risky so imagine my surprise when I was invited to the World Alternative Investment Summit held at the very plush, very luxurious Fallsview resort in Niagara Falls. At first, it was questionable whether I would be allowed to go after the cutlery fiasco that took place some decades ago (described here), but after many empty promises of good behaviour, permission was reluctantly granted and I had my bags packed and ready before the authorities could change their mind (or even finish the 'k' part of 'okay, you can go'). On the way there, I realized that in my excitement at being taken along, I had overlooked to read the agenda of the 'Summit'.

Reading the agenda while doing my best impression of a docile passenger had two effects. First, it made yours truly quite incredulous that the conference (which had a significant component devoted to Islamic Finance), was being held at a Casino (yes, that is correct), in the middle of Ramadan. Second, once I got over the shock of that realization, the predictability of the topics under discussion put me into a deep kind of sleep. Fast forwarding past our arrival at the venue and the sheer decadence of the surroundings, let me tell you what most of the conference was dedicated to.

As this was an 'Alternative' investment conference, you had the usual suspects in attendance. Lots of hedge funds, some real estate LP's, lots of lawyers, some back-office suppliers and of course, yet more lawyers. The salient themes of the conference were twofold, with a session on Islamic Finance thrown it at the end. First, as the liquidity crisis is having its way with public markets, the order of the day is to find assets that are uncorrelated with major stock market indices. This is supposed to create some predictability in your rapidly shrinking portfolio. Second, as there is very little gain to be had if funds just buy and hold stocks, the order of the day is to borrow from banks at prime and invest at prime + infinity% so we can all get rich quicker than we can resolve whether strawberry milk shake is better than chocolate. As we at Ittihad have heard this story again and again and have already decided on strawberry, we of course know that using borrowed money to invest is fine and dandy in this life only some of the time, but can be quite problematic for our next life - so we try and steer clear of this whole idea. As two of my fellow Ittihad geniuses were with me, I quietly nodded my head as if I agreed and did not make a scene by pulling out the hair in my beard at the insanity of it all. But alas, this sense of forced calm did not last - and the session on Islamic Finance broke all pretence at self-control.

While I will not bore you with all the ways in which I came away offended and quite hurt at the shallow way in which many people treat and think of Islamic Finance, there is an exchange that I would like to leave you with that is quite instructive. After describing to the audience how anything that our friendly hedge-fund types usually did or wanted to do could be structured in an 'Islamic' or 'Shariah-compliant' way, some members of the audience were left a bit confused. One question, which was 'well, if you can structure anything 'Islamically', then what is the difference, and why bother?' was answered along the lines of the thought that Muslims need to be liberated from their money (which I thought was a very clever way to put it). The second question (asked by my associate) was along the lines of whether what these practitioners were proposing was in line at all with the letter and spirit of Islam? The answer to this was such that I almost fell out of my chair and had to be first propped up and then restrained before I ran up onto stage, held the speaker's collar and then gently fixed the alignment of his tie before walking back calmly as if nothing had happened, but I digress.

The answer to this beautiful question was quite illuminating indeed. It was that the responsibility of the spirit of Islam, if there is such a thing that can be agreed upon, did not lie with those who create these products and structures, but with the Shariah Boards that approve them. Of course, when this question is asked of Shariah Boards, they simply turn around and say that it is not their responsibility to structure genuine solutions, it is their responsibility to pass on the legalese of individual contracts. Since three or four individual contracts can be combined to reproduce conventional finance quite well, both parties pass the buck to each other on the entire solution and make a mockery of whatever little Islam there is in Islamic Finance.

As we usually find that the only one's at these panels that make a direct link between Ethics and Islamic Finance are people from the Ittihad tribe (at this one it was our Dear Leader - God Bless him for introducing some integrity and dignity to the proceedings), I think it may be time to take some responsibility for what happens in Canada on our own shoulders. As such, let me humbly suggest that I hope you all will not allow anyone to 'liberate you from your savings' unless you are an aware, willing and educated participant in this grand liberation being planned at the Casinos of the world.

Ramadan Mubarak - May this month be full of blessings for you all IA.

Upcoming Events:
You can watch our newly married (alas ladies), VP of Private Client Services, Mr. Firaaz Azeez, explaining some of the reasons why Ittihad exists and what we stand for as a company between 2 and 3 pm on Saturday the 27th of September on the Faith of Life Network on the CTS channel. Tune in for the depth of the ideas, but if that does not interest you, then perhaps I should also tell you that he has a dreamy voice and very pleasing appearance. Please tune in, listen to what the Private Client Division at Ittihad is up to these days and then call the Faith Of Life people to ask for a repeat or two.

Office for Rent:
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 office for rent in a Medical Building at the corner of Sheppard Ave. and McCowan. The rent is minimal and the salient features of the space - such as the beautiful windows, the spacious Board-Room, the Corner offices, the nice faux mahogany furniture are enough to motivate your employees to work long hours while being paid whatever little you grudgingly give them. As this is a Professional Building (not just any building mind you, this one has achieved professional status through years of just sitting there), 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 or calling Mr. Azeez at (416) 412 3999 ext. 115.

Useless fact of the day:
Conniption: flirting with a stroke-like state due to intense anger or excitement. The feeling of being emotionally overwhelmed such that self-control falls below the top 3 on the list of one's priorities in life. Not recommended during Ramadan.


Finance News:

1. The US Govt. decides to own everyone's home also ... welcome to the USSR, no, no - I mean the new USA ... (quite possibly the best news for Gold investors but don't quote me) ... read more here

2. After the fall of Bear Stearns, another large investment bank is having a delayed reaction ... read more here

3. Who bears the cost of mortgage bailouts ... read more here

Economic News:

1. Economist Paul Krugman speaks about the paradox of deleveraging ... read more here

2. An excellent article on the background of why the creation of credit in an economy is fraught with danger ... read more here

3. The problems with deposit insurance and how this creates issues for the industry ... read more here

4. What the instability of the US$ means for US policy-makers ... read more here

Islamic / Middle East / Emerging Markets:

1. An article on Islamic Finance from The Economist (must read article of the week) ... read more here

Interesting but not all Finance:

1. Introducing the Ramadan Phone. If only it could cook before sunrise also ... (hat-tip to Husein Kirefu) ... read more here

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