![\"\"](\"https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2019\/01\/march%C3%A9s.jpg?resize=300%2C204&ssl=1\")
<\/p>\n<\/p>\n
The Nobel prize winner for economics, Eugene Fama, born in 1939 and one of the fathers of monetarism and the neoliberal ideology, is known for having pre-emptively asserted that \u201cthe idea of efficient markets is a simple assertion that states that the prices of securities and assets reflect all the information known\u201d. It is in fact following on from the work of economists like Fama, like Milton Friedman (1912-2006) \u2013 also a Nobel winner in 1976 \u2013 and like Burton Malkiel, born in 1932, that financial markets went through a real transformation at the beginning of the 1980s. And this was with active participation from the most powerful political leaders of the time like Margaret Thatcher and Ronald Reagan, who even asserted in his inauguration speech on 20th January 1981 that \u201cgovernment is not the solution to our problem, government is the problem\u201d.<\/p>\n
From this point onward, economic conservatism and social regression reigned supreme. The void left by the government was of course filled by the exponential development of a financial sector that was labelled \u201cefficient\u201d, even \u201cperfect\u201d. This financial system was in fact supposed to supply all services to the economy. The markets would be a sort of judge of the peace, putting company and household finances back in order by benevolently bestowing their efficiency on all the economy. The admirers of financial markets were even convinced that their prices were the result of a rational equilibrium, and that employment was nothing more than a variable in optimising stock market valuations. It is in fact Burton Malkiel \u2013 not yet a Nobel winner! \u2013 who assured us that \u201cthe true value of markets will triumph in the end because the stock market is a mechanism of long-term precision\u201d.<\/p>\n
The deregulation of our economies and the financial system of course comes right back to this idea of the efficient market. There\u2019s no need for regulation or security measures if the market is optimal. It\u2019s therefore pointless to try to harness a beast that regulates itself via price, that eliminates the weakest \u2013 that is to say those who have made bad decisions \u2013 and that makes the rich richer. It\u2019s therefore really natural selection in action with these financial markets, deemed to be omniscient and infallible. As this self-regulation brings its beneficial effects on the economy, the task of the government must therefore be to strip itself back to its most simple form. Alas, this restriction of government \u2013 a prerequisitefor financial deregulation \u2013 has been giving rise to banking and stock market crises repeatedly for more than thirty years. This laissez-faire attitude that has spread from the British and Americans to continental Europe, then on to Latin America and Asia, it\u2019s the whole planet that has slowly been infected by speculative bubbles that when burst have intense and ravaging financial, economic and of course human costs.<\/p>\n
Nowadays, it\u2019s the whole spectrum that has been contaminated by this financialisation: energy, real estate, foodstuffs, but also education and even healthcare in certain countries. All these facets of economic activity have been trapped in a complex web spun by financialisation. For example, Goldman Sachs has invested several million dollars in prisons in New York state, with the following projections: recover its stake if recidivism drops 10%, double it if this rate improves, or lose half the stake if crime rates don\u2019t improve in New York! Our societies have now reached such a level of decadence that they are delegating such responsibilities to the financial sector, and their most basic duties with regards to citizens in distress. These \u201csocial impact bonds\u201d demonstrate that the moral obligations of the collective have now ceded their place to financial institutions who raise funds to generate profit, while slowly replacing the government.<\/p>\n
In the best of worlds where the market is supposed to be efficient, scams and skulduggery are meant to be impossible! In fact, since markets cannot be efficient in the presence of criminal activity, these dishonest acts can quite simply not exist\u2026precisely because of the efficiency of the markets! However, who knows, maybe in 2019 \u2013 more than ten years after the subprime crisis! \u2013 Wall Street and the City\u2019s new maxim will be \u201cI\u2019ll be Gone, You\u2019ll be Gone\u201d. This would tell us that tomorrow\u2019s disasters \u2013 an inevitable consequence of today\u2019s behaviour \u2013 are not the problem of financial types who won\u2019t be here to see them\u2026and that it\u2019s other people who will have to clean up the mess.<\/p>\n
In truth, with the financial sector\u2019s abuseshaving become part and parcel of our ethics, honest bankers and financiers are no longer fit to compete with their fraudulent colleagues. It\u2019s simple: a bank that doesn\u2019t seek to hide its losses, sell off its toxic assets, launder money, or manipulate the price of a derivative product would no longer be competitive and would ultimately be doomed to bankruptcy, or to have its stock market value severely damaged. Darwin\u2019s theory of natural selection teaches us that the strong outlive the weak. In the world of finance, it\u2019s the liars who survive and even prosper, while those who play by the rules are damned.<\/p>\n
This steamroller of scams and skulduggery has a name: Gresham\u2019s law, taken from the name of Elizabeth I\u2019s financial advisor during the 16th century. It\u2019s a fiendish mechanism that was described by George Akerlof, born in 1940 and Nobel winner in economics in 2001, as such: \u201cDishonest transactions tend to drive honest transactions out of the market. This is why the cost of dishonesty is higher than that of cheating\u201d. Gresham\u2019s law \u2013 that has now become dominant in financial markets \u2013 means the evaporation of ethics and the arrival of crime, that has now become endemic. Those who respect the law and morality are therefore being forced into non-existence while their reckless rivals stay put thanks to tricks and manipulation that reduce their costs, or boost their profits. In other words, nowadays, it\u2019s becoming \u201ctoo costly\u201d to be honest and evil is prevailing over good in economics!<\/p>\n
At the time, England and elsewhere, silver coins of unequal purity were in circulation. Consumers and suppliers then jealously hoarded those that had a higher proportion of silver and got rid of the less favourable ones. In truth, it was during the Middle Ages that Gresham\u2019s law reared its ugly head because only coins of mediocre quality were exchanged in daily trade whereas those with a higher degree of purity were kept to one side, destined for the black market, or even melted down. This bad silver was therefore routinely used over the good silver, a bit like us who \u2013 today \u2013 prefer to pay with used, torn, and scrunched up bills so as to keep the banknotes that are in a better state. It\u2019s a totally typical \u2013 and inoffensive \u2013 example of Gresham\u2019s law: we spend the most tattered banknotes in our wallets first!<\/p>\n
Nowadays, a country like India \u2013 a country that is fully demonetising \u2013 is harshly suffering this Gresham law after its authorities unilaterally decided in 2016 to withdraw 24 billion 500 and 1,000 rupee notes (around 10 and 15 $) from circulation. That\u2019s 80% of cash that was circulating. The Indian government is struggling to put new notes into circulation, particularly the 100 rupee note that is widely used by all types of consumers and vendors. It\u2019s actually no less than about thirty 100 rupee notes that the average Indian keeps in their wallet today, whereas before demonetisation this number was about four or five. Also, their life span in the hands of a consumer is around 15 days whereas it was 2 or 3 before. These bills are now sought after and credit card payments are given priority (when the vendor approves), thus allowing people to hold on to their precious bills for as long as possible. The 100 rupee bill is now seen throughout the Indian subcontinent as \u201cgood\u201d money whose circulation and exchange has basically become static, replaced by credit and debit card payments that in this context represent the \u201cbad\u201d money that people look to get rid of as quickly as possible. <\/p>\n
The consequence of India\u2019s risky demonetisation is once again savagely hurting the poor, who don\u2019t have credit and debit cards. The grocers, the barber and the cornershop keeper have been hit by the brutal collapse of their bottom line due to the rarity of these banknotes, and because of consumers no longer having the chance or the means to pay by card. The governmentdid install cash machines, but they mainly only dispense 2,000 rupee notes \u2013 which are valued highly by organised crime and fraudsters \u2013 and have turned out to be totally useless to citizens who simply want to live and trade. In a situation where exchanges in cash make up nearly half of GDP and more than three quarters of jobs in India were cash-in-hand prior to demonetisation, Gresham\u2019s law is causing a dramatic increase in instability and misery.<\/p>\n
In such an environment where Gresham\u2019s law seems to be becoming standard and spreading its mischief \u2013 as we can see \u2013 not only in the West but also now in such an enormous country as India, how can we not be thinking about Islamic finance as a way of rescuing \u2013 even civilising \u2013 the world of finance? With the most significant feature of a sukuk being that it must imperatively be linked to an underlying asset that generates revenue, we can then understand better why Islamic bonds are elementary to financial stability. With such rules, it is in fact impossible to take on debts that are not backed, amortised, or at least partially offset by future revenue. Wouldn\u2019t respecting this principle have avoided the over-indebtment of many of our Western nations? Also, wouldn\u2019t morale have been saved with products like the \u201cmusharakah\u201d or \u201cmudarabah\u201d that allow profits to be made, but that also oblige everyone involved to share any losses. <\/p>\n
Let\u2019s think of Western banks and their shareholders being bailed out with taxpayer money without seeing the slightest of adverse consequence. Let\u2019s also think of the countries of peripheral Europe who, with their reckless spending from 2010 onwards to save their financial institutions, are now impoverishing their youth with unemployment rates bordering on 50% thanks to an austerity imposed by these same financial markets\u2026 Finally, let\u2019s think of countries like Greece that had to sell off strategic assets for giving in to the sirens of predators like Goldman Sachs who knowingly manipulateits public accounts. <\/p>\n
Since money has no sacred value in the world of Islamic finance, and since money is seen simply for what it really is \u2013 a means of payment \u2013, the degree of risk that investors are willing to take on has been significantly reduced. Assets and goods that don\u2019t exist at the moment a contract is signed can simply not be sold in advance! Money is therefore always and in all circumstances linked to the real economy. Consequently, this simple principle fundamentally discourages speculation and totally eliminates all derivative products, whose raison d\u2019\u00eatre is to process phantom assets. It\u2019s the subprime crisis, like the sovereign debt crisis in Europe, that we could have been spared from, and it\u2019s the exacerbated volatility of financial, commodity and foodstuff markets that would have been nicely reduced if our Western world had taken a leaf out of the book of Islamic finance.<\/p>\n
Islamic finance can now make finance accessible to everyone, with products that everyone can understand, and it can hopefully bringthisframework to a decadent Westernised financial systemthat\u2019s got drunk on its own power. Because money and finance are just a means, not the end goal. And because it\u2019s finally time to break this spiral caused by Western finance that keeps ravaging economies and putting populations at risk. Or, as Amartya Sen, Nobel winner in economics and born in 1933, elegantly put it: \u201cHow is it possible that an activity so useful as finance has become so immoral?\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
The Nobel prize winner for economics, Eugene Fama, born in 1939 and one of the fathers of monetarism and the neoliberal ideology, is known for having pre-emptively asserted that \u201cthe idea of efficient markets is a simple assertion that states that the prices of securities and assets reflect all the information known\u201d. It is in…<\/p>\n","protected":false},"author":4,"featured_media":19222,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"give_campaign_id":0,"_crdt_document":"","_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"mc4wp_mailchimp_campaign":[],"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"_wpas_customize_per_network":false},"categories":[648941647,648941645,648941646],"tags":[],"class_list":["post-19234","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-gresham-2","category-islamic-finance","category-speculation-2"],"yoast_head":"\n