As I lazily reclined following a languid session in the sauna at my leisure club the other night, I indolently grabbed from the adjacent lounger the tossed aside financial pages from some paper of a more intellectual standing than “The Star” to update myself a little in the world of finance. Of course, I have a big interest in this sort of thing as one does have to consider one's interests in one's off shore investments, one's formula-1 racing team and the upkeep of one's castles and estates in the Highlands of Scotland.
Of course, like most people who haven't been living on the planet Zarg on the outer fringes of the Zirgon Cluster for the last few months, I do nurture a slight concern about the complete disaster the financial criminals of this evil world have wrought upon us. I do not need to go over the causes of it all, ramble on about sub prime mortgages etc., etc., as I suspect that you, my readers, are well informed anyway. However, I will say a few things which help to illuminate, to me at least, what the problem actually is.
Many years ago I went away on a two week professional selling course. One of the fundamental lessons we were taught was that until something is sold, nothing happens. Or, to put it more succinctly, until something is PAID FOR............nothing happens. It therefore follows that if you set about selling goods and services to people who haven't actually got the money to pay for them, and never will have the money to pay for them, then the end result can only be disaster which then ripples outwards spreading negative knock-on affects in all directions due to the interconnectedness of the economy. This is so basic, and yet it appears to be lost upon the very people we, and the world depend for our survival.
Back in the late 1980's when house prices were rocketing, many of my work mates were jumping on the property band wagon like a bunch of greed crazed demented lemmings. They seemed to be more interested in how the value was going up, than what houses are really about – having somewhere to live.
“My house is making money faster than I am earning it” bragged a colleague. What he didn't have the brains to understand was that the value of anything is purely notional, and based upon what people are prepared to pay for it. He seemed to think the value would just keep going up indefinitely, as if there would be a steadily swelling stream of multi-millionaires, and eventually billionaires, and then trillionaires queuing up behind each other to buy the one bedroom flats at the bottom of the market, without which there would be no property market at all. After not very long when the market collapsed as it so obviously would, my bragging friend became my crying friend as he found himself in a desperate plight straining under the weight of negative equity. I had little sympathy, because there is no such thing as a free lunch and anyone who thinks there is deludes himself.
The nub of all this is that for any economy to work, there have to be tangible products for people to buy - and who can afford them. Unless these products are realistically priced, the illusion of the stable economy will be short lived. Take the example of the pyramid system. This was a scheme people of low intelligence bought into thinking they would become rich when there wasn't actually a product to be sold. On the other hand, we have multi level marketing (MML) businesses which many mistake for pyramid systems. The similarity is superficial. This is because in MML businesses, there is actually a product underpinning it, so if people are prepared to work at it, then there is a reasonable chance a decent amount of stable income can be achieved for a large number of people. Of course, not all MML businesses are the same, and some should be avoided like the plague (did I say Amway???).
It is now time to return to the financial pages I browsed on my lounger. What took my attention was that it was about the banking system. However, it was not about any old banking system, it was about the Islamic banking system. Now, before anyone thinks this offering is about to turn religious, fret not because it isn't. It is, however about morals nonetheless.
From the Islamic viewpoint, the Western banking system is immoral and corrupt. It is based upon greed and make believe values which exist in the wild imaginations of the greedy, but not in anything tangible giving it stability. Okay, I know I am being incredibly simplistic here and I realise things are a good deal more complex, but the fact is that the Islamic Banking world has barely been scratched by the credit crunch and the attendant financial melt down. The reason for this is that Islamic banking is founded upon ethical principles underpinned by tangible assets, rather than much of the notional make believe which has got us into the mess we find ourselves. I had a conversation about this with a friend recently and he commented that an Islamic bank account might not return as high a level of interest. This might be the case, or it might not, but surely it is better to have a stable economy with lower returns than one which gives you a high return one moment, and destroys your investments and pension funds the next. I am not suggesting we all rush out and open an Islamic bank account, though it might not be a bad idea, but it would appear that our banking system needs to be overhauled and based upon ethical values and tangible assets if we are not to find ourselves falling into the same mess in the future.