The Elite’s economic system

In English, social

Back at the dotcom era (do you still remember that?), I was tempted to try the stock market. Before that, I managed to escape from Indonesian’s 1998 economic crisis relatively unscathed, thanks to the habit of my father — he has routinely put some of his savings in foreign currency (and some other forms) since I was little.

He doesn’t know that there’s a term for that – risk spreading. To him, it’s just common-sense. I followed his way, and when the Rupiah crashed, some of my savings were in US$ dollars.

The gain was really crazy. I bought the dollars before it reached Rp 10.000, and I sell when it’s close to Rp 20.000. The gain covered my losses – and then some.
I don’t like it though, and felt uneasy.

I’m used to hard work, and earning my income. My colleagues in my first job (Takaful) probably still remember how our job was in its IT department; long hours, impossible tasks, razor-thin budget, sky-high goals.
And low pay. But, I earned it. And I was happy.

This money I got from my foreign currency savings was like magic money. Out of thin air **poof** loads of money.
I don’t really understand the economy system back then, but I got the suspicion that while I benefit in this way, others losses. I just didn’t know who exactly, confused at the intricacy of the world’s monetary system.

Back to my interest in stock system – dotcom era were the time of crazy, easy, massive profit from unknown stocks. Nearly any dotcom company can go IPO in a few months, and their stock’s value will multiply faster than rabbits in no time. This is really intriguing to a layman like me.

I almost (really close) to putting my money on the market, when I got thinking, shouldn’t I test the waters first ?
So I started looking for software or website, which will enable me to get a feeling of the system, gain knowledge, and hone the skills needed. Soon I signed up to a website where we were given virtual money and able to trade it in its stock exchange – with real time data from real stock exchanges.

Soon I realize that there’s something wrong : if you’re with the masses, you’re bound to become losers.

When I’m learning something new, I immediately try to get the feeling of it as a whole; not bothering with the details at first.
On this system, it quickly became pretty clear that it’s been designed to profit the few. Not us. I got dismayed, but I continue my (then practice, now) experiments.

My conclusions after some time :

[ 1 ] You need information (loads of it) to make informed (thus, profitable) decisions
[ 2 ] This is not doable for most people. You need to specialize in this, else you’ll end up overloaded with information, and made the wrong decision instead.
[ 3 ] However, many are doing it anyway. They ended up losing, while the experts are profiting.
[ 4 ] Most disturbing however the non-experts who are rich enough to hire experts to work for them. They can rack obscene amount of profit, at the expense of the people.
[ 5 ] Then there are those who have access to the elite circles. This in turn gives access to various obscure knowledge of the system. They exploit it, and kept each other safe.

Quoted from Wikileaks :

One can only guess at how many insiders profited under JP Morgan’s “insider trading program,” leaving small investors holding the bag.

This economy system, one basing itself heavily on virtual items & predictions, is not a good one for the small people; like me.

So I drew myself from pursuing the stock market, and continued working as usual.

Then the dotcom bubble imploded. Too many people were left way poorer, holding in their hand worthless junk, used to be prized at millions. Many became unemployed, and scrambling to find a job, anything at all.
I was only able to watch them sadly. Some of my friends loses their entire savings.

It was deja vu when I read the news today – The fall of the investment house giant – Bear stearns.
It’s just the effect of the worsening economy. Bear was still healthy just a year ago. But now, when JP Morgan acquired it, it’s stock was only valued at one-hundreth of what it was last year. Yet The Feds still have to put US$ 30 billion guarantee for the deal to go through.

Quoting Dean Baker :

There is something a bit obscene about billions of taxpayer dollars going to the country’s richest people, when average workers can’t afford health care for their kids.

This bubble economy is going down again.

The crazy interest system – I was shocked when I find out several years ago that loan rates ARE variable / it can (and according to Murphy’s law: it will) change; that’s like gambling my car/house/etc on a lousy bet, for easy pickings to others.

Sharia economy is coming to rescue here – even non-Muslim financial institutions are adopting it as fast as they could.
Here’s one tip : get rich quick – become a sharia economy specialist. Also, an IT specialist with knowledge of sharia economy would become the target of many big institutions – it’s harder to find than a Dodo bird. Several days ago a friend just called me and offered me a job at Dubai, which I politely denied (since I’m still having too much fun with this linux/open source stuff here). And so on.

Back to the topic – there are more problems which may not be too visible at first. Among them are the US dollars. Since world economy is pretty much intertwined with US dollars (because US gov’t are promoting it heavily for international transactions); if the US$ is going down, many are going down with it. And the US$ is going down.

First we got the crazy crusade done by Bush to enrich him & his cronies. It’s already costing the US economy at least US$ 1 trillion – a more exact number would be twice or thrice of that. This is the money which can be used to empower real economies, instead it’s being used to blast innocent people to smithereens.

Then we have that interest-ing problem : sub-prime mortgage trouble. We’re talking about US$ 8 trillions market here. When it’s in pain, others is bound to feel it as well, one way or another.
Even the big institutions at the other side of the world have begun to feel the pain – Europe’s interbank lending is in the same trouble spot as it was back at 9/11.

Quoted :

“Banks and institutions are just scrambling for cash, any cash they can get their hands on,” said a money market trader at a European bank.

Third, US economy fell into an even worse shape by the Bush’ policies of heavy borrowing to cover their spending spree. Bush administration has now been confirmed to have borrowed more than ALL previous US president combined.

No idea how he will pay them. He’s going to leave the office soon anyway.
This democracy-thing works really well indeed for him – he can fool so many other with ease, and immunity from being held responsible for those actions.

Brace for impact.
According to Ron Paul, at the end of this, we may even see USA fell as a superpower, and others taking its place.

So back to us again, the little people. What’s the solution ? How can we save ourselves from a few crazy elites ?

[ 1 ] Press our government to focus on real economy. Not the virtual ones.

[ 2 ] Sharia economy system works, and it’s friendlier to small people like us in the bigger picture too. Support it.

If you don’t like the name, then change it. I don’t care. But do please adhere to the its basic, sanity-based system.

[ 3 ] Us, myself : stop losing in the virtual economy, and start to get real.
Be a trader, but trade real things. And so on.

Here’s hoping that we’ll start going on the right direction. And when the world crashed, we’ll be able to stay afloat.

Before I close this posting, this is the time where I’ll salute my friends & my mentors who have struggled very, very hard to get the sharia economy system up & running here back then in Indonesia.
People didn’t believe them at first. Even other muslims were actually ridiculing them.

“First they ignore you, then they laugh at you, then they fight you…”

But they stood fast at the opposition. They clenched their fists, kept their mouth shut, and deliver results. Even when Asia was engulfed in financial crisis.

“Then you won“

Now even non-Muslim financial institutions are racing to the sharia system. It’s the most sensible one, the one most beneficial to all.
Not just to a few.

It was a privilege & a honour knowing these people. I was most lucky to be able to learn a lot about life from them. May Allah swt reward your hard work in abundance, amin.

60 thoughts on “The Elite’s economic system”

  1. Still wondering how can we trade our capital. Even now I am studying accounting, it is still confusing for me. Nah.. I think I will just stay in the “real” trading. 😀

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  4. Wow, you covered a lot of ground here. And in the process you made several interesting points. Generally I just have to agree with your analysis. And your father seems to be a very wise man to me, by the way.

    I may add that I too think this Casino Capitalism is unfair and risky. Beneficial to a few and harmful for most. They ( the financial and economical elite) use to say it’s all about trust and that they were rock solid and very trustworthy – and miraculously the lot of us did/does trust them. Miraculously, because it’s largely fairy tales. Like most of the Friedmaniac economic theories at large are fairy tales.

    Whether or not sharia is the solution, remains to be seen. As a matter of fact I don’t know about the Citibanks etc running in that direction. I wonder If you’ve got some specific information on this issue.

    (Note: As for Europe’s interbank lending it may develop into a problem indeed. Because these financial institutions are intertwined globally. But in Europe, as far as I know only the Swiss bank UBS -lost € 7.8 in the last quater of 07 alone- that’s in severe trouble)

  5. om harry, some of your reasoning is actually not quite right, but you conclusion is good. Almost coincendentally , i just explained about this mortgage issue in indosv mailing-list and also explained how the islamic finance is surviving this madness.

    There’s good URL for you to take a look.
    http://www.financeweek.co.uk/cgi-bin/item.cgi?id=5931

  6. @yanuar – that would be safer for most of us indeed 🙂
    .
    @colson – thanks pak. “Casino Capitalism”, I like that 😀
    .
    It’s all about PR again, isn’t it ? With their heavy media campaign, and lavish offices, people are blinded and believed them.
    .
    Re: being THE solution, it still depends on the execution. A solid idea/concept may deliver totally wrong results when executed improperly.
    .
    So far it looks good, various sharia financial institutions are able to pass Indonesia’s 1998 economy meltdown. Some, like Syariah Mandiri, perform very well, it surprises even themselves.
    How it will fare in the long term, however, nobody knows. Hopefully everyone involved will be sane enough not to make any stupid mistake with this instrument.
    .
    One thing for sure – sharia economic institution is the new rock star. There’s no question about it. You can read the link from patriawan for more details.
    Yes, even Citibank is buying.
    .
    With that settled, I have concerns too about how it’s going. Again, some of the minor concerns are already mentioned in the article on patriawan’s comment.
    There is indeed a shortage of ulama with :
    .
    1. finance-perspective
    2. skilled enough in sharia to issue fatwa
    3. able to focus on the essence of sharia economy – not getting bogged down in the technicalities and misses the blindingly obvious (eg: wise)
    .
    I don’t mind at all Citibank/HSBC/etc jumping on sharia bandwagon. It’d good for all of us if they are providing us with an alternative that’s beneficial to **all** of us, not just to some.
    .
    However :
    .
    1. Must be careful so there won’t be financial products with sharia badge slapped on it – but actually nothing close to it at all (that PR problem again). This is the job of “Dewan Pengawas Syariah” (sharia compliance board), but again, there’s an acute shortage of people capable of this.
    2. Same as point 1, but when it’s happening slowly over the time. This will make it far more difficult to detect and realize. Similar to the famous analogy of boiling the frog – boil them slowly, not fast, and they’ll be dead before they know it.
    .
    Also, sharia economy is not just about (economic) institutions. It’s just part of the picture.
    .
    The big picture is a wealth-sharing system. Driven by zakat (obligatory alms) or jizya (its equivalent for non-muslim), and shadaqah (alms). People are collecting wealth as usual through real economic activities, but it will be spread again to the needy. Not accumulated in a small circle.
    .
    Focusing on the details of sharia economics may very well make us miss this most important picture.
    .
    @patriawan – hi Oom, how do you do? 🙂 Yes, I’ve read your explanation on that mailing list. Clear and easy to understand as usual.
    .
    I don’t mind you pointing out my mistakes too if you feel like it.
    .
    Thanks for the link, the article is short but full of very interesting details.

  7. Wow, you covered a lot of ground here.
    .
    A bit of behind-the-scene stuff — I was suffering from a bad headache, about to give up and went too sleep, but I got too many tasks left to do.
    .
    So I thought, “let’s make a post !”
    .
    By the time this post was published, I was pumped up with adrenaline (this bubble economy is a total sham and an outrage anyway)
    .
    Thanks to that, I was able to resume my work 😀

  8. the real problem of bear stearn crash is actually the mortgage securities where it’s not regulated. the ‘subprime’ mortgage is not allowed before (during clinton area).

    this blog clearly explain it:
    ————
    http://www.afterdowningstreet.org/node/31800?ref=patrick.net

    Here’s how it worked: The Grinning Family, with US average household income, gets a $200,000 mortgage at 4% for two years. Their $955 a month payment is 25% of their income. No problem. Their banker promises them a new mortgage, again at the cheap rate, in two years. But in two years, the promise ain’t worth a can of spam and the Grinnings are told to scram – because their house is now worth less than the mortgage. Now, the mortgage hits 9% or $1,609 plus fees to recover the “discount” they had for two years. Suddenly, payments equal 42% to 50% of pre-tax income. Grinnings move into their Toyota.

    Now, what kind of American is ‘sub-prime.’ Guess. No peeking. Here’s a hint: 73% of HIGH INCOME Black and Hispanic borrowers were given sub-prime loans versus 17% of similar-income Whites. Dark-skinned borrowers aren’t stupid – they had no choice. They were ‘steered’ as it’s called in the mortgage sharking business.

    ‘Steering,’ sub-prime loans with usurious kickers, fake inducements to over-borrow, called ‘fraudulent conveyance’ or ‘predatory lending’ under US law, were almost completely forbidden in the olden days (Clinton Administration and earlier) by federal regulators and state laws as nothing more than fancy loan-sharking.

    But when the Bush regime took over, Countrywide and its banking brethren were told to party hardy – it was OK now to steer’m, fake’m, charge’m and take’m.

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  15. Currently many of the countries around globe are also experiencing this type of financial problem and including now the problem in health where swine flu is also faces the world. It really good help if everyone would be aware do something even in a little way he can help. Anyway, you have a good conclusion about the said topic and hope see more update coming from you. keep it up..

  16. Thanks to your father because you got money on dollars. I hope even if USA face recession, you do not suffer. I need to admit that you gave good list to help ourselves from elites. Thanks!

  17. USA experience recession but i hope your not affected. In the other side, your father did a good job for you. I also need to admit that your conclusion will help many people a lot. This is something we all need to learn. Thank you so much for sharing!

  21. It really good help if everyone would be aware do something even in a little way he can help. Anyway, you have a good conclusion about the said topic and hope see more update coming from you.

  22. The Grinning Family, with US average household income, gets a $200,000 mortgage at 4% for two years. Their $955 a month payment is 25% of their income. No problem. Their banker promises them a new mortgage, again at the cheap rate, in two years. But in two years, the promise ain’t worth a can of spam and the Grinnings are told to scram – because their house is now worth less than the mortgage. Now, the mortgage hits 9% or $1,609 plus fees to recover the “discount” they had for two years. Suddenly, payments equal 42% to 50% of pre-tax income. Grinnings move into their Toyota.

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  28. The non-experts hiring the experts is not really a bad thing. It would motivate others to either do the same, or start hitting the books. Whichever, the person would learn and become more knowledgeable.

  30. It really good help if everyone would be aware do something even in a little way he can help. Anyway, you have a good conclusion about the said topic and hope see more update coming from you.
    Thank You..

  31. Now, what kind of American is ‘sub-prime.’ Guess. No peeking. Here’s a hint: 73% of HIGH INCOME Black and Hispanic borrowers were given sub-prime loans versus 17% of similar-income Whites. Dark-skinned borrowers aren’t stupid – they had no choice. They were ‘steered’ as it’s called in the mortgage sharking business.

  36. ‘Steering,’ sub-prime loans with usurious kickers, fake inducements to over-borrow, called ‘fraudulent conveyance’ or ‘predatory lending’ under US law, were almost completely forbidden in the olden days (Clinton Administration and earlier) by federal regulators and state laws as nothing more than fancy loan-sharking.
    But when the Bush regime took over, Countrywide and its banking brethren were told to party hardy – it was OK now to steer’m, fake’m, charge’m and take’m.

  40. I Think syariah is the best solution for the economic system. to be implemented to the human beings actual life with the base of share (it may be share of loss or share of profits. So, may it be called “win-win solution” economics system)….

  42. Thanks for the post, it’s really nice to read your article. Great information you got there and nice of you in sharing of that:-)

  44. thank you so much for such a great subject its so hard to find such a very usful and greatful informations it took me a loon to find such a very good matrial thank you so much indeed

  45. Here’s how it worked: The Grinning Family, with US average household income, gets a $200,000 mortgage at 4% for two years. Their $955 a month payment is 25% of their income. No problem. Their banker promises them a new mortgage, again at the cheap rate, in two years. But in two years, the promise ain’t worth a can of spam and the Grinnings are told to scram – because their house is now worth less than the mortgage. Now, the mortgage hits 9% or $1,609 plus fees to recover the “discount” they had for two years. Suddenly, payments equal 42% to 50% of pre-tax income. Grinnings move into their Toyota.
    Damn true, pitty

  48. The Sharia Economic system is best for everyone including non Muslims.Nice analysis done by you in this article.

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