The Global Economic Crisis Of 2008 - An Islamic Perspective
Dr. Yahia Abdul-Rahman, November 3, 2008
"Woe to those that deal in fraud; those who, when they have to receive by measure from men, exact full measure- but when they have to give by measure or weight to men, give less than due" (Quran 83:1-3)
The United States and the world - both the developed and the underdeveloped - are going through some major structural changes that are more serious than what happened in the depression of the 1929 and the Bretton Woods Agreement after World War II (WWII) in 1944-1948. This is the time to ask you and for me make a very stern and serious plea to each and every one of you at all levels to know the IT IS NOT BUSINESS AS USUAL. It is time for the Muslim Community in America to seek the roots of Islam as taught by the Qur'aan and according to the Sunnah of Prophet Muhammad (PBUH) This is the time to polish and cleanse our life style and living ways and means to follow these teachings. In doing so, we shall become the community that puts to life the teachings of all of God's prophets from Abraham to Ishmael and Isaac to Jacob, David, and Solomon and to Joseph, Moses, Jesus and Muhammad. Our life style as Americans and Muslims - if done right - will inshaa Allah command the admiration and hence the following of those who live with us leading to our dream of a Judeo-Christian-Islamic America.
One of the most important aspects of any faith is the way it defines a life style. The way we should live, worship, interact and do business with each other. Today I want to focus on the economic crisis our country - America - and the world are going through.
First: What happened?
Politicians tell us that it was because of lack of regulations. Being a student of banking & finance, I want to assure you - and Allah is the best of all witnesses - that America has the most regulated and well designed banking systems in the world. The problem is implementing it and not trying to use loopholes, tricks and ruses to get around these regulations. This has to do with the way we raise our children. We all know that there is a huge moral crisis among the young in America. It is your responsibility as parents not to compromise our values of Islam when raising our children on the values of halal and haram.
An example is the subprime mortgage crisis. A subprime loan was sold by the Department of housing and urban Development as a wonderful loan to those who need a loan and it was a good way to prevent predator - meaning blood sucking lenders who charge high rates and commissions reaching sometimes as high as 8% out of greed. These subprime loans should have never been given. I know a Riba-Free financial institution that was offered lucrative rewards if they offer such loans. They refused because - as they said - and I quote: The Law (the Shari'aa ) prohibited them from digging a deep hole of debt - they know that the borrower cannot meet! That Riba is prohibited in all of God's faiths including Judaism, Christianity and Islam. I have been privileged to research this subject in the Jewish Bible, the Christian Bible and the Qur'aan. In fact, in Judaism one who deals in Riba/interest cannot stand as a witness in Jewish court and a Catholic who deals in interest - as late as the year 1000+ AD - is denied Catholic burial. If interested, I shall be delighted to provide you with the detailed research.
So, the blood sucking predator lenders changed their names to Subprime. These mortgages were mixed with good quality mortgages. They were bundled (put in a box), say $1 Million each that would pay a 6% interest. The new thing was that the new bundles were not all good mortgages but contained 10% to 20% of subprime low quality mortgages. In order to assure investors that the package/bundle is good quality, the agencies that evaluate and rate these bundles gave them a rating of American Automobile Association (AAA) or the highest. Then the investment banks came in the picture. Nowadays we have gotten used to the word "bank" without knowing the difference:
1. Commercial & Community Banks - Depository Institutions investing in all
2. Savings Banks - Depository Institutions investing only in housing
3. Investment Banks
4. Credit Unions
Not only this but when these bundles were sold to the sellers, the Investment Banks gave insurance to the buyer. There are very strict insurance regulations in America requiring keeping enough capital reserves and a certain investment style. To get around the rules they did not call it insurance they called CDS - Credit Default Swaps - now totaling from $30 to 60 trillion. AIG and Lehman brothers and every investment bank were involved to the extent of buying predator mortgage companies & they themselves became predatory lenders. If you want a description of Riba --- here it is --- be my guest.
So, what is Riba?
Riba is defined as the Act of Renting money at a rental rate called interest rate...the word usury came from the concept of paying for the use of money.
1. There is only one LOAN or Qard (the word Qard comes from the word meaning a bite) of the assets because it is Hassan and may not be paid back & if paid back it is without interest or any addition.
2. The concept of indexation was a revolutionary idea brought by Prophet Muhammad (pp) in which he ruled that precious metals (like gold and silver) and food staples (like wheat, barley, dates and salt) should be used as references and one cannot exchange the same item with a higher price and one cannot charge a late payment premium if the delay in payment is justified like a declining economy (Riba Al Nassee'ah)
3. The marking-to-market revolutionary idea. The story of Bilal and the dates. Applied to housing, the purchase of house SHOULD MAKE ECONOMIC SENSE by marking it to market. Examples of Phoenix, AZ, N. California, Washington DC and Boston, MA.
That is why the Marking-To-Market proved its value as the real Riba-Free approach to living.
This is a serious and real crisis - I experienced the same exact conditions but to a lesser depth - in Houston, Texas between 1982 and 1986. This time it is throughout the country and I pray that Allah will give us in this country an experienced, sincere, qualified and seasoned team that will get us and the world out of this major historic problem.
Here are my advice to you my dear brothers and sisters:
1. Pay your Zakah to purify your assets.
2. Do not panic - If your house value goes down and your monthly payments are affordable -Al Hamdu Lillah. If not then ask an expert on what to do. DO NOT TRY TO BOTTOM FISH. Be careful. Investing according to Shari'aa requires NO SPECULATION and long-term investing niyat with a lot of requirements.
3. Do NOT sell your stocks now. It is too late to sell. ONLY SELL IF YOU HAVE A DIRE NEED FOR THE MONEY. It will take longer time for the stock market to recover.
4. Be careful with the Bank you are dealing with. Do not be lured by those who offer you the highest rate. If it is too good to be true, verify and be careful.
5. Do NOT overspend & live within your means.
Reduce Your Expenses:
a. Power consumption: Electricity, Gas and Gasoline
b. Eat at home & not outside
c. Car pool or use the public transportation and buy a low mileage smaller car.
d. Delay any renovation projects.
6. Do NOT overuse your credit card. Pay them off ASAP.
7. If you do not own a home and are waiting for prices to go lower, I believe that they are very close to the bottom. Your monthly payment, including taxes and insurance, and your other obligations should be approximately NO MORE THAN 1/3 of your income.
8. Do NOT use your house as a credit card.
9. If you are laid off please do not despair & please be flexible. Find any job and be flexible as to the place, type & pay. Most important goal is to meet your obligations.
10. Students - Do Not Take Any Student Loans. Work hard and do the best you can.
11. Invest in the business you know the most about:
a. Your family & children
b. Your practice
c. Your Community
12. Try to do your best to do business with your brothers and sisters in the community. This is the time to translate takbeerat, hugging & kissing to real action that will make a difference inshaa Allah.
13. Islamic Centers, Schools and Organizations:
a. Be careful - it is NOT business as usual - instead of conducting a function in an expensive hotel---SAVE---and do it at the center in a humble way. DO NOT OVERSPEND please.
b. Take advantage of the economies of scale -if we can buy insurance for all Islamic Centers and Schools in the Shura Council domain we can save a lot of money,
c. Be careful with the use of power, water & A/C
d. Social Assistance: Formalized in order to discourage begging. Form a mortgage assistance program for those who lose their jobs until they find one.
FINALLY: Do your best to honor your commitments, obligations and promises:
"And O my people! give just measure and weight, nor withhold from the people the things that are their due: commit not evil in the land with intent to do mischief. (Quran 11:85)