ISLAMIC UNION
That moral values of the Qur'an will come to rule the world is a great blessing revealed in the Qur'an, reported in the hadiths of our Prophet (may Allah bless him and grant him peace) and discussed in the works of Islamic scholars. Our Prophet (may Allah bless him and grant him peace) has revealed that Allah will bring Qur'anic moral values to prevail on Earth by means of the Mahdi. It is reported in one of the hadiths of our Prophet (may Allah bless him and grant him peace) that, by the will of Allah, the Mahdi will appear in the End Times and cause Islamic moral values to prevail on Earth:
If only one day of this time (world) remained, Allah would raise up a man from my family who would fill this earth with justice as it has been filled with oppression.1
According to the hadiths as well as interpretations by Islamic scholars, one of the most important phases in the dominion of Islamic moral values is the establishment of Islamic Union, in other words the union of the Islamic world. According to the hadiths, the fragmentation in the Islamic world will come to an end with the appearance of the Mahdi, and Muslims will come together in Qur'anic moral values under his leadership.
Bediuzzaman Said Nursi, who discussed the subjects of the End Times and the dominion of Qur'anic moral values in his works, particularly concentrated on the subject of Islamic Union. Bediuzzaman stated that the Mahdi would be a means whereby Islamic Union would be established, and described the formation of an Islamic Union and Islamic moral values coming to prevail on Earth as a great cause for rejoicing in the Islamic world. Bediuzzaman said the following on this subject:
The greatest religious duty of this time is the Islamic Union.2
... By the will of Allah, you will attain a great cause for rejoicing of the Islamic world. There are many signs that the unification of Islamic republics will bring the Holy Qur'an, the source of holy laws, to rule the future and will bring great rejoicing to mankind.3
As we have seen, Bediuzzaman has stated that the establishment of an Islamic Union is a most important duty which must be fulfilled. As stated by Bediuzzaman, there are many signs that Islamic Union will come about and that Qur'anic moral values will rule the Earth. These signs have been reported in detail in hadiths. The holy individual in whom all these signs are manifested, and who will be the means whereby Qur'anic moral values come to rule the world, is the Mahdi.
The Irrefutable Sign of the Mahdi
The duties that will be performed by the Mahdi are the most important signs of this holy individual. As reported in the hadiths of our Prophet (may Allah bless him and grant him peace), being the means whereby Islam comes to rule the world is an irrefutable attribute of the Mahdi.
In his works, Bediuzzaman has described in detail many attributes that will determine the holy identity of the Mahdi. Bediuzzaman describes the duties of the Mahdi, and says that the establishment of Islamic Union will be one of the three greatest responsibilities of the Mahdi. Bediuzzaman describes this great duty of the Mahdi in these terms:
The third duty of that individual [the Mahdi] is to build an Islamic Caliphate on an Islamic unity and to serve Islam by allying himself with Christians. This duty can be fulfilled by a great caliphate and force and the sacrifices of millions. The first duty is three to four times more valuable than the other two. However, since the second and third duties will be in a very bright and broad sphere and in a glittering manner they will appear more important in the eyes of the people and the community.4
As Bediuzzaman has stated, the Mahdi will first build an Islamic Union. Then, with the power and support of the Islamic Union, he will bring Qur'anic moral values and the Sunnah of our Prophet (may Allah bless him and grant him peace) to prevail on Earth. In fulfilling this sacred task, he will - by the will of Allah - possess great strength, power and authority. In another statement, Bediuzzaman expresses this fact thus:
The Great Mahdi will have numerous functions. He will carry out duties in the world of politics, the world of religion, the world of government, and in the many spheres of the world of Islam…5
As we have seen, Bediuzzaman Said Nursi states that the Mahdi will serve in such major spheres as politics, government and religion.
According to the information in the hadiths and the expositions of Bediuzzaman, the Mahdi is a holy individual who will serve in these major spheres, found an Islamic Union, inflict an intellectual defeat on materialism and atheism, strengthen spiritual values and be a means whereby Islamic moral values come to rule the world. The principal sign of the Mahdi, as Bediuzzaman has stated, is his establishment of an Islamic Union and bringing the moral values of the Qur'an to prevail on Earth. It is meaningless to speak of other signs beyond this, and to concentrate on and look for these alone. Other signs only acquire significance in the event that this great sign takes place.
As stated above, the dominion of Islamic moral values is an irrefutable sign of the Mahdi. So long as this irrefutable sign of the Mahdi fails to materialise, it is impossible to speak of the position of Mahdi or of the duties of that position having been fulfilled. When, by the will of Allah, this holy individual appears, he will not, as is revealed in the hadiths, claim to hold the rank of Mahdi nor engage in any such propaganda. The great deeds of the Mahdi will be the most important evidence and proof that this holy individual has appeared. In one hadith it is reported that people will pledge allegiance to the Mahdi, although he will not desire this:
They will pledge allegiance to the Mahdi against his wishes. Later, the Mahdi will cause them to perform 2 rakats of salat and will ascend to the pulpit.6
The revelation in the hadith that people will pledge allegiance to the Mahdi, albeit against his wishes is a sign that he will never claim to be the Mahdi. The evident signs manifested in the Mahdi and his own great deeds will show that he is the awaited holy individual. He himself will make no such claims or suggestions.
In addition to the information provided in the hadiths and by Islamic scholars, there are also indications in many verses of the Qur'an to the effect that Qur'anic moral values will come to rule the world.
It Is Revealed in the Qur'an That Islamic Moral Values Will Rule the World
The Qur'an is a sacred Book, the stipulations set out in which will apply until the Day of Judgement, which covers all areas of a believer's life, and in which all of our Lord's commands appear in a flawless form. One of the greatest miracles of the Qur'an is that ever since it was first revealed, Muslims of all times have found signs referring to their own age. According to what is stated in the hadiths, Islamic moral values' coming to prevail on Earth is the most important of the signs that will come to pass after the death of our Prophet (may Allah bless him and grant him peace) and up until the Day of Judgement. It is revealed in the Qur'an that Islamic moral values will rule the world:
Allah has promised those of you who believe and do right actions that He will make them successors in the land as He made those before them successors, and will firmly establish for them their religion with which He is pleased and give them, in place of their fear, security. "They worship Me, not associating anything with Me." Any who disbelieve after that, such people are deviators. (Surat an-Nur, 55)
As is revealed in this verse, Islamic moral values prevailing on Earth is a stipulation of our Lord's, and a promise to sincere believers who ascribe no partners to Him. By the will of Allah, this stipulation will come to pass by means of the Mahdi in the End Times. In addition, many accounts in the Qur'an which provide information about the prophets and verses refer to this holy individual, the Mahdi, who will be instrumental in this holy phenomenon. There are various hadiths of our Prophet (may Allah bless him and grant him peace) that state there are signs in the Qur'an pointing to this important matter. One of these reads as follows:
The Mahdi will rule Earth, just like Dhu'l-Qarnayn and Sulayman.7
As we have seen in the hadith, it is indicated that the accounts of Dhu'l-Qarnayn and Prophet Sulayman (peace be upon them) revealed in the Qur'an should be considered in the context of the Mahdi and the dominion of Islamic moral values.
In the hadiths below, it is revealed that there are important signs regarding the Mahdi and the End Times in the accounts of Ashab al-Kahf (Companions of the Cave) and Talut:
The Companions of the Cave [Ahl al-Kahf] will be the Mahdi's helpers.8
The number of the Mahdi's helpers will be as many as those who crossed the river with Talut.9
Although the Mahdi and his helpmates could be explained in various ways, it is of the greatest importance that our Prophet (may Allah bless him and grant him peace) interpreted them in connection with the accounts in the Qur'an. This is one of the most powerful pieces of evidence of the presence in the Qur'an of many verses referring to the End Times. According to the information contained in the hadiths and indicated in the Qur'an, the Mahdi will have great power and authority, just like Dhu'l-Qarnayn and Prophet Sulayman (peace be upon them). In the same way that Dhu'l-Qarnayn (pbuh) brought the strife of Yajuj and Majuj to an end, the Mahdi will bring violence and terror, great calamities for mankind, to an end. Just as in the time of Prophet Sulayman (pbuh), in the time of the Mahdi great importance will be attached to art and beauty, and the Earth will be constructed in the most beautiful manner.
In the light of the information provided in the verses of the Qur'an and the hadiths, certain other features of the time in which the Mahdi will appear are considered below.
The Mahdi and the Golden Age
Islamic scholars have described the period when Islamic moral values will rule the world under the leadership of the Mahdi as the "Golden Age." According to the information in the Qur'an, the Golden Age will be a period like the "Blessed Period" that will last for more than fifty years.
In the Golden Age, want and hunger will disappear, there will be an abundance of goods and products, injustice and oppression will come to an end, justice will prevail over the Earth, disagreements, violence and conflict will come to an end, peace and security will be ensured, technological advances will reach the highest level, and humanity will make the best possible use of these technological advances. When people are in full obedience to the state and its institutions, a requirement of Qur'anic moral values, peace and harmony will be enjoyed.
People will be so happy with their lives in the Golden Age that, as stated in the hadiths, they will ask Allah to extend their lives to allow them to benefit from these beauties for longer. This is revealed thus in the hadith:
The younger ones wish they were grown-ups, while the adults wish they were younger... The good become even more good, and even the wicked ones are treated well.10
The Mahdi Will Bring Islamic Moral Values to Prevail by Means of Peace and Love
It is revealed in the hadiths that the Mahdi will bring Islamic moral values to prevail by means of peace and love. The Mahdi will constantly call on people, with tolerance, patience, compassion and love, to believe in Allah as the one and only, and will call on them to live by the moral values of the Qur'an and the Sunnah. It is revealed in these terms in the hadiths that Islamic moral values will prevail on Earth in peace:
In this time [the time of the Mahdi], neither a man will be awoken from sleep, nor will a person's nose bleed.11
The Mahdi will follow the way of the Prophet. He will not wake up a sleeping person or shed blood.12
As is revealed in the hadiths, the Mahdi will cause Islamic values to prevail on Earth by peaceful means, and will avoid war and violence. The path to be followed by the Mahdi will turn people towards Islamic moral values with great cultural strides worldwide.
One of the similarities of the Mahdi to Prophet Sulayman and Dhu'l-Qarnayn (peace be upon them) described by our beloved Prophet (may Allah bless him and grant him peace) is on this subject. As is revealed in verses of the Qur'an, Prophet Sulayman (pbuh) established a great civilisation in his time, and he ensured his dominion by means of diplomacy, art and culture. Despite possessing a very powerful and irresistible army, he did not employ military force. As is revealed in the Qur'an, Dhu'l-Qarnayn (pbuh) was regarded by the peoples around him as someone who prevented corruption and strife on Earth, and as a leader who brought peace and security. This aspect of the ages of Prophet Sulayman and Dhu'l-Qarnayn (peace be upon them) bears great similarities to that when the Mahdi will cause Islamic moral values to prevail on Earth.
The Mahdi Will Put an End to Oppression, Violence and Terror
Our Prophet (may Allah bless him and grant him peace) has revealed that as well as causing Islamic moral values to prevail on Earth, the Mahdi will also put an end to the chaos, conflict, violence, war, injustice and oppression that are some of the signs of the End Times. Our Prophet (may Allah bless him and grant him peace) has given the glad tidings of the great change that will be experienced with the coming of the Mahdi:
The world filled with oppression and tyranny will overflow with justice after he [the Mahdi] comes.13
In the Qur'an it is revealed that our Lord calls people to peace:
Allah calls to the Abode of Peace and He guides whom He wills to a straight path. (Surah Yunus, 25)
As a requirement of Qur'anic moral values, the Mahdi will call on people to be peaceloving, and will reconcile them. According to the hadiths, there will be no more enmity and hatred in the time of the Mahdi, and terror and violence will come to an end. Some of the hadiths on this subject read:
[In the time of Mahdi] Enmity and hatred between people will cease. Scorpions and snakes will not be poisonous, and even children will play with snakes without being bitten… Wolves will be among sheep like sheepdogs. The world will fill with religious unity like the cup fills with water. Nobody but Allah will be worshipped. Nothing will be left of warfare and conflict.14
[In the time of Mahdi] Then the Earth will become safe so that lions may graze with camels; tigers with cows, wolves with sheep; and so that children may play with snakes without being harmed.15
As can be seen from the hadiths, in the time of the Mahdi there will be great brotherhood among peoples now in dispute, and conflict of all kinds will be replaced by peace, love and friendship. The moderate, contemporary, rational and civilised model of Islam to be established in the time of this holy individual will illuminate the whole world.
There Will Be Abundance and Plenty in the Time of the Mahdi
It is revealed in hadiths that in the time of the Mahdi there will be a hitherto unseen abundance of goods and products, and that the Mahdi will behave most generously:
The Mahdi will emerge from my community. Almighty Allah will send him to make people wealthy. In his time, my community will be blessed, animals will be abundant and there will be a great supply of foodstuffs of the earth, and the Mahdi will distribute goods in abundance to all people equally.16
... In that time, the communities of the earth and the heavens, all wild animals, birds, and even the fish in the sea will rejoice in his caliphate. In his time even the running rivers will increase their waters. The Mahdi will bring the treasures forth...17As seen from the hadiths, in the time of the Mahdi there will be great plenty and abundance in all spheres, and people's suffering and poverty will come to an end.
In the Time of the Mahdi People Will Make the Best Use of All Technological Means
The Mahdi's best use of technological facilities may lie at the root of the plenty and abundance, and people's achieving well-being, in his time. In one hadith the abundance in the time of the Mahdi is described thus:
Someone sowing a measure of wheat will find seven hundred in return... A person will scatter a few handfuls of seeds but reap 700 handfuls. Despite an abundance of rain, not a drop will go waste.18
It is probable that in this narration, the transition to modern forms of agriculture, the development of new production techniques, seed improvement studies and improved use of rainwater by building dams and artificial lakes are being indicated (Allah knows best, of course).
There is no doubt that all these are techniques and methods obtained through technological advances.
In terms of technological development, our century is witnessing a pace the like of which has never been seen before. A great many technological means, which did not even have names 100 years ago, have now become indispensable parts of people's lives. There are even great differences between today's technology and that of just five years ago. There can be no doubt that this indicates that our age is a very special one. As can be seen from descriptions in the hadiths, these developments will accelerate still further with the appearance of the Mahdi, and technological facilities will be made available to all people equally. Thanks to technological advances in such fields as medicine, transport, communications, agriculture and energy, people will be able to live in the most comfortable, convenient and pleasant way.
All this information shows that the time of the Mahdi will be one of the most peaceful, most secure, most splendid and most comfortable in history, just like the time of our Prophet (may Allah bless him and grant him peace).
Conclusion
As is stated in the verse "We have created all things in predestination" (Surat al-Qamar, 49), our Lord has created everything in the light of a specific destiny. Like those of all animate and inanimate things, the destiny of the Mahdi is already set out in the sight of Allah. The identity of this holy individual, his signs, his appearance, his establishing an Islamic Union and his bringing Islamic moral values to prevail on Earth have all happened and are all over and done with in the sight of Allah.
Allah is unbound by space and time. Human beings, however, live in a dimension that is fettered by space and time, and know nothing without the information placed in their memories. For example, the events that human beings refer to as "the future" are the future because, as a requirement of the environment of testing in this world, Allah has not placed them in our memories, so we cannot know them. Events referring to the future have not yet been experienced by people. Our Almighty Lord, however, is not bound by space and time, and it is He Who created these out of nothing. Therefore, for Allah the past, present and future are all one, and are all over and done with. We can understand that time is a single moment in the sight of Allah, and that there are no past or future for Him, from the style employed in the Qur'an. In those verses in which it is stated that people will have to account for themselves to Allah, it is revealed that these events referring to the future have long since actually taken place:
And the trumpet is blown, and all who are in the heavens and all who are on the earth swoon away, save him whom Allah wills. Then it is blown a second time, and behold them standing waiting! (Surat az-Zumar, 68)
All events that have happened or will happen in this world have come to an end in a single moment in the light of the destiny set out by Almighty Allah. Therefore, all the signs of the End Times which our Prophet (may Allah bless him and grant him peace) has stated will take place in the future had actually already happened at that time. In other words, in the time of our Prophet (may Allah bless him and grant him peace) the Mahdi had come into the world, lived, performed all his deeds, and died. Indeed, every moment of the life of the Mahdi was already over with in the time of the Prophet Adam (pbuh). The Mahdi had already fulfilled his duties in the times of the Prophets Musa, Yusuf, Nuh and 'Isa (peace be upon them all). When the time appointed by Allah comes, everyone living in the End Times will follow and witness these holy events.
It must not be forgotten that whoever Allah has so destined will be the Mahdi. The Mahdi is a holy individual revealed by Allah to our Prophet (may Allah bless him and grant him peace), who described 1,400 years ago his physical and other features, deeds, services and effect on the world. In the same way that it is impossible to imitate these qualities, or to acquire them through hard work, so it is impossible, by Allah's leave, to halt the work of the Mahdi. The Mahdi will perform all the services described by our beloved Prophet (may Allah bless him and grant him peace) and will, by the will of Allah, cause Qur'anic moral values to prevail on Earth. This is the destiny set out by Allah.
1 Sunan Abu Dawud, Book 36.2 Bediuzzaman Said Nursi, The Damascus Sermon, 90.3 Bediuzzaman Said Nursi, Emirdag Letters-ll, 76.4 Bediuzzaman Said Nursi, Sikke-i Tasdik-i Gaybi, 9.5 Bediuzzaman Said Nursi, Risale-i Nur Collection, The Rays, The Second Station of the Fifth Ray, Nineteenth Matter.6 Ibn Hajar al-Haythami, Al-Qawl al-Mukhtasar fi `Alamat al-Mahdi al-Muntazar, 23, 34, 50, 44.7 Ibn Hajar al-Haythami, Al-Qawl al-Mukhtasar, 32.8 Al-Muttaqi al-Hindi, Al-Burhan fi `Alamat al-Mahdi Akhir al-Zaman, 59.9 Al-Muttaqi al-Hindi, Al-Burhan fi `Alamat al-Mahdi Akhir al-Zaman, 17.10 Al-Muttaqi al-Hindi, Al-Burhan fi `Alamat al-Mahdi Akhir al-Zaman, 17.11 Ibn Hajar al-Haythami, Al-Qawl al-Mukhtasar, 42.12 Muhammad ibn 'Abd al-Rasul Barzanji , Al-Isha'ah li-ashrat al-sa'ah, 163.13 Ibn Hajar al-Haythami, Al-Qawl al-Mukhtasar, 20.14 Sunan Ibn Majah.15 Ibn Ahmad Hanbal.16 Ibn Hajar al-Haythami, Al-Qawl al-Mukhtasar, 23.17 Ibn Hajar al-Haythami, Al-Qawl al-Mukhtasar, 36.18 Ibn Hajar al-Haythami, Al-Qawl al-Mukhtasar, 36; Muhammad ibn 'Abd al-Rasul Barzanji , Al-Isha'ah li-ashrat al-sa'ah, 164.
Sunday, March 9, 2008
Thursday, February 14, 2008
CREDIT CRISIS
What banks can learn from this credit crisis
By Francisco González
There has been an increasing disconnection between the real and financial economies in the past few years. The real economy has grown at a brisk pace but nothing like that of the financial economy, which grew even more rapidly – until it imploded.
Formidable financial expansion was a response in part to the dynamism of economic activity and in part to a prolonged period of low interest rates. But there has also been the rise in securitisation and the development of structured investment vehicles, conduits, hedge funds, private equity, leverage loans and the like. These were probably the biggest stimulus to the credit multiplier.
The process has been driven by agents that have grown up (and made big profits) in unregulated areas without taking into account the basic principles of prudence and risk management. Some have been non-bank intermediaries. Others have been banks that have used different off-balance sheet vehicles to duck and dive through the regulations in order to join the party.
A clear underestimation of risk and huge flows of finance have been the results. In turn these have fed an unsustainable level of leveraging and asset inflation. The financial community ought to draw conclusions from all this in order to re-establish the normal functioning of the markets.
Regulators and supervisors need to get closer to the activities of unregulated agents that may have a strong bearing both on markets and on regulated firms.
The main question, however, is how to make sure that the activities of high-risk-taking agents do not contaminate the balance sheets of the traditional banking sector. Because the banking sector has a fundamental role in the payments system, there is a considerable amplification of systemic risks when it is hit. Negative knock-on soon filters through to affect the flows of credit and savings of businesses and individuals.
Moreover, it is the banks that have direct access to the liquidity supplied by the central banks and act as a transmission mechanism for changes in monetary policy.
It is clear that we are not up against a problem of lack of regulation. Any overreaction in this direction would be not only futile but also counterproductive. The real challenge is to apply regulation in the right way. And that means looking again at the use of judgment, procedures and incentives in applying the rules.
Various approaches to this challenge should be examined.
First, dealing with the risks of liquidity and funding. It is obvious that in the short term central banks will need to continue supplying ample liquidity to alleviate tensions in interbank and wholesale credit markets.
But beyond that it is clear that supervisors, auditors, rating agencies and, above all, companies themselves will have to pay a lot more attention to getting liquidity management right. This must include, among other things, the use of rigorous stress-testing scenarios.
Second, the mis-pricing of risk. Risk valuation models have improved enormously in the run-up to the incoming Basel II capital adequacy rules. This crisis, however, has revealed that they have their limitations and that it is the markets that provide the final measure of value. It is a reminder that transparency and prudence in decision-making procedures are just as important as the most sophisticated model.
The third approach that should be examined is making sure the incentives of agents are in line with some basic principles of prudent finance. For example, the crisis in the securitised assets markets suggests that originators should be obliged to retain a significant part of the risk on their own balance sheets.
A further area that needs to be revisited is that of executive compensation schemes, to ensure that in future they adequately reflect performance in the medium and long term.
Fourth, it is necessary to enhance the transparency of the exposures of banks. The Basel pillar III, which deals with market discipline, is a good starting point.
But there are big differences in the internal models used by both banks and supervisors and a great deal of harmonisation is required. Harmonisation of models needs to be part of a much broader process. The nature of the global crisis demonstrates the need for greater co-ordination of what are currently national frameworks of regulation and supervision. Greater dialogue and contact among regulators, supervisors and the industry will be essential if they are to be effective in the future.
Finally, and most importantly, the crisis illustrates once again the relevance and usefulness of principles over and above even the most precise rules. All financial intermediaries’ decisions and actions must be morally and socially acceptable, not just legally enforceable, and should withstand any amount of public scrutiny.
We face a complex set of problems. But the good news is that the crisis has exploded during a phase of robust global economic growth and before it could produce long-lasting damage.
If we all apply what we have learnt, our markets and firms have the resources to overcome the current crisis – as we have overcome others before. This will allow us to move forward towards a stronger financial environment, taking advantage of the new opportunities offered by globalisation and technological advance.
The writer is chairman and chief executive of BBVA
By Francisco González
There has been an increasing disconnection between the real and financial economies in the past few years. The real economy has grown at a brisk pace but nothing like that of the financial economy, which grew even more rapidly – until it imploded.
Formidable financial expansion was a response in part to the dynamism of economic activity and in part to a prolonged period of low interest rates. But there has also been the rise in securitisation and the development of structured investment vehicles, conduits, hedge funds, private equity, leverage loans and the like. These were probably the biggest stimulus to the credit multiplier.
The process has been driven by agents that have grown up (and made big profits) in unregulated areas without taking into account the basic principles of prudence and risk management. Some have been non-bank intermediaries. Others have been banks that have used different off-balance sheet vehicles to duck and dive through the regulations in order to join the party.
A clear underestimation of risk and huge flows of finance have been the results. In turn these have fed an unsustainable level of leveraging and asset inflation. The financial community ought to draw conclusions from all this in order to re-establish the normal functioning of the markets.
Regulators and supervisors need to get closer to the activities of unregulated agents that may have a strong bearing both on markets and on regulated firms.
The main question, however, is how to make sure that the activities of high-risk-taking agents do not contaminate the balance sheets of the traditional banking sector. Because the banking sector has a fundamental role in the payments system, there is a considerable amplification of systemic risks when it is hit. Negative knock-on soon filters through to affect the flows of credit and savings of businesses and individuals.
Moreover, it is the banks that have direct access to the liquidity supplied by the central banks and act as a transmission mechanism for changes in monetary policy.
It is clear that we are not up against a problem of lack of regulation. Any overreaction in this direction would be not only futile but also counterproductive. The real challenge is to apply regulation in the right way. And that means looking again at the use of judgment, procedures and incentives in applying the rules.
Various approaches to this challenge should be examined.
First, dealing with the risks of liquidity and funding. It is obvious that in the short term central banks will need to continue supplying ample liquidity to alleviate tensions in interbank and wholesale credit markets.
But beyond that it is clear that supervisors, auditors, rating agencies and, above all, companies themselves will have to pay a lot more attention to getting liquidity management right. This must include, among other things, the use of rigorous stress-testing scenarios.
Second, the mis-pricing of risk. Risk valuation models have improved enormously in the run-up to the incoming Basel II capital adequacy rules. This crisis, however, has revealed that they have their limitations and that it is the markets that provide the final measure of value. It is a reminder that transparency and prudence in decision-making procedures are just as important as the most sophisticated model.
The third approach that should be examined is making sure the incentives of agents are in line with some basic principles of prudent finance. For example, the crisis in the securitised assets markets suggests that originators should be obliged to retain a significant part of the risk on their own balance sheets.
A further area that needs to be revisited is that of executive compensation schemes, to ensure that in future they adequately reflect performance in the medium and long term.
Fourth, it is necessary to enhance the transparency of the exposures of banks. The Basel pillar III, which deals with market discipline, is a good starting point.
But there are big differences in the internal models used by both banks and supervisors and a great deal of harmonisation is required. Harmonisation of models needs to be part of a much broader process. The nature of the global crisis demonstrates the need for greater co-ordination of what are currently national frameworks of regulation and supervision. Greater dialogue and contact among regulators, supervisors and the industry will be essential if they are to be effective in the future.
Finally, and most importantly, the crisis illustrates once again the relevance and usefulness of principles over and above even the most precise rules. All financial intermediaries’ decisions and actions must be morally and socially acceptable, not just legally enforceable, and should withstand any amount of public scrutiny.
We face a complex set of problems. But the good news is that the crisis has exploded during a phase of robust global economic growth and before it could produce long-lasting damage.
If we all apply what we have learnt, our markets and firms have the resources to overcome the current crisis – as we have overcome others before. This will allow us to move forward towards a stronger financial environment, taking advantage of the new opportunities offered by globalisation and technological advance.
The writer is chairman and chief executive of BBVA
Monday, February 11, 2008
DEPRESSIONS...
A repeat of the Great Depression is unlikely
By Wolfgang Munchau
How big is the risk of global deflation? Five years ago, central banks led by the US Federal Reserve fretted and cut short-term interest rates aggressively. This time the Fed is largely alone in seeking insurance against the possibility of a deflationary depression. Both the European Central Bank and the Bank of England may ease further. But neither is inclined to follow the Fed into “whatever it takes” territory.
Deflation is the ultimate economic calamity – because of the human and financial misery it brings and the constraints it puts on policy. We fear deflation because of its self-reinforcing effects. If people expect prices to fall tomorrow, they hold back on consumption today. If investors expect falling returns, they hoard cash. This is also known as the liquidity trap.
In his debt-deflation theory, the US economist Irving Fisher explained a truly toxic mechanism that has some potential implications for our own post-subprime world. If a debt crisis coincides with severe deflation, the value of outstanding debt rises even as debt gets repaid. While all this is happening, central banks are constrained in their ability to stimulate the economy by the zero nominal interest rate bind.
But it is important to remember that these destructive mechanisms do not kick in the minute the officially recorded rate of inflation falls a fraction below zero. The deflation we fear is a large slump in the price level and a permanent shift in price expectations. During the Great Depression, the US wholesale price index fell by 33 per cent. Such a price fall is not likely in our globalised economy.
So even if a repeat of the Great Depression is unlikely, how about a Small Depression, similar to Japan’s in the 1990s? Popular folklore has it that the bursting of an asset price bubble and a restrictive monetary policy caused that country’s 1990s stagnation. While Japan undoubtedly suffered a fall in consumer prices in the second half of the 1990s, its deflation was relatively mild, with annual prices falling by less than1 per cent. More important, these price falls did not produce nearly as many of those toxic self-reinforcing effects that were in evidence during the early 1930s.
A far more plausible explanation of Japan’s lost decade is that by Professors Fumio Hayashi and Edward Prescott* who explain it in terms of weak factor productivity growth. When productivity falls, so does an economy’s long-run real interest rate. And when that happens, the effect of monetary policy stimulus is accordingly reduced. An examination of credit conditions and flow of funds data led them to conclude that a credit crunch might have contributed to Japan’s economic misery only briefly from late 1997 to early 1998, but cannot explain a whole decade of low growth.
Is there a risk that the US will suffer a Japanese-style lost decade? Of course, but for different reasons. US growth will slow as the savings rate needs to rise. For a country with an unsustainable current account deficit, this is necessary and inevitable adjustment, not a catastrophic event against which one should seek insurance. In terms of its structural characteristics, the US economy is not comparable to Japan in the 1990s and even less comparable to the US in the 1930s. US productivity growth is much higher than Japan’s and much of Europe’s.
That said, there is one scenario that could produce a 1930s-style deflationary depression in the US: a large-scale financial meltdown. By that I mean a situation in which the financial sector would cease to fulfil one of its basic functions: to provide liquidity to the real economy. But surely, lower central bank interest rates today could neither prevent such a scenario from happening, nor provide any comfort to an economy when it has no physical access to credit.
In the eurozone, deflation is not likely either. There is no comparable indebtedness problem, except perhaps in Spain; no property crash, except in Spain and Ireland; and a relatively robust financial sector. Of course, the eurozone is not decoupled from the global economy.
The UK is perhaps more vulnerable, because of the relatively large size of the financial sector in the economy, an over-reliance on a property market that is about to deflate, and chronically low productivity growth in non-financial sectors. There is now clearly the possibility of a severe and prolonged recession, followed by a long period of low growth.
So the risk of a global deflationary depression is small. But might it still not be worth insuring against? The trouble is that such “insurance” does not come in the form of a “price” but in the form of additional risk – of future inflation and financial instability. Last week, 10-year US Treasuries bonds yielded a mere 3.7 per cent, a rate below the actual rate of US consumer price inflation. In the event that the US recession turns out to be unexpectedly shallow and short (not very probable in my view, but vastly more probable than a deflationary depression), yields may well shoot up to 6 or 7 per cent. So the “price” for avoiding deflation may be a bond market meltdown, your quintessential financial crisis.
The rise in interest rates implicit in such a scenario would then give us a valid reason to fret about the future.
By Wolfgang Munchau
How big is the risk of global deflation? Five years ago, central banks led by the US Federal Reserve fretted and cut short-term interest rates aggressively. This time the Fed is largely alone in seeking insurance against the possibility of a deflationary depression. Both the European Central Bank and the Bank of England may ease further. But neither is inclined to follow the Fed into “whatever it takes” territory.
Deflation is the ultimate economic calamity – because of the human and financial misery it brings and the constraints it puts on policy. We fear deflation because of its self-reinforcing effects. If people expect prices to fall tomorrow, they hold back on consumption today. If investors expect falling returns, they hoard cash. This is also known as the liquidity trap.
In his debt-deflation theory, the US economist Irving Fisher explained a truly toxic mechanism that has some potential implications for our own post-subprime world. If a debt crisis coincides with severe deflation, the value of outstanding debt rises even as debt gets repaid. While all this is happening, central banks are constrained in their ability to stimulate the economy by the zero nominal interest rate bind.
But it is important to remember that these destructive mechanisms do not kick in the minute the officially recorded rate of inflation falls a fraction below zero. The deflation we fear is a large slump in the price level and a permanent shift in price expectations. During the Great Depression, the US wholesale price index fell by 33 per cent. Such a price fall is not likely in our globalised economy.
So even if a repeat of the Great Depression is unlikely, how about a Small Depression, similar to Japan’s in the 1990s? Popular folklore has it that the bursting of an asset price bubble and a restrictive monetary policy caused that country’s 1990s stagnation. While Japan undoubtedly suffered a fall in consumer prices in the second half of the 1990s, its deflation was relatively mild, with annual prices falling by less than1 per cent. More important, these price falls did not produce nearly as many of those toxic self-reinforcing effects that were in evidence during the early 1930s.
A far more plausible explanation of Japan’s lost decade is that by Professors Fumio Hayashi and Edward Prescott* who explain it in terms of weak factor productivity growth. When productivity falls, so does an economy’s long-run real interest rate. And when that happens, the effect of monetary policy stimulus is accordingly reduced. An examination of credit conditions and flow of funds data led them to conclude that a credit crunch might have contributed to Japan’s economic misery only briefly from late 1997 to early 1998, but cannot explain a whole decade of low growth.
Is there a risk that the US will suffer a Japanese-style lost decade? Of course, but for different reasons. US growth will slow as the savings rate needs to rise. For a country with an unsustainable current account deficit, this is necessary and inevitable adjustment, not a catastrophic event against which one should seek insurance. In terms of its structural characteristics, the US economy is not comparable to Japan in the 1990s and even less comparable to the US in the 1930s. US productivity growth is much higher than Japan’s and much of Europe’s.
That said, there is one scenario that could produce a 1930s-style deflationary depression in the US: a large-scale financial meltdown. By that I mean a situation in which the financial sector would cease to fulfil one of its basic functions: to provide liquidity to the real economy. But surely, lower central bank interest rates today could neither prevent such a scenario from happening, nor provide any comfort to an economy when it has no physical access to credit.
In the eurozone, deflation is not likely either. There is no comparable indebtedness problem, except perhaps in Spain; no property crash, except in Spain and Ireland; and a relatively robust financial sector. Of course, the eurozone is not decoupled from the global economy.
The UK is perhaps more vulnerable, because of the relatively large size of the financial sector in the economy, an over-reliance on a property market that is about to deflate, and chronically low productivity growth in non-financial sectors. There is now clearly the possibility of a severe and prolonged recession, followed by a long period of low growth.
So the risk of a global deflationary depression is small. But might it still not be worth insuring against? The trouble is that such “insurance” does not come in the form of a “price” but in the form of additional risk – of future inflation and financial instability. Last week, 10-year US Treasuries bonds yielded a mere 3.7 per cent, a rate below the actual rate of US consumer price inflation. In the event that the US recession turns out to be unexpectedly shallow and short (not very probable in my view, but vastly more probable than a deflationary depression), yields may well shoot up to 6 or 7 per cent. So the “price” for avoiding deflation may be a bond market meltdown, your quintessential financial crisis.
The rise in interest rates implicit in such a scenario would then give us a valid reason to fret about the future.
Friday, February 8, 2008
SUBPRIMES...
es analystes de la place francfortoise peuvent souffler. La Deutsche Bank a confirmé, jeudi 7 février, avoir été épargnée au quatrième trimestre 2007 par la crise des crédits hypothécaires américains, les fameux subprimes. La première banque privée outre-Rhin n'a supporté, au dernier trimestre, que de faibles dépréciations, "moins de 50 millions d'euros".
OAS_AD('Middle1');
Au troisième trimestre, la Deutsche Bank avait annoncé que les charges liées aux subprimes lui avaient coûté 2,2 milliards d'euros. Depuis, son patron, Josef Ackermann, avait maintes fois affirmé en avoir fini avec les subprimes ; mais la rumeur d'un avertissement sur résultats et les pertes enregistrées par ses concurrentes, la suisse UBS et l'américaine Citigroup, avaient alarmé les marchés ces dernières semaines. La Deutsche Bank étant très présente dans les activités de banque d'investissement aux Etats-Unis, elle se trouve naturellement exposée à la tourmente du crédit immobilier américain.
"La capacité de résistance que nous avons montrée en 2007 nous donne de l'assurance pour le futur", s'est réjoui M. Ackermann. Le patron a d'ailleurs annoncé des résultats meilleurs que prévu pour 2007. L'an passé, Deutsche Bank a enregistré un nouveau record, avec un bénéfice net de 6,5 milliards d'euros, en hausse de 7 %. Le résultat avant impôts a atteint 8,7 milliards, soit un rendement de ses fonds propres de 29 %.
PAS DE RACHAT DE LA GÉNÉRALE
Ces bons résultats n'ont pas empêché quelques mauvaises nouvelles. Au dernier trimestre de 2007, le bénéfice net de la banque a dégringolé de 47 % sur un an. Les activités de banques d'investissement, en particulier, ont payé un lourd tribut à la crise financière. Le bénéfice imposable de ce secteur- clé de la Deutsche Bank a chuté de 43 % entre octobre et décembre. "Les inquiétudes sur la crise des subprimes persistent, a rappelé M. Ackermann. Et les tensions sur les marchés vont se poursuivre." La banque a toutefois maintenu ses objectifs pour 2008 d'un bénéfice imposable de 8,4 milliards d'euros.
M. Ackermann n'a pas manqué d'aborder le dossier Société générale. Après avoir appris les mésaventures de sa consoeur, qui a perdu près de 5 milliards d'euros à cause des placements irréguliers de l'un de ses traders, la banque allemande a lancé un audit de ses systèmes de contrôle, dont les résultats devraient bientôt être connus. Le patron reste prudent sur les risques encourus par la Deutsche Bank : "J'aimerais dire que c'est inconcevable dans notre établissement, mais je ne peux pas l'exclure."
Selon M. Ackermann, aucun rachat de la banque française n'est au programme. La Deutsche Bank se montre en revanche intéressée par Postbank, la filiale bancaire de la Deutsche Post, qui pourrait être cédée cette année. "Nous pensons que cela pourrait être une bonne solution pour l'Allemagne", a-t-il expliqué. D'autres banques sont déjà sur les rangs, dont le deuxième établissement allemand la Commerzbank.
OAS_AD('Middle1');
Au troisième trimestre, la Deutsche Bank avait annoncé que les charges liées aux subprimes lui avaient coûté 2,2 milliards d'euros. Depuis, son patron, Josef Ackermann, avait maintes fois affirmé en avoir fini avec les subprimes ; mais la rumeur d'un avertissement sur résultats et les pertes enregistrées par ses concurrentes, la suisse UBS et l'américaine Citigroup, avaient alarmé les marchés ces dernières semaines. La Deutsche Bank étant très présente dans les activités de banque d'investissement aux Etats-Unis, elle se trouve naturellement exposée à la tourmente du crédit immobilier américain.
"La capacité de résistance que nous avons montrée en 2007 nous donne de l'assurance pour le futur", s'est réjoui M. Ackermann. Le patron a d'ailleurs annoncé des résultats meilleurs que prévu pour 2007. L'an passé, Deutsche Bank a enregistré un nouveau record, avec un bénéfice net de 6,5 milliards d'euros, en hausse de 7 %. Le résultat avant impôts a atteint 8,7 milliards, soit un rendement de ses fonds propres de 29 %.
PAS DE RACHAT DE LA GÉNÉRALE
Ces bons résultats n'ont pas empêché quelques mauvaises nouvelles. Au dernier trimestre de 2007, le bénéfice net de la banque a dégringolé de 47 % sur un an. Les activités de banques d'investissement, en particulier, ont payé un lourd tribut à la crise financière. Le bénéfice imposable de ce secteur- clé de la Deutsche Bank a chuté de 43 % entre octobre et décembre. "Les inquiétudes sur la crise des subprimes persistent, a rappelé M. Ackermann. Et les tensions sur les marchés vont se poursuivre." La banque a toutefois maintenu ses objectifs pour 2008 d'un bénéfice imposable de 8,4 milliards d'euros.
M. Ackermann n'a pas manqué d'aborder le dossier Société générale. Après avoir appris les mésaventures de sa consoeur, qui a perdu près de 5 milliards d'euros à cause des placements irréguliers de l'un de ses traders, la banque allemande a lancé un audit de ses systèmes de contrôle, dont les résultats devraient bientôt être connus. Le patron reste prudent sur les risques encourus par la Deutsche Bank : "J'aimerais dire que c'est inconcevable dans notre établissement, mais je ne peux pas l'exclure."
Selon M. Ackermann, aucun rachat de la banque française n'est au programme. La Deutsche Bank se montre en revanche intéressée par Postbank, la filiale bancaire de la Deutsche Post, qui pourrait être cédée cette année. "Nous pensons que cela pourrait être une bonne solution pour l'Allemagne", a-t-il expliqué. D'autres banques sont déjà sur les rangs, dont le deuxième établissement allemand la Commerzbank.
Monday, February 4, 2008
ERMENI YALANLARINA DAIR...
Kahire eski büyükelçisi AK Parti Düzce Milletvekili Yaşar Yakış, 1. Dünya Savaşı sırasında Osmanlı ordusundaki Ermenilerin durumunu anlattı. Düzce Sanayici ve İşadamlarının (DÜSİAD) Mısır’a düzenlediği geziye katılan eski dışişleri bakanı ve Kahire eski büyükelçisi AK Parti Düzce Milletvekili Yaşar Yakış 1. Dünya Savaşı sırasında Filistin cephesinde İngilizlere karşı savaşarak esir düşen binlerce Türk askeri gibi 88 Ermeni’nin de hastane ve esir kamplarında İngilizler tarafından öldürüldüğünü ya da ölüme terk edildiklerini söyledi.Yakış, ölen Türk askerleri gibi Ermenilerin de isimlerinin Kahire’deki Türk büyükelçiliğinde bulunduğunu belirtti.Yakış’ın yanı sıra Düzce Milletvekili Celal Erbay, Düzce Belediye Başkanı Mehmet Keleş ve Düzceli 20 işadamı DÜSİAD’ın organizesinde Kahire ve İskenderiye’ye gezi düzenledi. Gezi süresince Osmanlılardan Memlüklere, Tulunoğullarından Eyyübilere, Kahire’nin yaklaşık 1.200 yıllık Türk geçmişine ait eserler gezildi, iş görüşmeleri yapıldı. Gezi sırasında gruba rehberlik yapan Yakış, hem Mısır’daki Türk ve Osmanlı varlığı konusunda ilginç bilgilendirmelerde bulundu hem de Türkiye’nin Kahire’deki en sevilen büyükelçisi olmasının tesadüf olmadığını ortaya koydu:Osmanlı saflarında 88 Ermeni: 1. Dünya Savaşı sırasında Filistin cephesinde İngilizlere esir düşen binlerce Türk askeri, bakımsızlıktan ve kasıtlı olarak hastanelerde ve esir kamplarında öldürülürken, bunlar arasında Osmanlı saflarında çarpışan 88 Ermeni de bulunuyordu. Bu savaşta Moritanya’dan gelerek Türkiye’nin saflarında savaşan Mevaşi kabilesi mensupları da vardı. Daha sonra bu kabilenin kalanları Atatürk tarafından Adana’nın Kozan ilçesine yerleştirildi.İngiliz komutanın keşfettiği Ressam Hidayet, ağabeyi Filistin cephesinde çarpışırken İngilizlere esir düşer ve annesi tarafından Mısır’a gönderilerek akıbetini araştırmasını ister. Henüz 15’inde olan Hidayet, İngiliz karargâhına gider ve ağabeyini sorar. Beklerken de masada bulunan kağıtlara resim çizer. Bunu fark eden İngiliz komutan, hem Hidayet’i üzmemek hem de oyalamak için, bilgi alamadığını söyler. Birkaç hafta Hidayet gidip gelirken, İngiliz komutan da o gelince kasıtlı olarak masaya kâğıtlar bırakır ve saatlerce orada oyalar. Bir gün İngiliz komutan Hidayet’e gerçeği anlatır; fakat para karşılığı İngiliz askerlerinin resmini çizmesini teklif eder. Hidayet, kabul eder ve çok iyi para kazanır. Daha sonra kraliyet ailesi onu himayesine alır.Kahire’de bir Lazoğlu: Günümüzde İçişleri Bakanlığı ve Mısır İstihbarat Birimi’nin bulunduğu Lazogli Meydanı’nın ilginç bir öyküsü var: Kavalalı Mehmet Ali Paşa’nın en güvendiği isim olan mali işlerden sorumlu Lazoğlu Muhammed Bey öldükten sonra Mehmet Ali Paşa’nın torunu Tevfik Paşa, kendi döneminde onun heykelini yapmak ister. Fakat heykelini yapacak olan Fransız ressam ona ait hiçbir resim bulamaz. Fransız ressam bir gün sokakta bir arkadaşıyla yürürken, arkadaşı yoldan geçen birini gösterir, ‘İşte Lazoğlu’ diyerek ona benzeyen birini gösterir. Sırtında su taşıyan bu kişiyi resmeden Fransız ressam, heykelini de meydana diker.Şivekâr’ın intikamı: Prens Fuad, kısa yoldan kral olabilmek için zengin bir ailenin kızı olan Şivekâr’la evleniyor. Ancak bir gün Şivekar’ın ağabeyi Fuad’la tartışır ve tabancısını çekerek ateşler. Kurşun Fuad’ın boğazını sıyırır ve Fuad sesi kısık biri olarak kalır. Bunun üzerine Şivekâr boşanır ve daha sonra İstanbul’da bir bankada çalışan İlhami Bey’le evlenir. Fakat İlhami Bey’in askere alınması gerekir. Şivekâr, kocasının askere alınmamasını ister, aksi takdirde Türk elçiliğine verdiği binayı geri alacağını söyler. İsteği reddedilir ve bugün Mısır’da başbakanlığın olduğu bina, Türk elçiliğinin elinden alınır.Kraliyet ailesinin mallarına el konuldu: Mısır, 1964’te aldığı bir kararla 1952’de devirdikleri krallığa mensup ailenin tüm mallarını da devletleştirdi. Türk soyundan gelen kraliyet ailesinin mensupları ülkeden çıkarıldı. Kraliyet ailesine mensup erkeklerin çoğunluğu İstanbul’da, kadınların da çoğunluğu Kahire’de kaldı. Bu da açılan davalarda ilginç mahkeme kararlarının çıkmasına sebep oluyor. Mısır kanunları erkeği üstün tutarken, Türk yasaları daha fazla kadınları koruyor. Bu durumda açılan mahkemelerde Mısır mahkemeleri Türkiye’den açılan davaları haklı bulurken, Türk mahkemeleri de Mısır’dan açılan davaları haklı buluyor. Bu arada İstanbul’da yaşayan 87 yaşındaki Neslişah Sultan da Mısır Hidivi 2. Abbas’ın oğlu Prens Abdulmunim’le evli olduğu için Mısır’da da bazı mülklere sahip. Ancak, bu mülkler üzerinde hak iddia edebilmesi için bu ailenin bir süre Mısır’da yaşaması gerekiyor ve Neslişah Sultan da her yıl bir süre Mısır’da kalıyor.Kahire’deki İslam eserlerinin yaklaşık yüzde 80’i Memlüklerden kalma. Memlükler dünyada Türk ismini kullanan ilk Türk devleti. Osmanlının tersine Memlüklerde idare her zaman Türklerde olmuştur.
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