Is the world heading into recession?

watterinja · 02-03-2009, 11:11 AM

How does this western madness compare to the Islamic banking model?

**Butterfly** · 02-03-2009, 11:28 AM

^ Islamic banking isn't showing any innovations and would be a pain in the ass to deal with, like dealing with a 18th century style of banking

they also rely on the existing western banking system to service their clients, or else they would have all their clients would have left

Dan · 02-03-2009, 02:10 PM

In Islam - as used to be the case in Christianity - usury is prohibited so it is not possible for an Islamic bank to lend at interest. As I understand it, banks instead take the role of seller so they if you want to buy a house, the bank will actually buy it and then re-sell it to you at a profit. You then pay them in instalments.

watterinja · 02-03-2009, 02:12 PM

Thanks Dan - makes sense. Nice way to do it.

**Butterfly** · 02-03-2009, 02:20 PM

^ it's the same really

and they probably resell the "loan" of that house on the western market securitization, so at the end they are not really different

Dan · 02-03-2009, 06:19 PM

Not really. Islamic banks - in tune with the religion - are focused more heavily on the community than modern western banks (perhaps more like old-fashioned building societies used to be?) It's easy enough to make the assumption that everything non-western is a just an imprecise reflection of western practices but I'm not sure that that's really justified. There's a short piece on the BBC today at BBC NEWS | Asia-Pacific | Islamic banks 'better in crisis' which says:

"Islamic financial institutions, he said, had not been hit as hard as their western counterparts because they did not invest in toxic assets.

Banks run in accordance with Muslims laws on interest payments and the sharing of credit risks are seen by many as fairer than traditional banks, less focused on profit and kinder to the communities they work in.

Demand for Islamic financial products has been growing in the Muslim world for years but Mr Yudhoyono said that many in the West were now ready to learn from them.

Islamic law prohibits the payment and collection of interest, which is seen as a form of gambling.

Transactions must be backed by real assets, and because risk is shared between the bank and the depositor, there is added incentive for the institutions to ensure deals are sound."

**robuzo** · 02-03-2009, 06:52 PM

I'm sure this doesn't qualify as Islamic banking, but worth a giggle anyway:

COMPANY NEWS; CITIGROUP'S BIGGEST SHAREHOLDER, A SAUDI, BUYS MORE

Published: July 19, 2002
http://query.nytimes.com/gst/fullpage.html?res=9A0DE5D61139F93AA25754C0A9649C8B 63

But now, this:
Saudi Prince Is Humbled by Citigroup - DealBook Blog - NYTimes.com
Citigroup, the investment that had transformed Prince Walid from an obscure Arabian royal into the Warren E. Buffett of the Middle East, was spiraling down around him.
And now, on the line from New York, was Citigroup’s chief executive, calling personally to tell the prince that the United States government would substantially increase its stake in the troubled financial company — a step that would cost the prince dearly, write The New York Times’s Landon Thomas Jr. and Eric Dash.

**Spin** · 02-03-2009, 07:03 PM

AIG posts 61.7 Billion Dollar Loss for 4th quarter, and will get another 30 billion in aid.

Its a black hole....AIG have now ha government money to the tune of 180 billion dollars!

AIG to Get Up to $30 Billion More in New Bailout After Loss

March 2 (Bloomberg) -- American International Group Inc., the insurer deemed too important to fail, will get as much as $30 billion in new government capital in a revised bailout after posting a record fourth-quarter loss.

The loss widened to $61.7 billion from $5.29 billion in the year-earlier period, the New York-based insurer said today in a statement. The government will also exchange its $40 billion in preferred stock for new shares that “resemble common equity,” the Treasury and Federal Reserve said. AIG was paying a 10 percent dividend on the preferred stock.

The insurer, first saved from collapse in September with a package that grew to $150 billion last year, had to ask for help again after failing to sell enough subsidiaries to repay the U.S. Firms including banks relied on AIG to back more than $300 billion of assets through derivative contracts as of Sept. 30, making the company a “systemically significant failing institution” that has to be propped up, the Treasury said.

“The government has accepted all the downside with little chance of upside,” said Phillip Phan, professor of management at the Johns Hopkins Carey Business School in Baltimore. “They are trying to protect the global financial system from a complete meltdown.”

AIG agreed to turn over two units, American Life Insurance Co. and American International Assurance Co. AIG will pay down the federal loan, valued at about $38.9 billion on Dec. 31, partly by putting the life units in trusts and giving the government rights to the cash flow from tens of thousands of life insurance policies.

More Capital

The role of the U.S. has shifted from that of short-term lender -- entitled to interest at the 3-month London Interbank offered rate plus 8.5 percent for a two-year loan under the first bailout -- to a longer-term equity investor.

“We priced their capital punitively and forced them to sell things fast; that hasn’t worked either so we’re having to pump in more capital,” said Haag Sherman, who helps oversee $8 billion as chief investment officer of Houston-based Salient Partners. “This probably won’t be the last time AIG has to come to the trough.”

AIG will also separate the unit that provides property and liability coverage for commercial clients and may sell a 19.9 percent stake to the public within 12 months, a person familiar with the matter said. That business, which was previously intended to be the core of AIG after the U.S. rescue, may get a new brand to distance itself from AIG, said the person, who asked not to be identified.

Aircraft Leasing

AIG sought a revised bailout after the global decline in financial firms thinned the pool of potential buyers for units, increasing the chance that auctions wouldn’t raise enough money to pay back AIG’s loans. Under the new plan, AIG will be under less pressure to divest assets as it continues to seek buyers for operations including an aircraft-leasing business, an auto insurer, and a retirement-services operation.

The insurer had been in talks in the past week with regulators to restructure its bailout to stave off credit-rating downgrades that would have caused further costs tied to credit- default swaps. AIG got an $85 billion federal loan in September after credit-rating downgrades left the company facing more than $10 billion in potential payments to debt investors who bought swaps from the insurer to protect against losses.

Downgrades by Moody’s Investors Service and Standard & Poor’s would force AIG to post more than $7 billion in collateral to counterparties, the insurer said in a November filing. AIG’s units may also lose access to the U.S. commercial paper program if they are downgraded, the company said.

Chief Executive Officer Edward Liddy, appointed by the government to run AIG in September when the insurer agreed to turn over an 80 percent stake to the U.S., had struck deals to raise about $2.4 billion through asset sales. Under Liddy’s plan, revealed in October, AIG was to emerge as a firm mostly providing property-casualty coverage to businesses.

Road to Recovery

Liddy said AIG was on the “road to recovery” after securing a bailout valued at $150 billion in November. That package included the $60 billion credit line, a $40 billion capital investment and $50 billion to wind down liabilities tied to mortgage-backed securities the insurer owned or backed through swaps. Liddy said then that terms of the original rescue, disclosed a day after Lehman Brothers Holdings Inc. collapsed, were unsustainable.

AIG is winding down the trades and closing the unit that sold the swaps. The unit is under investigation by the U.S. Department of Justice, the Securities and Exchange Commission and U.K.’s Serious Fraud Office. The U.S. probes involve how AIG executives valued its swap portfolio and disclosed information about the contracts to investors, AIG said in a November regulatory filing.

Planes, Ships

AIG, once the world’s largest insurer, operates in more than 100 countries, providing protection to individuals and businesses. It insures against some of the biggest risks, covering planes and commercial shipping and providing protection against terrorist attacks.

The biggest insurers in North America posted more than $150 billion in writedowns and unrealized losses linked to the collapse of the mortgage market from the start of 2007, with AIG representing more than a third of that total. The company has units that insure, originate and invest in home loans.

The U.S. Senate’s banking committee has scheduled a hearing for March 5 to discuss AIG’s bailout and the government involvement. New York Insurance Superintendent Eric Dinallo and Donald Kohn, vice-chairman of the Federal Reserve Board of Governors, were scheduled to testify.
source

This news has sent US market futures lower, with the DOW showing 6882 and S&P500 716

**Rattanaburi** · 03-03-2009, 07:16 AM

It seems the only way up from here has been down.

**Butterfly** · 03-03-2009, 07:26 AM

Originally Posted by Dan

Not really. Islamic banks - in tune with the religion - are focused more heavily on the community than modern western banks (perhaps more like old-fashioned building societies used to be?) It's easy enough to make the assumption that everything non-western is a just an imprecise reflection of western practices but I'm not sure that that's really justified.

The financial mechanics are still the same, they were more conservative with their lending, but at the end they use the same techniques as western banking.

**sarah9** · 07-03-2009, 03:26 PM

Hello,

The giant of the recession has already taken in to its clutches almost all the world economy, be it European market or Asian market, though Asian markets are better than European market, but negative effect of the recession has shown its effect on Asian countries, almost all the Asian countries are facing lower GDP, and weak stock market and the rising price of commodities says all.

Regards,
sarah_9

**Spin** · 09-03-2009, 06:46 PM

Japanese exports down 50% in January

Japan's current account recorded its largest deficit on record in January, reaching 172.8bn yen ($1.8bn; £1.2bn). It was its first deficit in 13 years.

The current account measures the balance between a country's exports and imports - a deficit means more imports.

Government figures show that exports nearly halved in January, while imports fell by a third.

The country is being hit by falling demand for its products abroad, as the global recession takes hold.

Corporate blow

Exports in January dropped a record 46.3% from a year earlier to 3.28 trillion yen, the fourth consecutive month of year-on-year declines, with exports to the US hardest hit, registering a 52.9% drop.

Car exports alone dropped 66.1%, with semiconductor and electronic parts exports down 52.8%.

Tumbling exports have hit companies such as Toyota, which is expected to make its first annual loss in 70 years.

Meanwhile, Honda has had to cut production, and Sony is set to register its first annual loss in 14 years.

Shares tumbled on the news, with the benchmark Japanese index, the Nikkei, closing down 1.2% at a 26-year low of 7, 086 points.

Dismal figures

"We incurred the current account deficit due to a plunge in exports. Our exports to key regions, including the United States, Europe and Asia, were all down sharply due to the deteriorating global economy," Michito Yamagami, a finance ministry official said.

Hiroshi Watanabe, an economist at Daiwa Institute of Research, said: "The current account deficit and the dismal exports data clearly reflected weakening demand for Japanese goods amid a global recession.

"Consumers in Asia, Europe, the Middle East and the United States are not buying pricey Japanese goods such as cars and electronic goods.

"Japan's export-driven economy is really engulfed by waves of the global economic crisis."

source

Dan · 09-03-2009, 06:51 PM

March 9 (Bloomberg) -- American International Group Inc. appealed for its fourth U.S. rescue by telling regulators the company’s collapse could cripple money-market funds, force European banks to raise capital, cause competing life insurers to fail and wipe out the taxpayers’ stake in the firm.

AIG needed immediate help from the Federal Reserve and Treasury to prevent a “catastrophic” collapse that would be worse for markets than the demise last year of Lehman Brothers Holdings Inc., according to a 21-page draft AIG presentation dated Feb. 26, labeled as “strictly confidential” and circulated among federal and state regulators.

“What happens to AIG has the potential to trigger a cascading set of further failures which cannot be stopped except by extraordinary means,’’ said the presentation by New York- based AIG. “Insurance is the oxygen of the free enterprise system. Without the promise of protection against life’s adversities, the fundamentals of capitalism are undermined.’’

Regulators revised AIG’s bailout last week to ease loan terms and extend $30 billion in fresh capital after the firm posted a $61.7 billion fourth-quarter loss, the worst in U.S. corporate history. Lawmakers are reluctant to give more support beyond the package already in place, worth about $160 billion, because they say regulators haven’t given enough detail about how the funds are being used or when the bailouts will end.

Bloomberg.com: Worldwide

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