Opinion

Felix Salmon

Friday links don’t look very encouraging

By Felix Salmon
May 22, 2009

A long-overdue tab dump which will make me feel much freer over the long Memorial Day weekend:

$400 billion of Lehman Brothers assets (“at nondistressed prices”) are being valued at $45 billion.

Rick Bookstaber: The Flight to Simplicity in Derivatives

Models Didn’t Bring Down Wall Street; People Brought Down Wall Street: I basically agree with this, although it’s couched as though we disagree. (I’m the “author who has been widely published on the subject of Wall Street’s use of mathematical models” the blog entry is talking about.)

U.S. Household Deleveraging and Future Consumption Growth: The future’s not pretty. Yet another case where a very long boom is likely to be followed by a similarly long bust, and yet another reason not to get too bullish right now.

An interesting question from Willem Buiter: “interest on money is forbidden by the Quran. I don’t know what Sharia scholars would have to say about negative nominal interest rates.”

Ryan Chittum sees “Hints of an Explosive Wall Street Story from FT’s Tett” — he may be right, but I don’t smell the same smoking gun that he smells. On the other hand, if there really are banks which have positioned themselves to benefit from a bankruptcy, only to then push that borrower into bankruptcy, Chittum is right that all hell would break loose — especially if they turned out to be US banks. Banks have a lot of power to decide who gets to roll over their loans and who doesn’t. They should never abuse that power for their own speculative profit.

Google drops idea to buy newspaper: Unless there’s “some massive, massive set of corporate bankruptcies”. Which isn’t all that unlikely.

Comments
3 comments so far | RSS Comments RSS

Felix Salmon needs to get a haircut and then comb his hair!!!

Posted by thom | Report as abusive
 

Short answer: any excess or shortfall, by prior agreement, on money loaned is not permissible.

Buiter writes: “If if were viewed as a gift from the lender to the borrower it might even be condoned.” This is true; but a “gift” (whether from lender to borrower, or vice versa) can not, by definition, be by prior contract.

The rationale for the prohibition of riba is slightly different from the analysis that Buiter presents. In brief, in Islamic law, acts are judged by intent. In “transactions” (the exchange, spot, or deferred of “property”) the intent is either charity, or commerce (“both” is inadmissible). If charity, no premium or discount on the principal, by prior agreement, is permissible. If commerce, all capital must share in the risk of the basic transaction (from which profit is expected), to be eligible for a lawful share in the return.

Thus riba is forbidden not because it is “an increase in capital without any services being provided”; it is forbidden because it is an increase in capital, despite the fact that the capital has been shielded completely from the risk of the fundamental venture. In other words, it isn’t that “something for nothing ain’t right”; rather, it is a case, if you will, of “no risk, no gain”!

 

Thom, I got a haircut on Saturday. So short it doesn’t even need to be combed!

Posted by Felix Salmon | Report as abusive
 

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