Is the Global Financial Crash Happening?


Chairman: Global Vision 2000  is an independent, international, Islamic think-tank. We have done  pioneering work on what is called the paradigm shift, especially after 9/11 when there was a need to re-look at things. What is the real problem out there? Is it terror? Is Islam the cause of problems or is Islam inherently the solution. tow of them

In the think tank we have different disciplines: political, historical, economic. I certainly put a push on fundamental re-looking at finance and economics because I found from my perception that underpinning current events globally and locally is a need  to  rethink finance and economics. I am re-visiting my early university days. The whole question has come with a bang – literally with the current crisis where  people who think they know it all have  been exposed even in the financial capital We saw this with Northern Rock. That was a huge slap in the face on London’s credibility.

So today is a very unique partnership. We have done things which have been televised on a world without usury., a couple of years ago.  This was  televised and sponsored by an interest-free  Western organisation. That was a different type of partnership. Here, Global Vision, as an independent organisation is working with Dr Shehabi and the GCC and we are very pleased to do so and we thank you for being the host. More importantly this event, in a nutshell,l encapsulates how I like to work and I think many Muslim thinkers need to work globally cutting across religious and ideological barriers. just one

What is fascinating today about the selection of the speakers is that although they are from Western, Christian  backgrounds  they do not  just have  sympathy, they have a very deep understanding of the Islamic vision of money and finance which is unique. They have written books on this issue. So what we have here is quite special.

Just to set the scene I thought we could look at The Economist from this very  city as a  great global capital of finance and look what it says: The panic about the dollar. Very gloomy reading about what is happening.  I don’t want to go into that. I am sure you are aware of various issues. Initially it was what it called sub-prime lending mortgages . Nothing to do with the UK. It was  America. That is why they need to think globally. Indeed some people say there was an impact from China on America. So the whole thing is about  globalisation and a globalised world. Everything is interconnected, then it hit London with Northern Rock. So things are very interconnect and complex. That led to the credit crunch and the dollar was already in a very vulnerable position. So it is a very complex situation but, illhamdu Allah, we are going to go to the heart of the matter today because underpinning all of this is a deeper analysis about what is really going on.

Our first speaker is Canon Peter Challen  who is going to set the tone.  He is the ex Chaplin  from the South London Industrial Mission,  a fellow of the London Business School and  the  Chairman of the Christian Council for Monetary Justice which focuses on the restoration of the creation of money to democratic accountability. He is also one of the founders of the London Global Table. 

A challenge to all in good faith
A prelude to a pragmatic proposal

We are here in good faith to consider the effect and cause of, and a solution to, an expanding global financial crisis.  As people of good faith we seek to play our part in conceiving and implementing effective, pragmatic change. We meet as 10,000 people from 182 countries also meet in Bali. We are concerned with the underlying drivers of economic life. And among those three we concentrate on Money as Debt, the problems it generates and the solutions that are proposed.


It is common to all people of good faith that we are to love the created order and not to exploit our neighbours among all life-forms ( The Golden Rule/the Ethic of Reciprocity see Wikipedia ) On Nov 31 the Pope agreed to meet reps of 138 authors of a letter to Christians based on those two great commandments, which we must take as behavioural commitments.

Historically three faiths have explicitly banned as evil, as against society, nature and God, the charging of riba/interest/usury. Christianity, Taoism and Islam are emphatic.


Sadly, Christianity started abandoning its opposition to usury in the Reformation in the16th century so opening the floodgates to finance capitalism and thereby obscuring the value to society of capital well distributed. Taoism has maintained its opposition, founded on teachings such as this from the Daodejing written some three hundred years before Jesus lived:

3. ANCIENT TAOIST INSIGHT  the oldest statement of common moral sense.
You see, if people want more and more
It can only lead to disaster.
Is the seed of apocalypse –
It is the fuel of selfishness.
– Daodejing, Chapter 46
We must apply this to personal greed, to which most humans are prone,
to structured societal greed, enslaving us in consumerism,
to greed pitting humans against the planet.
Meanwhile, though Islam has wavered in the last few centuries, in recent years many Muslims have returned to the Qur’an and its teachings, such as this:
“Allah has permitted trade, and forbidden usury…
deal not unjustly and you shall not be dealt with unjustly.”   
–  Qur’an, Surah 2
Today the Islamic apparently non-usury banking structures are amongst the fastest growing sectors of the commercial and investment market – worth around 300 billion dollars.  Is it faltering again? That is the challenging question to be asked – and answered honestly.
So what exactly were the Christian principles against usury? An interview with St. Anselm, the Archbishop of Canterbury some 900 years ago would have delivered a very forth right message. He saw usury as stealing. Not only as a breaking of the commandment not to steal but also an abuse of the free gift of the bounty of creation – which is for all life-forms on the planet. Luther was even more adamant. It is perhaps salutary to remember that those who run institutions which charge interest should be called sinners – according to the original teachings of the three faiths.
These sinners are not alone of course. That’s the rub.  We are almost all implicated in this, including myself. We have all accepted usury as normal.
One fundamental principle from all three traditions is that the investors take the same risk as those in whom they invest. Trade is fine, but it must be just; investment is fine, but you must see yourself as part of a wider community, all of whom share the risk and of course any benefit.  These are ideas that many support, believers or not.
Consequently, perhaps it is time to look for financial structures in which we can actually believe.

  • prohibition of Riba/interest/usury
  •  a sense of environmental stewardship
  •  a strong ethical sense
  •  a demand for a structural social and economic justice rather than a merely palliative charity

 The most pragmatic expression of the faiths that I know is to be briefly presented by Rodney Shakespeare today.  Administration cost is necessary; interest is NOT
… is a declaration of fundamental principles for building a just, sustainable, and peaceful global society for the 21st century. Created by the largest global consultation process ever associated with an international declaration, endorsed by thousands of organizations representing millions of people, the Earth Charter seeks to inspire a sense of global interdependence and shared responsibility for the well-being of the human family and the living world. The Charter is an expression of hope and a call to global partnership at this critical time in history.
Is the Global Financial Crash Happening?

What is the Answer?

.Professor Rodney Shakespeare:    I should like to thank you and Globalvisison2000 for inviting Canon Peter Challen and I to speak tonight and, in particular, to thank the Gulf Cultural Club, its officers, members and guests, for being hosts.
Sir, for about ten years something big and nasty has been looming nearer and nearer.  And as it gets nearer it is seen to have two nasty aspects, not one. 
Firstly, there is the impending crisis of the global financial system and, secondly, the crisis of the global environment. 
The two crises, however, are different.  The financial crisis will have nasty consequences but afterwards life, however injured, will still go on but the global environmental crisis is of a totally different nature – when it happens, and it is rapidly getting nearer, life will be injured and then will end…….
Are the two crises connected?  Oh yes. 
And is there a solution to either crisis or both?  Well, there could be.
The financial crisis
However, we cannot talk about solution until the causes of the present financial crisis are understood and we are told it’s to do with sub-prime mortgages – lending too much to people too poor to be able to repay.
Yet if they cannot repay, why did anybody ever think that the money could be lent in the first place?  After all, lenders do not have to lend to those who cannot pay.  So why did they lend?
And why is it that people right the way round the world are being caught by this sub-prime lending matter?  Narvik in Norway is on the Arctic Circle.  It has just lost around £10,000,000 (ten million pounds) and may soon lose much more.  As mid-winter approaches, there will be no daylight in Narvik and it will all be gloom.  Several other places in Norway – Memnes, Hattfjelldal and Rana — are in the same predicament and essentially are bankrupt. 

And in Germany the predicament is on a bigger scale with several regional banks being hit.  These losses in Norway and Germany have something to do with America’s biggest bank – Citigroup and Citibank – yet Citigroup and Citibank itself is being hit and here you are talking not millions but billions of dollars.  Indeed, Citigroup has been discovered to have over $80 billion of incredibly complex things off its balance sheet in secretive Cayman Islands institutions.  Some of these things are called Structured Investment Vehicles or SIVs.  Others are CBSs CDOs and RMBSs.  More sensible people call them potential bombs waiting to explode.

And it’s not just Citigroup.  Many of the famous USA institutions – Bear Stearns, Merrill Lynch — are being hit and hit in strange ways.  An American law case involves the Deutsche Bank wanting to foreclose on fourteen houses but the Bank did not have the original mortgage documents to show in court. 

A year ago, this would not have mattered.  For the first six years of this century, credit was generally expanding — anybody could borrow and Adjustable Rate Mortgages were called ARMS to make them sound friendly.

Then, the lenders sold the mortgages on to Wall Street firms which, using computers, bundled them up and turned them into tradable securities, backed by complex mathematical models.  These securities were then rated by companies such as Fitch and Moody’s – for fees – and sold on to people who didn’t know what was in them.   In this way, billions of dollars worth of SIVs were sold on to others without the original mortgage documents.

And now Deutsche Bank has found itself up against Judge Boyko who, referring to the absence of mortgage documents, said:-

“The institutions seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance. Finally put to the test, their weak legal arguments compel the court to stop them at the gate.”
Some say that the Deutshche Bank case alone could bring down the system.

And the same sort of thing has been going on commercially with lenders pouring cash into commercial real estate like malls and factory buildings and the securities being sold on in various forms of derivative.  Giving their approval and, of course, taking the fees, were the rating agencies — Moody’s, or Fitch – which plastered triple-A ratings all over the billions of dollars’ worth of securities and derivatives that have now turned largely into toxic waste.

And not only home debt and commercial debt, but credit card debt, car debt student loans were all being bundled up into riskier and riskier bundles and sold on to the unsuspecting.  And nobody really knows the total of the debt — a Bank of England economist (Charles Bean) is saying that only a relatively small fraction of the losses have been reported to date.

But even if the losses are around $400,000,000,000 as is thought at Goldman Sachs, they would still trigger a two trillion dollar withdrawal of bank lending which would have horrible consequences.

Something big is happening and it is not just a liquidity crunch or credit crunch.  Rather it is becoming a solvency crisis in which the banks’ capital base becomes overwhelmed by the scale of the losses – some say a trillion or more — so that they can no longer lend at all.  A big recession, even a collapse is in prospect and the situation has alarming parallels to 1929.

Money is created out of nothing

So what are the fundamental causes of this situation?  Firstly, we have to start with the basic nature of the modern banking system which does not lend the money of its depositors – does not lend the money that is deposited – but instead lends money that is newly created money created out of nothing.  All the main authors and experts say so – here is a quotation:-
“The actual process of money creation takes place primarily in banks.”  (Federal Reserve Bank of Chicago)

The method of creating money out of nothing was neatly summarised by Graham Towers, ex-Governor of the Central Bank of Canada who said:‑

“Each and every time a bank makes a loan, new bank credit is created ─ new deposits ─ brand new money.” 

Speaking of money, he also said that:‑

“The manufacturing process consists of making a pen-and-ink or typewriter entry on a card in a book.  That is all.” 
What is more, Peter Challen and I succeeded in getting an admission from the Governor of the Bank of England that that is indeed the case.  in the UK for example, 97% of the new money supply is created by the banking system and 3% or less by the government.  It is less than 3% in the USA.
“Now, wait a minute,” you might say, “money is not created out of nothing.  I’m a taxpayer and around £24,000,000,000 (twenty four billion pounds) of taxpayers’ money has just been lent by the Bank of England to Northern Rock.”
 Well, that is not true.  Statements about tax payers’ money being lent are lying propaganda or, if you want to be charitable, inaccurate statements made by the ignorant.  Tim Congdon, writing in the Financial Times, explains the matter thus:-
"The explanation is that the Bank of England can create money "by a stroke of the pen". Parliament has made it the UK’s only issuer of legal-tender notes, and it can expand the note issue or credit a balance convertible into notes at virtually nil cost.
Because of these special powers, the Bank does not need to borrow in the Interbank market at a positive interest rate."

In other words the Bank of England has just created twenty four billion pounds at the stroke of a pen, or rather, the pressing of a computer button – just as the banking system does all the time.

So the truth is that all that freshly minted money for Northern Rock did not derive from the “tax-payer” at all: it is simply computer-generated credit that any Central Bank may create at any time to oil the wheels of commerce, but conventionally will only do so as cash.  In summary, the UK tax payer need lose NOTHING in the event of a default by Northern Rock.

To the money which it creates out of nothing the banking system adds interest.  And in doing so it creates a problem because the banks never, ever tell anybody that, in reality interest consists of two separate components.
a)                       administration cost which is fairly payable for work done when it has been fairly done
b)                        interest which is entirely separate and is simply a tax, a tax which compounds over time and locks on independently of administration cost and with its exponential growth puts individuals, corporations and yes, whole countries into never-ending debt.  In the UK the interest alone on the National Debt is around £9 per week for every individual person.

The money is then NOT directed at the development and spreading of productive capacity And what does the banking system do with the money which it creates out of nothing and adds interest to?  Well, nowadays, it puts it firstly into houses – any house, caravan or shack owned by any person no matter how poor.

At which point it is necessary to understand that banking practice has greatly changed of late.  As a result of the abolition of the Glass-Steagall Act in 1999 in the USA and similar legislation around the world, banks are no longer confined to banking – they may go into any financial activity.

Moreover, the previous practice of asking banks to keep cash reserves with the national banks has greatly diminished.  Today the requirement for reserves has been largely eliminated.  Indeed, the only restriction on lending for a house is interest and, even that restriction – the interest rate – becomes ineffective when there is so much money sloshing around that housing prices are continually rising and so borrowers can be assured that they will be able to sell their house or shack for more that they have borrowed.

More and more loans are created and debt increased.

However please remember that sufficient money is created out of nothing by the banking system for the principal of a loan but money is NOT created to pay for the interest.  That has consequences including the need to create more and more money.  You may wonder why, right around the world, there is a creeping inflation and the answer is that it is the imposition of interest which necessitates the creation of more and more interesting-bearing money.  That requires a need for more and more people to go into debt and, at the same time, it creates a creeping inflation.  Increased debt and increased inflation go hand in hand.  American author, Ellen Brown, puts it succinctly:-

“Contrary to popular belief, creeping inflation is not caused by the government irresponsibly printing dollars.  It is caused by banks expanding the money supply with loans.”  (Brown, 2007)
Increased debt

Unfortunately, the overall debt and inflation then gets accentuated by government policy e.g. of the United States which is essentially now printing money to fund its excessive spending.  Each American on average has government debt equivalent debt of about $175,000 or £85,000.  The US national debt grows at $1 million per minute.  It’s now just over $9 trillion.  And then there is also the personal debt, mortgage debt plus the debt of towns, corporations etc.  Inevitably the dollar is declining with consequences for everybody e.g. if the dollar declines then Boeing will likely beat the European Airbus in the sale of billions of pounds worth or aeroplanes.

Confidence collapses

So what happens when — as is happening now – doubts creep in and confidence weakens?  What happens when all those off-balance sheet vehicles are being given exposure and found to be worth perhaps a quarter or a fifth of what they were once worth?  What happens when credit is being withdrawn so that it will soon become a battle between two monsters — deflation and inflation – whose struggles will knock over everybody else.  What happens when everything starts to go into reverse as is happening now?  What happens when the arsonists – this is a French description – have set fire to everything?

Well, Gregory Peters, Head of Credit Strategy at Morgan Stanley, says that there is “there’s a greater than 50% probability that the financial system will come to a grinding halt because of losses from mortgages”.  And that’s just from the mortgage losses, let alone the huge amount of other debt.

Or, instead of a halt, there could be a huge recession, or a huge inflation – or both.  My guess is deflation followed by stag-flation. 

The underlying causes of the financial crisis

And all this is happening because money is created out of nothing, interest as opposed to administration cost is added, and the money is not directed into the development and spreading of productive capacity as it should be.  Moreover, this process is backed by a lot of false doctrine including the doctrine of the time value of money – but if money is created out of nothing then  money has no time value.

On top of the false system and the false doctrine there then sit the Three Evils — of Greed, Hubris and the Ineffable Belief that the present free market is free, fair and efficient when it is anything but free, fair and efficient.  Of the Three Evils the worst is the Ineffable Belief — the belief which, thinking that history had come to an end in 1989 with the victory over communism and all has been perfected, ignores the disaster now in the making.

There is a fourth Evil – the belief, bolstered by lying propaganda, that countries, if they wish to borrow money, have to borrow from the banking system or from abroad.  African countries alone send $100 million in interest charges EVERY DAY to mostly American and British banks, the capital having been already paid several times over.

Those countries are NOT told that they could create the money for themselves, spend it, take it back and cancel it – all without any interest.  Instead they are told that they must pay interest, compound interest, and when they can’t, in come the vultures to take ownership of the country’s assets and the like.

The environmental crisis

Well, what of the environmental crisis?  It has many aspects.  For example, you can hardly expect poor people to agree to stay in poverty so that their consumption can remain muted.  If you want to lessen consumption you have, paradoxically, to start by giving a fair deal to the poor.  But 55% of the world’s population today live on under $3 per day.  And did you know that, even in the USA, one fifth of the population live on under $7 per day?  And, in the USA, more than one in ten people go hungry each day?   And, even if they manage to get food stamps, the stamps are only worth fifty pence per meal.  That’s the USA for you!

And in the world 25,000 people die each day from the effects of dirty water.  Right the way round the world water and sewage systems are being sold off and poor people are having to pay more, much more, for their water assuming they have any piped access at all.

Where the impending environmental crisis is  concerned, I’m afraid that I bring you bad news – there is NO solution possible within existing thinking, within existing practice, and within the existing paradigm.  Conventional mainstream neoclassical economics and the politics based on it cannot solve the poverty; cannot create the circumstances in which consumption is reduced; cannot provide the huge sums – the billions of dollars needed for evermore for huge environmental capital projects as recently requested by Ban Ki-Moon the United Nations Secretary-General and his team; cannot break the power of Big Oil to allow the development of new alternative technologies; and cannot create what is profoundly necessary to get everybody to co-operate — social and economic justice.

However a new Modern Universal Paradigm is developing and it can solve the problems and, before showing you a diagram, I would like to give an illustration of the practical  power of the new Universal Paradigm as it can be applied in everyday circumstances.

My example is Iraq.  Yes, oil, but an arrogance – Ineffable Belief in the virtues of the ‘free market’ – also lay behind the invasion of Iraq.

 And now we come to it — a thoroughly nasty aspect of the free market in Iraq was the Bremer Orders.  How many people have heard of the Bremer Orders?  Bremer Orders.

Do a Google – Paul Bremer was the first American administrator of Iraq who issued one hundred Orders and most of them – Order 39 in particular —  were about ripping off ownership to outsiders of virtually all Iraqi assets.   The idea was to get the Iraqis to sell off everything cheaply for a few dollars, everything except the oil which was to be used to repay the huge debt Iraq would be loaded with. 

The rage against the USA and the UK has several elements but a big one is the sell-out, the complete sell out of the Iraqi people and the attempt to rip off all their assets. 

And what would new Universal Paradigm thinking have done?  Why, it would have announced that Iraqi oil is for the Iraqis and ensured that ALL individual Iraqi citizens would  immediately have a single non-transferable life-time share in the ownership of the oil and, in particular, of its income with the dividends payable immediately the oil was flowing.  That would have given everybody, everybody, a strong financial interest in the stability and success of their own country.  Iraq’s debt should also have been declared as odious and cancelled and the measures taken which you can now see in the following  diagram.

A gradual rise to 100% banking reserves requirement stops the banking system from creating money out of nothing

Interest-free loans for productive purposes then come from


   Central Bank

Spare funds in the ummah
or funds from zakah





and are lent to
      approved institutions

Grameen Bank or other non-governmental organisation




which may charge for

 administration cost

 but may NOT add interest

as they lend for

medium and

large business
wider ownership
is promoted

small business
fish ponds
public capital bridges, schools
hospitals, roads
sewage works
water supplies
environmental projects
tidal barrages
solar electricity
wind farms
magnetic energy generation
student loans

thereby halving or more the cost

  Binary Economics spreads ownership

* Rodney Shakespeare is a UK tutor, in  binary economist, Visiting Professor on the postgraduate Islamic Economics & Finance program at Trisakti University, Jakarta, Indonesia, and a member of the Christian Council for Monetary Justice. A Cambridge MA and Barrister of the Middle Temple he is co-author or author of four books including Binary Economics – the new paradigm (1999) which is the standard textbook on the subject; Seven Steps to Justice (2002); and the recently published The Modern Universal Paradigm (2007). He will speak on behalf of the Global Table.


Leave a Reply

Your email address will not be published. Required fields are marked *