Volatile Markets and the Risks of Image-based Economies

We are all helplessly staring as markets rally and then drop down, and as much as the factors of this behavior are diverse I would like to emphasize the importance that an IP-based economy has on this phenomenon.

As far as our western developed countries are concerned general manufacturing has migrated to other countries, replaced by next-generation, knowledge-based industries, including the life sciences, IT, fiber optics and health care. Just as machine tools and capital equipment were the assets of yesterday’s manufacturers, intellectual property now provides the value in today’s economy.  

A world-wide shift to knowledge based economics has placed more emphasis on an organisation's intangible assets and intellectual property making its valuation highly difficult and very unstable. This is particularly true for companies whose IP resides not so much in a patent or a specific technology but in a logo, depending therefore not so much on the ability to produce a cost-efficient product but on people’s appreciation of a status symbol, idea, fantasy, image…. Whatever you want to call it!

What is Facebook worth? It is only worth 800 million users, with their constant picture uploading and wall-writing. But is facebook really producing an asset with  an intrinsic value? Isn’t it very easy for any other IT geek to produce a “Facelog”? How easy is it for 800 million people to start logging in and uploading photos on “Facelog” instead of Facebook? BWM, or Porsche (for example) undoubtedly have an IP value: their logo (which is a worldwide status symbol and mark of quality) but behind their symbol stand material assets, large investments, an objectively measurable quality and significant means of production.

When we reflect on how much faster it is possible to “duplicate” or “replace” Facebook rather than Porsche and on how hard it is, therefore, to predict long-term user/consumer demand for an IP-based (or shall we say image-based?) company we probably understand one of the many factors that are determining recent market roller coasters.

In addition to these, by nature highly volatile companies, that are earning an ever larger share of our investors’ money (example: LinkedIn’s current market cap is 9B US$) we are also assisting to old and established companies offering a real-value product shifting their attention more and more to their image rather than to the quality or their products.

I think a good example of this phenomenon is Apple. Apple used to be loved and respected for its quality, for its operating system and for its forefront products. I grew up with Apple computers and until my last two ones I never had one breakdown and when I bought one the base model was better than most PCs you could get. Probably (hum???) due to bad luck my last two broke (video card, mother board) and by surfing the net one finds a very large amount of people complaining about their Mac. Until the latest Unibody model all Apple laptops came by default with an anti-glare screen, which is a much more expensive screen but provides an incomparable visibility, now you have to specifically order it and pay an extra amount of money to have it.

What am I trying to say? That Apple, thanks to its quality and undoubtedly also to its design, became fashionable and has since started to sell computers and gadgets not for their intrinsic value and functionality but because they became a status symbol,;being more expensive and having a very good reputation they became the “computer for the elite” leading, therefore, every non-elite person to want one. Now Apple is happy to cut down costs and reach out to a larger group of image-hungry consumers whilst simultaneously cutting down on the quality that made it the brand it is. As Apple shares soared (the good days are probably already behind) we saw its quality fall, making the value of one of the world’s largest companies become more and more an image-based one and therefore a volatile one.

As long as our culture and our pantheon of symbols will remain the dominating, admired, and desired ones we will have something to sell, but the day a pear tastes better than an apple our companies have very little to offer.

Shakespeare? That Will Be 40000 Dollars Please

This week’s Economist featured a leader on the indebtedness of American students and the grave implications this could have on society as rising unemployment persists. The article as a whole made many ingenious suggestions to reverse the trend of over-burdening students with debt, however from the last sentence it transpired that the newspaper holds a very commercial view of education. This is something I touched upon in a previous article, namely that education has become a mere variable in the job market, rather than being a function in itself. The Economist suggests that “those studying less lucrative subjects would have to pay more, or be subsidised more”, implying that the value of a degree can almost be quantified in crude numbers. This looks over the fact that the value of a degree is mostly qualitative, and that the future salary that a student can expect is but an infinitesimal percentage of the host of other benefits that accrue from pursuing education. The only reason for which a scientific degree (which usually is considered more employable than a humanities one) ought to benefit from more government funding is because it is usually more time-intensive and more expensive to teach because of the practical elements involved. An English degree does not involve all the experiments and labs which undoubtedly cost more money than simply lecturing for 9 hours a week. 

However, to render “more employable” degrees cheaper through greater government funding produces a distorting disincentive to pursue a humanities degree, something which would be regrettable for society as a whole. It reinforces the mistaken notion that education does not have any intrinsic value in itself, but that it ought to be pursued solely to land a lucrative job. This belief is in turn based on a fundamental flaw in society, namely that society benefits solely from money-making automatons and exhorts individuals to chart the course of their life accordingly. On a more banal level, it could be argued that Shakespeare did not find a cure for cancer nor contribute monetarily to the economy, but does it follow from this that the study of his work is any less important for society? Where would we be today without philosophy? A student with an in-depth knowledge of literature or philosophy may not have an identifiable price tag attached to his head, but the value he would bring to the intellectual and cultural facets of society would be priceless. Unhappy is the society that marginalises intellectual pursuit in favour of purely economic proclivities.

The Plagues of Europe

Yesterday’s package was hailed as a panacea to Europe’s problems by politicians and markets alike. This is a puzzling and short sighted reaction because the package conspicuously fails to address the problems that lie at the heart of the euro. One could justify this by saying that the plan is primarily intended to placate restive markets as it is close to impossible to implement cross-cutting structural reforms which are likely to cause unrest when the biting eyes of the market are on your back. However there is little evidence that European policy-makers have adopted such a long-term view; the likelihood is that this is yet another fudging attempt to suppress the symptoms of the crisis whilst ignoring the roots of it. The problems with the euro are specific to the foundations of the eurozone but are also embedded in the contorted fabric of European integration.

The first of these problems concerns the structural differences between members of the ill-fated eurozone. These cleavages are so vast now that Jamie Dannhauser of Lombard Street Research says it is not clear to see how you could fix them. For a start there is the ubiquitous competitiveness problem. Mediterranean countries, especially Greece, went on a spending spree upon joining the euro which was fuelled by the low interest rates. They thus accumulated a healthy dollop of public debt and placidly let wages balloon which led to a sharp drop in competitiveness compared to their ascetic neighbour Germany. Yet it is easy to infer from this that southern Europe reaped all the (temporary) benefits of the euro whilst the disciplined north observed fiscal responsibility only to be presented with a hefty bill when the floor caved in. On the contrary, Germany has been able to foster its export-driven economy largely thanks to the weaker and thus more competitive exchange rate afforded it by sharing a currency with the reckless southerners. This is compounded by the reality that if Germany decided to leave the euro its economy would be hit hard by the ensuing appreciation of its new currency as exports would become less competitive.

The second problem is one of political accountability, or the lack thereof. As the BBC says, there is no one who can credibly claim to speak for Europe as a whole. The integration process so far has been run from the top by national governments, with the tacit consent of the people. Decisions have been taken by eurocrats haggling behind closed doors and then presenting them to voters as matters of competing national interests. National leaders have been adept at taking the credit when integration has generated benefits and quick at using it as a scapegoat for their own failings. Thus Italian politicians play the Brussels card when announcing another round of austerity measures, as if they were being imposed on the country on the whim of a distant eurocrat whilst the past decade of political prevarication and stagnation fades into insignificance. How convenient. Furthermore, the decision-making process in Brussels is painfully slow and ill-suited for financial crises; one cannot hope to assuage the markets’ jitters when 17 national leaders have to agree on a solution and then present it for ratification in 17 different parliaments. The obvious solution to the lack of political efficiency is for the EU’s executive arm, the Commission, to take the lead as its equivalent would do on the national level. However, this merely brings us to the next wall, namely a lack of democratic accountability. If Jose Manuel Barroso were to take a much more prominent role in solving Europe’s problems, he would encounter the wrath of all those within the public who consider the idea of a political appointee dictating policy anathema. Again, the obvious solution to this conundrum is to make him an elected leader, but this raises the spectre of a European superstate which is an equally abhorrent idea for many.

The third, and perhaps most intractable problem, is that of growth. Italy has been growing sluggishly for over 10 years and since the 2008 crisis growth in the rest of the eurozone has ratcheted along at a similar pace. Manufacturing output in the eurozone fell at its fastest pace in two years in September whilst Germany’s economy grew by just 0.1% in the second quarter of this year. More importantly, if the heavily indebted countries like Greece fail to foster growth they stand close to no chance of extracting themselves from the current quagmire. As Stephanie Flanders has said on the BBC, “we might get a ‘deal’ to save the Euro on Wednesday, but it does not look as though we will get a deal consistent with reasonable economic growth”. European leaders have instead focused zealously on austerity to cut deficits and debt which is showing few tangible results save for a conspicuous lack of growth. As tax receipts dwindle due to plunging profits and unemployment rises, governments are forced to borrow more to repay previous debts and thus find themselves back at square one. Moreover, Alen Mattich argues that the growth problems afflicting the eurozone’s periphery are so politically, culturally and legally entrenched that the solution does not lie in buying a few months’ respite from the fickle markets. He says that even with a 60% haircut on Greek debt, Greece would have to endure a semi permanent situation of austerity and recession, something which would be unpalatable to the population. Daniel Ben-Ami argues that fiscal deficits are merely symptoms of an underlying economic weakness rather than its cause, namely a low growth economy. It thus follows that fervently tackling deficits will not solve the eurozone’s economic problems but simply postpone the next economic crisis, which is exactly what has happened hitherto.

Another oft-ignored issue is the interconnectedness of the eurozone economies. It is apparent that Germany is convinced that Greece can slash its debt and return to growth without a currency depreciation (out of the question for obvious reasons). For this to happen Greece’s domestic prices and wages must fall sharply (which is already happening thanks to a hefty dollop of austerity) so as to become more competitive and its net exports must increase with respect to domestic consumption (the icky bit). This entails an increase in external demand, a luxury that Greece unfortunately does not have. Germany’s finance minister Wolfgang Schauble seems to think there is no symmetry between debtors and creditors so all this is perfectly feasible without Germany’s current account surplus having to fall. Whilst the rest of the eurozone was busy indebting itself by buying Germany’s exports (almost half of which go to the eurozone, incidentally), Germans were saving and running up a huge trade surplus at the expense of their neighbours.

The Economist points out that in a single currency zone habitual surplus countries tend to be matched by habitual deficit ones. In the eurozone sharp differences in labour productivity and fiscal policy flexibility led to the creation of a two-tier monetary union with a core of net exporters and a periphery  with constant trade deficits; both layers fed off each other in a relationship that was mutually beneficial. It would be crass to argue that Germany is responsible for the current mess in which the periphery finds itself, but it would be equally obtuse to depict the Germans as the virtuous victims bailing out the venal spendthrift countries.

It is a political and economic conundrum that no leader would ever want to have to face. Mattich is discerning in describing the euro as a “political enterprise that keeps stumbling over economic fundamentals”; policy-makers naively believed at the inception of the single currency that they could achieve monetary union without investing the necessary political capital, however the flawed economics have now caught up with them. Ultimately, the eurozone’s woes stem from a common illness that has afflicted much of the developed world, namely a lethargic growth that has been countered primarily by high state spending. To depict the scenario facing European policy-makers as a two-sided coin with disintegration of the euro on one side and the creation of a European superstate on the other is to ignore the problem of sluggish growth. More political integration will not automatically engender growth, but rather a string of further all-nighters for our tired politicians.

Europe is Closer to Resolving the Eurozone Crisis...with an Outline of a Plan

“I’ve said it before and I’ll say it again, this is a marathon not a sprint”. Thus spoke Jose Manuel Barroso, European Commission president, after unveiling the latest rescue package designed to solve the euro crisis once and for all. Yet the fact that the details of the rescue package were agreed upon after the general summit during an all-nighter of fraught negotiations paints a picture of prevarication, uncertainty and lack of political leadership which evokes harrowing memories of the US’s responsible politicians engaging in political brinkmanship over the debt ceiling this summer. 

Last night’s plan is comprehensive in many respects, perhaps more so than previous plans have been, such as the one agreed last July. The fact that shares in European markets rose when news of the deal emerged is reassuring and helped assuage fears that eurozone leaders had fudged the task yet again.  It touches upon the three main points that I deemed essential for resolving the crisis in my last article, namely imposing a significant haircut on private holders of Greek debt, adding to the European Financial Stability Facility’s (EFSF) firepower and recapitalising European banks which are severely exposed to Greek debt. Banks holding Greek debt have accepted a 50% loss which should cut Greece’s debt from a projected 180% to 120%; this is close to Italy’s level and thus should prove more manageable. The EFSF will see its firepower boosted to about €1tn from its present paltry €440bn, with the current remaining €250bn leveraged around 4-5 times. There are two main options for achieving this. One entails the EFSF acting as an insurer on eurozone members’ debt so as to lower borrowing costs for countries in trouble, such as Italy and Spain. The alternative is to set up a special investment vehicle which could receive contributions from big public and private investors (notably China). However, the details have not yet been finalised so it is unclear where exactly this money will be coming from for now. Finally, banks have been asked to raise €106bn in new capital by June 2012 so as to protect them from any ensuing losses from government defaults and to protect larger economies such as Italy and Spain from market jitters. Again, how the banks are expected to raise this amount of capital is left unclear.

The package can therefore be said to have achieved one of its principal aims, namely to buy the eurozone precious time so that Greece may concentrate on fixing its finances and countries like Italy and Spain can implement structural reforms to avoid being sucked into the quicksand. To claim that the dilemmas lurking over the Eurozone have been solved though is flippant at best. Alen Mattich, writing for the Wall Street Journal, claims that Europe’s latest generation of politicians have been trying to build a pig out of sausage as they wrestle with half-measures rather than having a fundamental rethink of the project itself. He believes that unless the European Central Bank (ECB) takes on a prominent role in the solution, politicians will simply stumble from eurofudge to eurofudge. The ECB is the only institution with the wherewithal to shore up Europe’s banks and countries such as Italy and Spain which need to refinance their debt as they work towards rectifying their crooked finances. It can do this directly or indirectly by giving the EFSF access to its mighty “printing presses”, but the intransigence of its previous president, Jean-Claude Trichet, seems likely to persist as the new incumbent, Mario Draghi warns that it is up to European countries to solve the debt crisis. Yet even Mattich states that the ECB’s role is merely a stopgap for much deeper problems which have stalked the eurozone since its inception.

Gavin Hewitt, writing for the BBC, does not cast doubt on the ambition of the European leaders to extract themselves from the mess that is the eurozone, but is wary of the technical details of the plan which are yet to be unveiled. The Greek haircut is all very well but even a 50% write down looks rather paltry if one takes into account that its economy is shrinking fast and years of austerity loom, hardly a prognosis for growth. Furthermore, a public debt to GDP ratio of 120% is still regarded as twice what is deemed to be economically healthy, let alone when the economy is seemingly contracting inexorably. With regards to the EFSF, many experts regard €1tn as too little to protect bigger economies like Italy and Spain should they run into trouble. The technical details have been left vague yet they are crucial in determining whether the EFSF really will be strengthened this much. Furthermore, it may pass the test by lowering their borrowing costs, but does not even come close to tackling the underlying problem of growth. Uncertainty also looms over how Europe’s banks will raise the amount of capital that has been required of them, with many suggesting that national governments will have to step in entailing what is effectively another bailout.

The fundamental problem, however, remains growth, and this latest package does precious little to tackle it. It is intended to provide breathing space for Europe’s leaders as they attempt to find another plan to kick start growth, but it remains unclear to me how they are supposed to do this if they cannot even finalise the technical details of the interim plan. Jose Manuel Barroso ought to stop his political grandstanding by announcing bullishly that “Europe is closer to resolving its financial and economic crisis and to getting back on a path of growth”. Europe will not resolve its financial and economic crisis until it gets back on a path of growth; however it will not get back on a path of growth until it resolves the financial and economic crisis. The 50^th anniversary of Joseph Heller’s Catch-22 is ironically pertinent when it comes to the euro crisis.

The Paradox of Choice: Freedom versus Paralysis

For those of you interested in finding out more about Barry Schwartz's theory on the paradox of choice which I touched upon in a previous article, here is his talk on TED:

My question is this: who decides how big our fishbowl should be and is not having someone else decide on the extent of our choice a sort of self-imposed paralysis?

Pay to Protest

A week ago a peaceful protest in Rome was hijacked by a handful a well-organised thugs who caused extensive damage to the city. In response to this, the Interior Minister Roberto Maroni has proposed introducing a sort of fideiussione whereby anyone wanting to take part in a demonstration would have to pay a deposit of, say, €2, to cover for any damage to the city during the protest. This has sparked a controversy with one side claiming it is a perfectly reasonable step to take and the other arguing that it infringes on our fundamental right to protest. What do you think?

43 tons of Golden Dinars and the Threat of a Shifting Axis of Economic Balance

We have all seen the price of gold rise sky-high and we have heard the bombs falling in Libya. We all perceive the economic crisis and think that our Government's administrative reforms should ease the problem... but in reality much more drastic measures have been undertaken to prevent our buying power from sinking. In hard times austerity and fiscal severity seem to be not enough! Watch the video:

What was Gaddafi Doing with Petro-Dollars?

I encourage everyone to watch this video. I have no proof whether what is said is true or not but would easily believe that it is! For sure it is challenging to start thinking a bit more about what has happened and what IS HAPPENING around us, it is our duty to understand why and who our soldiers are killing.

Gaddafi is Dead: Libya is Free (to/of what?)

In Gaddafi’s, as in Saddam’s or Milosevich’s  “Dictatorships” I always saw some hope of  resistance to the tremendous chivalry of the US Army, to their unstoppable mission of exporting “Democracy and Freedom”, to their incredible generosity in sacrificing their citizen’s lives and billions of dollars with the aim of protecting the oppressed.

Despite the principle of self-determination and the notion of state sovereignty it seems that NATO cannot keep its soldiers at rest and that the best way to employ them is to eradicate any form of government that is not allowing Adam Smith’s Invisible Hand to rule its nation.

I believe today is a sad day, a day in which another stone for the construction of a monopolized and enslaved world has been set. A day in which a nation has lost a dictator simply to fall in the hands (hand) of another one; a day in which (but I should be used to this) only one part of the story has been told.

In the overwhelming media coverage of a Free Libya we are perhaps forgetting to ask ourselves the question “free to what?”. It is free to put itself on the market (the free market) and wait for the Invisible Hand to determine its price, the price of its people, of its resources. And mostly, I believe, we are forgetting that the Invisible Hand is not free, but is controlled by guns, by missiles, by air carriers, by bombs. We are forgetting that from now on the price of these people and of these resources will be artificially kept low by these instruments of prevarication and of domination to ensure the richness of the owners of the instrument.

My sympathy to Libya and its people, who have only lived passing from one domination to an other one, from colonialism, to imperialism.

US Soldier proudly posing with a 16 years old CIVILIAN he
killed FOR FUN in Afghanistan!

P.S. Careful Libya: these are the things that the US troops like to do once they take control of the country: 

The Euro: What to Do?

Yet another summit, yet another vague plan. France’s finance minister Francois Baroin said the EU summit due to be held later this month will agree “decisive” measures to tackle the crisis that is engulfing the euro zone. “Decisive” however, does not seem like the right word to use after European politicians delayed the disbursement of the next €8bn tranche of the rescue package for Greece until November, thereby disseminating even more uncertainty in the markets. Furthermore, all the public talk about a possible further restructuring of Greek debt has done precious little to soothe investors’ frazzled nerves.

The decision to postpone the next disbursement of money is the least of problems however, and was probably taken in an attempt to push Athens into further reforms as there are no big bond payments due in the next weeks. The medium and long-term decisions are the ones that European leaders are proving unbelievably loath to take, such as agreeing on a partial write-down of Greece’s debts, recapitalising European banks and bolstering the European Financial Stability Facility (EFSF). Yet everyone seems in agreement that the more European leaders prevaricate, the more entrenched and harder to resolve the crisis becomes.

Most experts agree that some kind of haircut on Greek bonds is necessary, as long as it is combined with bank recapitalisation and a significant increase in the size of the EFSF. In July, European leaders had suggested a voluntary debt restructuring on the part of private banks coupled with fresh inflows of official money, but both The Economist and Martin Wolf from the Financial Times argue that the deal fell short of helping Greece whilst providing excessive relief to the banks. Raoul Ruparel of Open Europe, a think tank, claims that around 50% of Greek debt ought to be restructured and that European banks ought to be able to weather the ensuing storm thanks to a recapitalisation program through the EFSF. However, the European Central Bank (ECB) has long been adamantly opposed to any form of write-down which also raises implications for how exactly the EFSF would be able to build a firewall around endangered economies Italy and Spain without ECB funding. Gavyn Davies, writing on the Financial Times, explains that in order for Greece to reach an ambitious debt target of 80% of GDP by 2016, the rescue package would have to amount to €200bn. A 50% haircut on Greek debt that is held in private hands and which currently amounts to €240bn would thus raise €120bn, which still leaves a hole of €80bn. Furthermore, it is highly unlikely that the 50% haircut could be implemented voluntarily, thus raising the spectre of a technical default which is anathema to the ECB.

A corollary of the debt write-down is the problem of banking liquidity (or lack of it). Martin Wolf explains that the debt overhang impairs both solvency and liquidity in the banking sector, and proposes financing through capital injections and central bank support as the solution. However, as Gavyn Davies rightly points out, the amount of recapitalisation needed depends on the size of the write-downs on Greek debt and on the market’s expectations of possible future write-downs on other sovereign debt because of a loss of confidence. This is why it is absolutely vital to protect Italy and Spain from being engulfed in the crisis by putting Europe’s banking sector on sound footing. George Magnus, a senior economic adviser at UBS Investment Bank, believes that the ECB ought to be prepared to stand by and buy any amount of Spanish and Italian bonds to prevent banking contagion.

Unfortunately, the need to build a firewall around Italy and Spain entails a bolstering of the EFSF, which at its current €440bn capacity, is insufficient to ring-fence the crisis. Policy-makers have been bending over backwards to get around the ECB’s unwillingness to buy struggling economies’ bonds and to lend to the EFSF, touting various ideas which involve borrowing from public institutions that already have a banking license and that therefore have access to ECB funding. Another option would be for the EFSF to guarantee the first 20% loss on any new bonds issued by ailing countries; it would be able to implement this without requiring money from the ECB but the prospect of a bank recapitalisation will sharply deplete its reserves rendering this harder. Gavyn Davies argues that the EFSF however could use its remaining capital, estimated at €200bn after various rescue packages and possible recapitalisation programmes, to insure about €1000bn bond purchases in Spain and Italy which would cover their bond issuances for the next three years. This would soothe markets’ nerves and more importantly, buy European leaders a window frame in which they could tackle the euro zone’s underlying problems, namely lack of competitiveness and growth in the periphery countries.

Fostering growth in Greece and its neighbours is a daunting task, to say the least. Yet without growth the debt burden will linger on, as Vicky Pryce, senior managing director of economics at FTI Consulting, has said. The fiscal austerity to which Europeans have been adhering so zealously is only one side of the coin and does not solve the structural problems that affect the Mediterranean countries. One need only to look at the ominous slashing of growth forecasts in the United Kingdom, which has embarked on an audacious deficit reduction programme, to see how austerity can tighten the tap of an economy reducing it to a mere trickle. Christopher Smallwood, writing for Lombard Street Research, claims that the Club Med will restore competitiveness by falling wages and mass layoffs, both of which are likely to have extremely painful repercussions. External financing may mitigate the shock but will also have the corollary effect of slowing down the adjustment process. Furthermore, Martin Wolf points out that if external deficits are to fall in Greece and its neighbours, then surpluses must fall in other countries, notably Germany. Yet discussion on this aspect has been conspicuously absent. The quagmire in which the euro zone finds itself then, is only the beginning of a very long and tortuous process to address the fundamental imbalances within it which were disastrously overlooked in its inception.

On the Web with a Mask

Men that pretend to be women, professors that impersonate goblins, confusion between reality and virtual worlds. The number of men with a second life (on the Web) is ever larger.

The number of Internet sites to engage in blind dates (without revealing one’s identity) is booming. And there is a boom of double identities. To hide in the web is too easy. There are people who do it as a game, others to express passions otherwise unspeakable, others do not have a clear motivation but still seem to not be able to live without two or more identities.

There are even sites where a double identity is a rule and a conditio sine qua non  (http://extremelot.leonardo.it) , one of the major communities of fantasy role play in Italy. This is how it works: each one creates his character with the aim of letting him interact with other ones in a virtual medieval town.

G.P., 70 years old, ex university professor in Milan, invented the goblin Barbagian. He explains to us that “Not everyone understands that being a goblin (in a virtual world) is not a symptom of insanity, therefore I prefer to remain anonymous” and that “In the imaginary city of Lot I live a carefree childhood, after having lived my real one curved on books”. What is important is to be able to mark the boundaries between a game and the real life. “Barbagian is cheerful and gallant”, tells us G.P. “therefore it has happened to me to receive sentimental advances from teenagers, who were convinced that I was also a 14 year old. In that moment I had to return to adulthood and warn them about the risks they were taking by engaging in such behavior”.

The confusion between imagination and reality had severe consequences for M.R., 28 years old, from Bergamo (Italy), creator of a ruthless vampire, very popular on Extremelot, where the Evil make adventures become more compelling. In his real life he was about to marry a sweet, caring and smart girl, but in his virtual life he fell in love with a virtual lady. M.R. confused himself and his character and ended up with dumping his real fiancée. He destroyed two lives: on the internet he became a boring clone of Twilight, avoided like the pest by other players. In his real life his angelic woman got married to an other man.

If a professor-goblin, or anyone else, fears to be misunderstood by relatives and colleagues (especially with original, even if harmless, sexual fantasies) they can express them on the net.

This is particularly the case of M.O., irreproachable lawyer from Bari (Italy…. And yes, the city of Berlusconi’s escorts!), who is attracted by women with casts. M.O. looks for women who have had accidents and asks them for a picture of themselves with the cast, to add it to his personal collection. He is not a sadist and he would never wish a fractured bone on anyone. In fact, he explains “I love casts even if they are fake, sometimes I amuse myself by putting a cast on my wife. In the beginning she was perplexed, but now she finds it relaxing”.  

Until discovering the forum Gesso&Stampelle (in italian: “cast&crutches”) he felt alone: “I thought I was the only one to have this passion and therefore I did not talk about it and I tried to get rid of it. Thanks to the internet I found out that there are a lot of people like me. Sometimes I even manage to convince the women I meet online to put a cast on by themselves and to send me a picture”.

So what is the internet? A place still wild enough to be creative and free or simply and sadly a way to escape the life we should instead live and create? Is it possible to bring these two different worlds together in a constructive way without letting the easiness of this second life bring us to neglect our real one? Isn't this indulging in a virtual world, with virtual relationships and even virtual sex only feeding the dissatisfaction and sense of inadequacy that brought us to consider a virtual dimension of ourselves in the first place?

It's Not the Alcohol, It's You

Ever had to use the ubiquitous “it was the alcohol talking” excuse to extract yourself from an embarrassing situation? Well not anymore. Social anthropologist Kate Fox argued in an article on the BBC that the anti-social behaviour and violence commonly associated with alcohol binges are not linked to the “chemical effects of ethanol”, but to our cultural norms and values. Thus the British problem with alcohol lies not in the fact that its chemical properties cause us to infringe social rules, but in the fact that we believe it does. In other words, it is a self-inflicted problem.

Alcohol impairs “reaction times, muscle control, co-ordination, short-term memory, perceptual field, cognitive abilities and ability to speak clearly” when consumed in large doses, but, argues Kate Fox, it does not cause us to say ‘"Oi, what you lookin' at?" and start punching each other’. When we drink alcohol we behave according to our cultural beliefs about drinking alcohol, thus if anti-alcohol campaigns propagate messages about the anti-social effects of drinking we will behave accordingly.

This idea is corroborated by the huge cultural variations in the way people approach alcohol. The UK, US, Australia and Scandinavian countries have an “ambivalent” drinking culture in that it is associated with violence, promiscuity and a loss of inhibitions. However Latin and Mediterranean cultures have an “integrated” drinking culture in which alcohol is not associated with such anti-social behaviours because it forms a part of everyday life, almost on a par with tea and coffee. It is not unusual to have a glass of wine at lunch and children are raised with the belief that drinking is not some forbidden sin, and indeed learn to associate it with family gatherings.  

It would be easy to conclude from this that the integrated drinking culture simply features a lower level of consumption, but this could not be farther from the truth. These cultures have a higher per-capita alcohol consumption than the ambivalent drinking culture.

Experiments have shown that even when given placebos, people tend to behave according to their cultural beliefs about the effects of alcohol. Thus the British, who believe it causes disinhibition, will promptly shed their inhibitions when given a placebo drink. It is a self-fulfilling prophecy where the more we are bombarded with messages concerning the anti-social effects of drinking, then the more we tend to act in anti-social ways. Furthermore, if the cause of this deplorable behaviour lies not in yourself but in the alcohol, then you have a hall-pass for all sorts of anti-social behaviour.

Kate Fox goes on to argue that alcohol education campaigns should change their focus so as to tackle these cultural fallacies and reinforce the fact that alcohol does not cause the loss of social inhibitions and that, more importantly, we are always in control of our actions. This would attach a stigma to anti-social and violent behaviour when drunk, rather than erroneously excusing it.

One question that this article raises in my mind is this: why do the UK and US, among others, have an ambivalent drinking culture? I would argue that the ambivalency aspect is not exclusive to their attitude to drinking, rather it pervades most facets of society. One of the reasons for this cultural belief is that these societies are burdened with an excess of social rules, which leads to a deep-seated hypocrisy regarding “liberating” activities such as drinking. Thus whilst I am looked down upon for having a glass of wine at lunch time (during the day, shocking), it is perfectly acceptable to go out at night (because drinking at night is arbitrarily normal), get absolutely hammered and behave in all manners of undignified ways. When I try to explain that having a drink during the day at meal times is perfectly normal, even when alone, the conclusion that my friends draw is that it is acceptable to drink “all day long”; the element of excess pervades their attitude to drinking.

 

Society, in lumbering us with a host of restrictive social rules, has created a dichotomous and hypocritical culture where we are encouraged to wear the mask of self-righteousness and suppress many natural instincts. This leads to a fundamentally unbalanced culture which oscillates violently between two extremes, and fails to grasp that being “liberated” lies not in unscrewing the cap once in a while to let out some steam, but in never putting on the cap in the first place.

Allah's Way to Finance (Part 2, Banking)

For those of you who have been impatiently waiting (just joking!), here is the second part on islamic finance!

This time I will be more specific and focus on banking, as a matter of fact banks, their regulations and structures, have a leading role in any financial system.

An overview of the history of islamic Banking:

An early market economy and an early form of mercantilism were developed between the 8th-12th centuries, which some refer to as "Islamic capitalism". The monetary economy of the period was based on the widely circulated currency the dinar, and it tied together regions that were previously economically independent.

A number of economic concepts and techniques were applied in early Islamic banking, including bills of exchange, partnership (mufawada) such as limited partnerships (mudaraba), and forms of capital (al-mal), capital accumulation (nama al-mal), cheques, promissory notes, trusts (Waqf), transactional accounts, loaning, ledgers and assignments. Organizational enterprises independent of the state also existed in the medieval Islamic world, while the agency institution was also introduced during that time. Many of these early capitalist concepts were adopted and further advanced in medieval Europe from the 13th century onwards.

Many historians and economists have tried to understand why islamic finance came to an abrupt stop in Medieval times after such a period of flourishment. The most accredited hypothesis seems to point to islamic inheritance laws as the cause. In fact independent organizational enterprises never grew to a more financially and economically developed organization because muslim law prescribes that at the death of an individual at least two thirds of his wealth and assets should be equally distributed between all his relatives. Therefore also one's share in an independent organization and enterprise at one's death had to be distributed, bringing the amount of partners, in the time lapse of 2 generations, to an amount that was beyond the organizational abilities of the time.

Moreover, the prohibition of "Riba" has determined the refusal of the muslim world to follow the path that has led the western world, from the XIII century until now, to develop such a complex and lucrative financial industry. 

"Riba": The definition of riba in classical Islamic jurisprudence was "surplus value without counterpart", or "to ensure equivalency in real value", and that "numerical value was immaterial."

Modern Islamic banking

Interest-free banking seems to be of very recent origin. The earliest references to the reorganisation of banking on the basis of profit sharing rather than interest are found in Anwar Qureshi (1946), Naiem Siddiqi (1948) and Mahmud Ahmad (1952) in the late forties, followed by a more elaborate exposition by Mawdudi in 1950. They have all recognised the need for commercial banks and their perceived "necessary evil," have proposed a banking system based on the concept of Mudarabha - profit and loss sharing.

In the next two decades interest-free banking attracted more attention, partly because of the political interest it created in Pakistan and partly because of the emergence of young Muslim economists. Works specifically devoted to this subject began to appear in this period. The first of these works is that of Muhammad Uzair (1955). Another set of works emerged in the late sixties and early seventies. 

The early 1970s saw institutional involvement. The Conference of the Finance Ministers of the Islamic Countries held in Karachi in 1970, the Egyptian study in 1972, the First International Conference on Islamic Economics in Mecca in 1976, and the International Economic Conference in London in 1977 were the results of such involvement. The involvement of institutions and governments led to the application of theory to practice and resulted in the establishment of the first interest-free banks. The Islamic Development Bank, an inter-governmental bank established in 1975, was born from this process.

The first modern experiment with Islamic banking was undertaken in Egypt under cover without projecting an Islamic image, for fear of being seen as a manifestation of Islamic fundamentalism that was anathema to the political regime. The pioneering effort, led by Ahmad Elnaggar, took the form of a savings bank based on profit-sharing in the Egyptian town of Mit Ghamr in 1963. This experiment lasted until 1967, by which time there were nine such banks in country.

Islamic Banking is growing at a rate of 15% per year with signs of consistent future growth. Islamic banks have more than 600 institutions spread over 65 countries, including the United States through companies such as the Michigan-based University Bank, as well as an additional 500 mutual funds that comply with Islamic principles. It is estimated that over US$822 billion worldwide sharia-compliant assets are managed according to The Economist. This represents approximately 1% of total world estimated assets as of 2009. According to CIMB Group Holdings, Islamic finance is the fastest-growing segment of the global financial system and sales of Islamic bonds may rise by 24 percent to $25 billion in 2010. In 1972, the Mit Ghamr Savings project became part of Nasr Social Bank which, currently, is still in business in Egypt. In 1975, the Islamic Development Bank was set up with the mission to provide funding to projects in the member countries. The first modern commercial Islamic bank, Dubai Islamic Bank, opened its doors in 1975. In the early years, the products offered were basic and strongly founded on conventional banking products, but in the last few years the industry is starting to see strong development in new products and services.

Islamic Banking today:

Islamic banking has the same purpose as conventional banking: to make money for the banking institute by lending out capital. Because Islam forbids simply lending out money at interest (riba), Islamic rules on transactions (known as Fiqh al-Muamalat) have been created to avoid this problem. The basic technique to avoid the prohibition is the sharing of profit and loss, via terms such as profit sharing (Mudharabah), safekeeping (Wadiah), joint venture (Musharakah), cost plus (Murabahah), and leasing (Ijar).

In an Islamic mortgage transaction, instead of loaning the buyer money to purchase the item, a bank might buy the item itself from the seller, and re-sell it to the buyer at a profit, while allowing the buyer to pay the bank in installments. This meaning that the banks take the risk to actually own the object until the final buyer, who is a client of the bank, does not have the money to buy it. However, the bank's profit cannot be made explicit and therefore there are no additional penalties for late payment. In order to protect itself against default, the bank asks for strict collateral. The goods or land is registered to the name of the buyer from the start of the transaction. This arrangement is called Murabahah. Another approach is EIjara wa EIqtina, which is similar to real estate leasing. Islamic banks handle loans for vehicles in a similar way (selling the vehicle at a higher-than-market price to the debtor and then retaining ownership of the vehicle until the loan is paid).

An innovative approach applied by some banks for home loans, called Musharaka al-Mutanaqisa, allows for a floating rate in the form of rental. The bank and borrower form a partnership entity, both providing capital at an agreed percentage to purchase the property. The partnership entity then rents out the property to the borrower and charges rent. The bank and the borrower will then share the proceeds from this rent based on the current equity share of the partnership. At the same time, the borrower in the partnership entity also buys the bank's share of the property at agreed installments, until the full equity is transferred to the borrower and the partnership is ended. If default occurs, both the bank and the borrower receive a proportion of the proceeds from the sale of the property based on each party's current equity. This method allows for floating rates according to the current market rate such as the BLR (base lending rate), especially in a dual-banking system like in Malaysia.

All these different ways of managing money, as one can see, tend to guarantee a healthy limitations on loans emitted by a bank, as the bank either risks to share the losses or risks to get paid back in a non predefined amount of time. 

There are several other approaches used in business transactions. Islamic banks lend their money to companies by issuing floating rate interest loans. The floating rate of interest is pegged to the company's individual rate of return. Thus the bank's profit on the loan is equal to a certain percentage of the company's profits. Once the principal amount of the loan is repaid, the profit-sharing arrangement is concluded. This practice is called Musharaka. Further, Mudaraba is venture capital funding of an entrepreneur who provides labor while financing is provided by the bank so that both profit and risk are shared. Such participatory arrangements between capital and labor reflect the Islamic view that the borrower must not bear all the risk/cost of a failure, resulting in a balanced distribution of income and not allowing the lender to monopolize the economy.

... Is this the third way? Even the Vatican has argued that "the principles of Islamic finance may represent a possible cure for ailing markets."

Islamic banking is restricted to Islamically acceptable transactions, which exclude those involving alcohol, pork, gambling, etc. The aim of this is to engage in only ethical investing, and moral purchasing.

In theory, Islamic banking is an example of full-reserve banking, with banks achieving a 100% reserve ratio. 

Islamic banks have grown recently in the Muslim world but are a very small share of the global banking system. Micro-lending institutions founded by Muslims, notably Grameen Bank (the founder of which, Muhammad Yunus, in 2006, was awarded with the Nobel Peace prize) use conventional lending practices and are popular in some Muslim nations, especially Bangladesh, but some do not consider them true Islamic banking. However, Muhammad Yunus, the founder of Grameen Bank and microfinance banking, and other supporters of microfinance, argue that the lack of collateral and lack of excessive interest in micro-lending is consistent with the Islamic prohibition of usury (riba).