History & Islamic Verdict on Stockmarkets & Shares In the last week of October 1997, the major stock markets suffered a sharp fall in share prices. It started in Hong Kong, moved to Japan, then to Europe and then on to America. The fall moved in succession, from one country to another at the start of the day in each country. The sharp drop was coupled with a frenzied panic from a possible repeat of October 1987, when the Dow-Jones Index in New York dropped by 22% in one single day, or even worse, a possible repeat of what happened in 1929, when the collapse in the value of shares in America led to a major economic depression, which is referred to by historians as "The Great Depression". This depression lasted for ten years and resulted in widespread poverty, starvation and misery. This depression did not lift until Franklin Roosevelt decided that America should enter the 2nd World War and revitalise her economy through a huge military armament.
Prior to this latest crisis in Europe, a host of countries in South East Asia, witnessed in the summer a decline in the exchange rate of their local currencies coupled with a drop in the share prices of their companies, and a near collapse of scores of banks and companies.
This trend started in Thailand, then moved to the Philippines, Malaysia and Indonesia; the crisis then mushroomed like an epidemic to South Korea and Taiwan in North Asia until it reached the largest financial base of the West in Asia, which is Hong Kong. Only then did the stock markets in the West realise that the epidemic was serious, subsequently a collapse occurred in Europe and New York.
The causes of these two crises are down to a host of features within the capitalist system; they however are not of the same type, nor of the same calibre. The stock markets in South East Asia are exiguous and frail. The dealers in these markets are few and inexperienced. Those who benefit from these markets are in fact corrupt rulers, as is the case in Thailand and Indonesia. It is the rulers who championed these markets and allowed Western investors to trade in them and make swift profits. America had twisted their arms to establish Western style markets in their countries and to enable Western capitalists to trade in them and transfer their capital in and out of the country easily and whenever they pleased. This they did under the pretext of encouraging "Foreign Investment" in their economies, which they claim is one of the New World economy's prerequisites.
However, this is not an investment in the country's economy, even though it is described as "Indirect Investment". This is so because real investment is similar to that undertaken by the Americans in the wake of the 2nd World War, when they acquired a host of major plants and companies in Europe and elsewhere and managed them directly by linking them to their mother companies; hence, a direct and real investment. As for indirect investment, this would take effect when an investor purchases a number of shares in established local companies, run by local people or by the government, and when some of these shares are floated in the local stock market. Hence, an investor would buy these shares from these markets, but not with the aim of acquiring or running that company, nor with the aim of sharing in its profits by waiting for dividends, but with the aim of making a huge and swift profit due to a sharp rise in the value of the shares he had purchased.
The most fertile markets for such an aim would be those of the developing countries (emerging markets), where investors can influence the prices. The markets of these countries are small and it is easy for such investors to contrive a price rise. Local investors are few and they lack the capital, the market shrewdness and the boldness of the Western investors.
When Western speculators enter such a country, they most often come in the shape of an investment fund with a huge capital value estimated at hundreds of millions if not billions of dollars. These moneys either are those of the wealthy Westerners or borrowed from banks. He would then buy local shares; but he would not act as a spectator waiting for the share prices to rise, rather they resort to a host of styles in order to promote the shares purchased. For instance, by leaking the news that he had invested heavily in a number of specific shares, or "hyping" the company whose shares he had just bought, with claims of a bright future. He may also resort to other styles whose reality could not be discerned by the Malaysian, the Thai or the Indonesian. Hence, the locals would rush to buy these shares resulting in either a sudden or a gradual rise in their value. Most of the time the investment fund's manager would not have to wait long for the prices to reach their predetermined profit target. They then sell their shares to the local investors in the local stock market, take their capital and quick profits, and look for shares of another company in the same country or in a different country. All this takes place before the local investors realise what has happened. In some cases, a number of investment funds act collectively as one group in the market, since their aim and their activity are similar. Hene, a general collapse in the market occurs when these investment funds decide to withdraw all at once, causing the collapse of the local currency and threatening the banks that gave credit to local investors with extinction.
This is the reality of indirect investment, which America has been promoting and imposing upon the developing countries ever since the collapse of the Soviet Union and the emergence of America as the unchallenged dominating force on the international scene, a situation allowing her to spread her hegemony over the world's economy. The reality of this type of investment, that has become far greater and far more dangerous than direct investment, is that it is no more than a desecration of the developing countries' riches and economy; it is also the main cause of the financial and economic setbacks that these countries have suffered, and of the humiliating impoverishment of their citizens, whether in Latin America, such as Mexico, Brazil and Argentina, or in the Middle-East, such as Turkey, Egypt and Jordan. It is also the cause of what happened and is still happening in the stock markets of South-East Asia, such as in Indonesia or Malaysia.
As for the stock markets in Europe and America, these differ radically from their counterparts in developing countries. These markets are firmly established and have existed for more than two centuries. The numbers dealing in some of these markets reaches hundreds of thousands and in the largest markets, London and New York, their number reaches millions. The capital invested in shares and bonds is huge; it is claimed that it exceeds the value of the existing assets in those countries, whether real estate, commercial centres, plant or commodities. It is also claimed that the activity of the bond and stock market, i.e. the value of what is bought and sold in terms of bonds and shares, exceeds the value of the sales of real goods and services. This means that the abundance of dealers in these markets and the availability of funds at their disposal, in addition to the fierce competition between them, prevents any of them from gaining unilateral control of the market or any part of it, thus allowing him to make a quick profit at the expense of other dealers from amongst the wealthiest capitalists.
Nevertheless, many dealers in these markets have managed to accumulate huge fortunes and devote all their time to dealing in these markets. They've innovated a host of styles, schemes and binding contracts, which allow them to influence the timing of the purchase and sale of shares, and affect the prices. All this has no direct connection whatsoever with the activities of the companies whose shares are being traded, nor with the markets of commodities and services they provide, nor with their profits. The techniques, styles and concoctions of trading contracts in the stock markets have become a subject of study in most universities. However, all the stock markets, be it those trading in Public Limited Companies shares, in Exchequer Bills and in company bonds, are nothing but a spider's web; because their appeal is based on the confidence that their prices are constantly rising, and on people's cupidity or greed in making an easy gain from this constant rise. It is also based on the fact that people's greed, especially in the West, has no limit, for as long as the sun is rising, they rush into buying share certificates with the hope of making more money. This is exactly what the brokerage financial houses promote in these markets, for they undertake the buying and selling of share on behalf of the common people, and they charge them exorbitant fees as commission.
However, as soon as this confidence is undermined, whether for expected or unexpected reasons, then the market starts to flounder, and many shareholders rush to sell their shares simultaneously in order to cash in upon what they think they have gained from the rise in the value of the shares; they all want to sell as soon as possible, thus the prices would start falling and this would consequently increase the number of shareholders wanting to sell. As a result, prices would continue to fall until they reach rock bottom, as was the case in 1929, and as almost happened in 1987 and as feared would happen by the end of 1997.
The aware Muslim does not feel sorry for what the West and its Capitalist system suffers in terms of shocks. He rather feels sadness by what befalls the Muslims in places such as Indonesia and Malaysia among others, due to their emulation of the West and its system and due to their fascination with its markets and their confidence in its claims that the only way towards economic progress is via "Free Market Policies" i.e. absolute economic freedom. What Muslims do not realise is that this would inevitably pave the way for Western investment, be it direct or indirect, and would imply joining the World Economy, i.e. allowing the establishment of industrial plants belonging to Western companies in the Islamic world, where cheap labour by the million would be exploited to produce consumer goods for their markets. The aware Muslim should also feel saddened to see the Western Capitalist thoughts, including those related to stock markets, embraced by the Muslims, thanks to the concentrated media campaigns which America has been launching ever since the collapse of Communism, in order to deceive people into believing that there is no alternative apart from the Capitalist thought, claiming that it is at present in its golden era.
Another shock in the major stock markets in the West could reveal the frailty of its cobweb, expose the defects of the Capitalist economic system, and reveal that its shine is pure deception. The Capitalist economic thought is an expedient thought that leads man to the pits, because it is based on the lowest motives of man, and the reality of the societies that adopt this thought is that they gasp for their living, production and consumption, with the material values as their only concern. Its reality shows also that a small group of capitalists dominate the overwhelming majority who work hard and live in constant anxiety, with most of them living in extreme poverty, unable to make ends meet (fulfil their basic needs). However, it would be wrong to wait for a major economic setback in the Western stock markets for the Muslims to realise that they had been duped by the capitalist thoughts and the stock markets and that they really are nothing but cobwebs. It is imperative to outline their reality now, to expose their corruption and explain that Islam forbids these thoughts and practices.
The stock markets in the West could not have come into being had it not been for three basic systems in the Capitalist economy. These are:
1-The Public Limited Companies System.
2- The Usurious Banking System.
3-The Inconvertible Paper Money Standard.
These three systems have come together to split the Capitalist economy into two economies, or into two types of markets:
The first represents the real economy where the production, marketing and real services take place.
The second is the financial economy, which some refer to as the parasite economy, where the contriving, buying and selling of various financial papers takes place.
These are considered as binding contracts, or cheques or securities, representing a transferable right by one party that can be bought and sold, whether in a company property, its debts, government bonds or real estate or in many other (rights) certified by financial papers that are transferable, and considered as a temporary option to buy or sell another specific right at a price that differs from the current market price (e.g. options contracts). All this has no direct connection whatsoever with the real economy. This parasite financial economy has grown to the point where the value of its transactions have exceeded those transactions undertaken in the real economy by manifolds.