Table of Contents

Handbook on Islam and Economic Life

Handbook on Islam and Economic Life

Edited by M. Kabir Hassan and Mervyn K. Lewis

Handbook on Islam and Economic Life is a unique study, one of the first of its kind to consider Islam within a broader economic sphere. Covering a wide breadth of topics and research, it explores how Islam impinges upon and seeks to shape major aspects of economic life including economic organisation, business and management, finance and investment, charity, mutuality and self-help, and government. It concludes by analysing the link between religion and development, the present economic situation in Arab countries and the causes of underdevelopment in Muslim countries.

Chapter 31: An Islamic perspective on the global financial crisis and its aftermath

Mervyn K. Lewis

Subjects: asian studies, asian economics, economics and finance, asian economics, islamic economics and finance

Extract

In the words of Niall Ferguson (2009), first there was the ‘sub-prime surprise’, and then there was the ‘credit crunch’, which became the ‘global financial crisis’. Now, according to the managing director of the IMF, we are in the ‘great recession’. While the full story of the precise steps in this transition is probably still to be told, it continues to surprise how the condition in one segment of the US residential mortgage market could have translated into what Ben Bernanke, chairman of the Board of Governors of the Federal Reserve System, called ‘the worst financial crisis in global history, including the Great Depression’ (Mollenkamp, 2011), and his predecessor, Alan Greenspan, described in similar words as ‘the most virulent global financial crisis ever’ (Wessel, 2010), plunging economies into recession, and creating levels of unemployment not seen for decades. Chaos theory seemed to have come of age. Conventional explanations of the global financial crisis point to a number of inter-related factors. First, at the ‘macro’ level, global payments imbalances, due either to a ‘global savings glut’ or to monetary policy in the final years of the Greenspan Fed (which produced the fastest growth of dollar liquidity and the lowest real federal funds rate in 30 years), created a hothouse atmosphere in which excessive lending on real estate flourished (Iley and Lewis, 2007). Second, there was financial regulation that went missing and allowed (and even encouraged) the lending to take place.

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