Christian Debt Recovery

Debt Equity Ratio Wikipedia

August 14th, 2009 |

Author: Gavin

Economic and Financial Crisis

Karachi dated 09-09-2009

ECONOMIC / FINANCIAL CRISIS

Introduction: The financial crisis which started from July, 2007 can be attributed to indifferent and inefficient credit policy as well as under-regulated and over-regulated economies of the world above all economic injustices and economic disobediences. On cause of the crisis can also be endorsed to misbalanced interest rate which caused increasing the extra-ordinary expenditure beyond the optimal level and flooded the money supply to the market causing inflationary tendency to the economy. It may be kept in mind that if outflows continue and inflow is stopped the giant stock is also ceased to exist causing occurrence of crisis which tells us to keep balance between inflows and outflows. The foundation of the world economy is interest based which does not bring true happiness to grass-root level and neither helpful to alleviate poverty as it is against the nature and exploits the poor rather relief them therefore ‘interest based economy’ should be converted into “service-based economy” i.e. instead interest “service charges” should occupy the economy as “service” has blessing of Allah. The activity viz “Service” should remain “Service” not become “self-service” which would hurt the economy. It is pertinent to mention here that the economies of those countries which are holding to the properties of nature such as Japan, China and other oil producers are in surplus. Moreover, the interest based economy is helpful in increasing the volume of billionaire and degree of poverties whereas the world economy should be helpful in increasing the volume of thousanaire (terminology used for the people counted average and above average income groups). Economy flourishes if middle and poor class segments of the society flourish. If opposite is occurred and only upper class flourishes no one can prevent the revolution which might be bloody as economic inequity creates turmoil and catastrophe. It is spiritual truth that unless we increase the volume of middle-class by reducing the level of billionaire and millionaire as well as the poor class we cannot alleviate the poverty from the world.

It has been reported that due to low interest rate the estate industry of USA witnessed growth amid 2001 to 2005 and during this period a large number of Americans achieved loans and invested real estate business owing to this the estate demand increased manifold. But it did not keep the figure intact and stable as when interest rate increased by the Federation from 1% to 5.25% the US Banking Sector had also increased the interest rates caused to liquidity problems by the borrowers of mortgaged loans. Due to high interest rate the US Capital Market collapsed. The major part of loans by the US banking sector consisted sub-prime loans granted without considering the paying capacity of the borrowers. Data on mortgage loans show that about 21 per cent of all mortgage loans extended during 2004 to 2006 considered under “Sub-prime Classification”. The figure of mortgaged loans rose to $600 billion in 2006 which indicated one-fifth of the home loans in USA.

As we know that sub-prime loans are those loans which are granted to the borrowers without considering their credit history and credit worthiness whether they are in a position to pay off their outstanding liability efficiently or not causing piled up inactive loans go on bad debts. Such imprudent economic decisions lead to bankruptcy and unemployment to a great extent.

When we analyse the world economies the following irregularities and discrepancies have come into picture:-

i)Non-commercial & non Productive decision by economic managers and Govt.

Causing loss of productivity and unemployment

ii)Interest rate below the prudential & optimal level

Causing bankruptcy of Banking Sector and other business entity (s)

iii)Flood of sub-prime Credits

Causing bankruptcy of banking sector

iv)Inactive Loans – non productive loans

Causing production loss

v)Beyond the optimal level of consumer financing

Causing piled up unproductive loans

vii)Lack of small and medium enterprise loans

Causing low production and unemployment

viii)Long-lasting low saving in parallel to income

Causing lack of capital formation

ix)Long-lasting over consumption beyond income

Causing extra-ordinary increase in prices – Inflation

x)Low investment

Caused lack of financial and economic activities

xi)Risk oversight

Causing loss to economy

xii)Energy generation on the grave of agricultural products

Caused great shortage of food products leading starvation and sky-touching prices

xiii)No core attention has been given to Integrated Agricultural Sector which is vital for the economy and poverty reduction

Caused up-gradation of poverty

xiv)Non-adoption of middle & moderate ways to tackle the war-on-terror

Causing spread of terrorist activities all over the world leading in squeezing the economy of the world

Indifferent and inefficient fiscal policy, un-productive and non-performance loans and sub-prime mortgage as well as low savings and over consumption have hit badly the US lenders and US economy resultantly its effects have affected the international economy. The number of mortgage defaults increased due to reduction in paying capacity on account of interest hike. Resultantly a large number of sub-prime mortgage lenders in USA say New Century Financial Corporation Countrywide Financial Corp. and Ameri-quest Mortgage, HSBS Holdings plc faced foremost troubles in their mortgage loan folders. It is pertinent to mention that due to increased defaults New Century Financial Corporation had to file for bankruptcy caused to lead collapse in the shares values of a large number of companies in sub-prime mortgage industry say Countrywide Financial and Washington Mutual. In addition liquidity shortages in the market have also affected the investment plans of US companies which have one-third share of the US GDP as a whole.

IMPACT OF SUB-PRIME LOANS

It was reported on June, 2007 that the Merrill Lynch seized $800 million assets of hedge funds Bear Stearrns in USA. The funds were associated with the business of securities attached by sub-prime credit.
The Citibank faced loss about $700 million in 2007 caused lay-off its employees to a great extent globally.
In 2007 American Home Mortgage Investment Corporation reported to bankruptcy after sacking its employees.
The Mortgage Guaranty Insurance Corporation in USA declared purchase discontinuation of Radian Group after facing $1 billion loss.
It was reported that BNP Paribas freezing the assets of three funds attached to the US mortgage securities.
Due to US banking sector crisis the European Central Bank filled 94.8 billion Euros into European Financial System by way of increase the paying off capacity in the system.
It was also reported that Accredited Home Lenders in USA faced $60 million loss.

Impact on Asian Economies

Due to crisis of USA banking sector the Asian Stock Markets reduced to great extent in 2007 and faced losses. Japan’s Nikkei reduced by 5.42% the biggest point of loss since 2000 while Hong Kong’s HanSeng lowered by 1.38%.
The Japanese export wallet reduced to great extent.
The India economy faced very lower impact as it was not so much attached to us economy portfolio. The Asian Commercial Banks also did not face loss due to lower exposure to us banking sector.
Due to lower exposure to American banking sector the Chinese economy was also not affected. Moreover the Chinese strong economy can provide life-line to US economy as it has great liquidity strength due to a growth rate averaging nearly 10% per year and surplus in current account level. Pakistan economy is also not much affected by US banking sector crisis but Pakistani exports faced a large number of problems due to sub-prime crisis of US economy which reduced the import capacity of US to great extent.
The US Sub-prime crisis has also affected the Karachi Stock Exchange of Pakistan (KSE). The selling aspiration of KES witnessed a downfall due to sub-prime mortgage crisis in USA. The local share marked showed a negative way in international share market also the foreign investors drew their investments from KSE.
The Pakistan Government was also affected by US Sub-prime Mortgage Crisis by way of privatization of Public Sector Enterprises / banks sovereign bonds etc.
Due to sub-prime crisis of US Mortgage Loans the portfolio of Foreign Direct Investment was reduced caused to slow down the economic progress of the Asian Economies particularly Pakistan.
Due to USA economy crisis the export income of Asian Economies witnessed a great loss as their exports depend more on US Economy which is the biggest economy of the World.

DIFFERENT ECONOMY MODELS & ANALYSIS :

From the beginning of the world changes are being taken place and till the end it will continue and one who does not hold changes lags behind. Changes are blessings as stagnant spoils the way of life if there is no change there is no development and innovation. Changes are also taken place in the economic world – once there was Laisseze-Fair economy presented by classical economists such as Adam Smith and his followers. They believed in full employment and also had concept that whatever produced sold out. In this parameter the economy was free from all rules and regulations by the Government or State. It was known as free-reign economy as economic managers were totally free to make economic decisions. While making economic decisions generally they gave priority to themselves and not cared the interest of the masses. The wealth was accumulated in a few hands – market was squeezed consequently the products and services prevailing in the market were not being disposed of and when products and services were not sold out the industries began to shut down caused great unemployment. Resultantly the concept of free economy was collapsed during 1930′s Great Depression and owing to this collapse millions of people became jobless especially in European countries. With the analysis of the depression it has come to our knowledge that vast distribution of wealth is vital for the selling of products and services (for true market activities) and when products and services sell out continuously the owners of factories and industries and other stakeholders also flourish. If we want to avoid crisis we shall have to distribute the wealth and resources up to the bottom line of the society on equity basis. Later on the free economy was converted into regulated economy (Keynesian Economy Theory) in the major parts of the world. Keynes rejected the theory of classical economists and presented his own economic model. According to him economy attains equilibrium position when AD=AS. He also opined that sometimes economy may be in inflationary position or sometimes in deflationary and to keep balance in the economy he projected Government intervention. Forced economy or slavery economy (robustly and cruelly regulated) was also running in parallel with the regulated economy in communist states of the world which was also against the nature and soon collapsed. After Keynes one school of thought also came into the picture who stressed upon money. They are of the view that money plays an important role in economic and social activities and shortage of money may harm the economy. They are called “Monetarist” and modern friends of classical economists as they believe in Free Enterprise Economy and do not like Govt. or bureaucracy intervention.

Analysis: When we analyze the concept of different economic models the fact has come out that overall “Keynesian” concept of economy is better against all other economic models as it gives better solutions of economic problems and stresses upon consumption and investment + soft Govt. intervention which are vital for economic growth. Classical Economists and Monetarists stress upon “money” (paper money) which has no intrinsic and natural value and without backing no one will accept it. They have negated the basic economic variables and their impacts such as income, consumption/expenditure and saving/investment concept in the economy. According to them double the supply of money double would be the price of commodity. On the other hand Keynesian Economic Model stresses upon income, consumption / expenditure and savings / investments which certainly play an important role in the economy development as without appropriate consumption and investment economy activities cannot flourish. Further, it is necessary to mention that only those economy systems can flourish which are in accordance to human nature and would be on equity basis as Allah Almighty cares His creature and the economy which cares all His creatures must grow and flourish. .

MARKET STUDY

Market is a place where activities to exchange of values are taken place between the prospective sellers and buyers openly. Markets are flourished when they are provided quality & superior products and services as well as customers oriented approach and honest sellers because we cannot get loyalty of customers until and unless we satisfy them with our products, services and behavior based on honesty. It is pertinent to mention that listening to customers, rewards to customers, discounts to customers and communication to customers are arts of selling and art of marketing is to immediately fulfill the needs of customers and other market requirements such as marketing information, product development, distribution, transportation, storage, promotion, selling, evaluation of customers’ satisfaction etc. One function of marketing is also to discover new customers, their needs, wants, demands and wishes and offer them solutions. Valued customers must be remembered through phone calls whether they are making business or not. Courtesy must be shown to all diversified customers to have their loyalty.

Business Cycle: The market has faced following four stages during its activities.

Depression: It is the gloomy stage of the market under this stage the market activities are falling down – production becomes low – unemployment increases due to low aggregate demand. In depression stage investment is not taken place causing low production and services.

Recovery Stage: In recovery stage economy activities become gradually fast – production and prices gradually get their position. New firms gradually enter into the market and business activities gradually enhance.

Boom Stage: Due to increased business activities the market reaches at boom stage and in this stage the market takes perfect competition as a large number of firms enter into the market due to easy and relaxed loans policy by the financial institutions. In boom age the consumption, price level, income and salaries of all stakeholder also profits of the factory owners have touched the peak.

Recession: The immediate result of boom stage is recession causing slow in business activities which affects all sectors of the economy.

Writer View: I suppose that the main cause of business cycle is “misbalance in economic activities” plus “Trial and Teaching” put by nature to give new and innovated sense of knowledge.

IMPORTANCE OF REGULATION: Human beings are elite creature of Allah and if they are not regulated they may become devil and create trouble on the earth. Moreover, if man is not regulated there is no distinction between animal and man’s life. For guidance of man and streamline his activities Allah Almighty sent thousands Messengers on the earth so that man could get his end-goal. Regulation can also be applied on economy because if economy is not truly regulated the equity in economy is not established and the earth may become full of turmoil and bloody so soft and flexible regulations (based on justice) are essential for sustainable & equitable economy growth.

Credit Crunch / Economy Crisis: I integrate the causes of credit crunch / economic crisis into one component i.e. “imbalanced financial decisions“. It must be kept in mind that managed activity creates productivity which has a weight in economy but such loans which do not generate productivity called unproductive loans which in the long run may become disaster for the economy of the world as they piled up to non-performance loans. I suggest the following fiscal, monetary, banking, corporate and public/society steps for the treatment of economic crisis and welfare of the masses:-

Fiscal Steps:

i) Gold Exchange Standard: At present the market forces (Demand and Supply) determine the rate of exchange between currencies which must be abolished at once for the benefit of international economy and valuation of world’s nations currencies for international trade may again be linked to “Gold” (Gold Exchange Standard abolished in 1971) so that international economy could flourish by way of international currency solidarity which would cause in enhancing of Gross International Products (GIP) and creating more and more employment internationally. With the linkage of the world’s nations currencies with gold the international trade would not hurt by great fluctuations of exchange rate. The economy would run smoothly – poverty would decrease – balance of payment would not hurt and above all foreign exchange reserves would not be eroded. It is established fact that market forces have volatile characteristics – they sometimes ruin the paying capacity (liquidity position) of the economy leading to bankruptcy. On the other hand gold has strong properties by way of intrinsic quality and value and gives supremacy to currency and economy and keeps balance in international trade.

ii) Harmonized Policies: Fiscal and monetary policy must be harmonized and interfaced so that fruitful activities of fiscal policy could not be set aside by monetary policy. For example if fiscal policy is contractionary monetary policy should also be contractionary and vice versa.

iii) Prevention of Urbanization: Trend of urbanization may be brought to an end by establishing agro-based industries, agricultural based infrastructure, ware houses, water reservoirs, agricultural towns and agricultural courts at cultivated areas / regime. Besides, agricultural lands may not be allowed to use other than agricultural or productive purposes. Agro-based estates and agro-based dams should be established in all over the world as creature can lead life without industrial products but cannot live alive without agricultural output and live-stocks which are indispensable for the growth of body and soul. It is worth mentioning that without boosting up agricultural commodities we cannot reduce poverty from the world – we shall have to give priority to agricultural sector if we want to remove starvation and unemployment from the world. With the network of dams all over the countries / world the power and water crisis would be reduced to great extent. To overcome the energy crisis we shall have to resort to alternative source of energy production such as air, coal etc.

iv) Empowerment of Institutions: For the sake of economic, social and logistic development and tranquility institutions must be made powerful instead of person, personality or group as strong institutions enhance productivity, GDP and keep peace and justice in the territory on the other hand empowerment of person, personality or group creates anarchy and lawlessness as the powerful persons become offenders and challenge the writ of the Government / State. Institutions in all over the world must be made powerful on war footing basis for the welfare of world’s peace.

v) Reduction in Population Growth Rate: True economy development and reduction in poverty cannot be attained if the growth rate of population is increased continuously on geometric ratio as it erodes the fruits of development. In this context people may be motivated by using all electronic and print media plus incentives by the Govt. to have minimum offspring i.e. two or three.

vi) Increase Tax Network - Tax Reforms: Taxes should be imposed under progressive approach – one which earns more give more taxes and vice versa. Tax portfolios should be increased and all those activities which are free from tax and causing loss to the Govt. exchequer should be brought under tax regime like agricultural tax, estate tax etc. especially in the perspective of Pakistan. The volumes of direct taxes should be increased whereas the volume of indirect taxes should be reduced to facilitate the poor. Besides all economic transactions such as purchase and sale of estates, luxury cars, factories etc. must be documented and stamped for boosting up the sate revenues. It is established fact that if we want to increase the tax network we shall have to increase the economic activities and all economic activities would have to bring under documentation to increase the tax network. Documented economy is vital for the progress of the world therefore states should document the economy on war footing basis.

vii) Network of Small and Medium Industries: For overcoming the unemployment the network of SMI should be spread all over the world especially in rural and far-flung areas of respective countries to save the urbanization. Banks may be pressurized to give priority in granting Small and Medium Loans. The increased network of SMI will also boost up the GDP of respective countries.

viii) Generalization of Education: Good governance and economic growth cannot be attained and established without education, skill and knowledge especially boosting up education in agriculture and science sector. We shall have to give our core attention to agriculture sector to feed the masses of the world as without enhancing agricultural products we cannot alleviate the poverty. In spreading education no anomaly and distinction should be observed – the education system should be broad-based and generalized so that the children of the poor could get education in line of elite people’s children. Also the students of religious institutions should also be given the same education along with their religious learning.

ix) Corruption v/s Accountability: To have control over corruption the concept of true accountability (as expected by masses) may be imposed from top to bottom as corruption creates inequality in distribution of wealth causing unrestness and anarchy in the society. It is fact that corruption cannot totally be eliminated until the doomsday is established however we may reduce the volume of corruption by way of legal and robust actions by God fearing authorities. Keeping in view totally discouraging the corruption the governments are advised to impose 50% or 60% forced tax upon all ill-gotten earnings and properties and amount collected by this process must be utilized for the alleviation of poverty as well as welfare of the masses. The information about illegal earnings and properties can easily be achieved by hidden investigation and standard of living of the individuals whether their standard of living is in accordance with their earnings or not. If robust discouragement against corruption is made and justice (at all level) is established in all over the world I assure you that peace and tranquility must be recognized in the world InshAllah.

x) Reduction the volume of Transfer Payment: It has come to picture that in western countries where unemployment allowances are granted by the State creating laziness or idleness for the human resources. The lazy human resources give up work and go on or give priority to have unemployment allowance instead to have work. States are advised to keep strict vigilance while granting transfer payments and keep them on optimal level. They also should keep an eye while granting stipend and scholarships so that undeserving persons could not be benefited with these human welfare schemes. The Govt. at the first instance should reduce its transfer payment portfolio until or unless economy is attained to its normal progressive track.

xi) Reduction in Govt. Borrowings: In all over the world the Governments or States are expending beyond their resources causing inflation and dearness. Inflation is occurred when money supply increases but productions and services are not increased parallel to money supply. The Govt should keep it mind that if money supply to an economy is increased by 100 unit, goods and services must be increased by 100 units keeping the economy in balance or in equilibrium level but contrary we see that Govt has become overleveraged due to undue and unproductive expenditure causing vulnerability. The volume of Govt. borrowings should be reduced so that economy could run smoothly.

xii) Incentive to foreign investor: For boosting up the economy foreign investors must be welcomed by way of potential incentives and their safety measures. They may be provided industrial infrastructure, free electricity, potential labor also creating tax free zone for industrial and commercial purposes is vital requirement of the day.

xiii) Capital Formation: Economic development is dependent upon money and capital markets and if money and capital markets are in deteriorated position economy would also be in declined position. For the real development Govt. expenditure, consumption and savings must be floated at optimal level so that capital and money markets could smoothly run.

xiv) Balanced watch-dog strategy: The business activities should be neither free reign nor over-regulated but they should be guarded from the marginal position to keep the business activities free from interference of Govt. officials. A strict vigilance should be kept on Govt. official so that they could not put undue influence on commercial activities.

xv) Prevention of Cartel System: It is a form of exploitation of the consumers by a group or multiple groups of giant industries with a tendency to have maximum profits by fixing exorbitant price of their products. Through fiscal policy state must take remedial steps for the optimum and healthy competition of the market so that win-to-win situation in the market could prevail i.e. manufacturers and consumers both are benefited.

xvi) Removing favoritism, nepotism and politism: All chief executives of banking industries and development financial institutions or other key posts should be made purely on merit basis as merit kills all kind of demerits. Financial decisions should be free from nepotism, politism and vested interest.

xvii) Removing widened gap in emoluments: There is sky touching gap in emolument between upper class workers (top executives) and lower class workers say top class executives are receiving $10,000/- p.m. on the other hand lower class workers are getting only $100/- p.m. It is too much gap especially witnessing in third world countries (progressive countries) which is creating anarchy, rebellion and hatred among the lower class workers leading low productivity. If true governance is imposed upon all over the world this widened gap in wages will be brought at optimal level otherwise nature will have to do its business. It should be kept in mind that for heightening productivity workers satisfaction is vital.

xviii) Removing injustices: It is Heavenly truth that justice brings happiness and prosperity whereas injustice brings catastrophe, anarchy and turmoil in the society / world. It is also the saying of Great Britain Leader “CharChal” that if justice is prevailed in a country no power can defeat the country. If the world powers want peace and tranquility they should let the justice be spread in the world robustly. Moreover, to boost the economy governance in corporate regime, dynamic economy decisions based on equity according to existing time and environment must be made to have sustainable economic development.

xix) Prevention hiding banking: To give blood to the banking industries the hidden or parallel banking system must be removed at grass root level by establishing / implementation of strict laws as they are giving loss to legalized banking. A large volume of currencies are being transferred by using non banking channels causing great loss to the Government exchequer as well as loss to the banking sector. Practical steps by way of motivation and litigation may be initiated to exterminate the Hundi System (illegal money transfer) also strategy should be adopted to bring them into banking channel.

xx) Middle Class Volume: To keep tranquility and peace in the world on sustainable basis the volume of middle class should be increased by reducing the volume of apex and lower class as it is fact that true economy growth in the world cannot be achieved unless the volume of middle class is increased. Middle class is the blessing on the world and if it is removed the world will be eradicated instantly.

Monetary Steps:

i) Issuance of new Currency Notes: In issuance of new currency notes the central bank should keep it in view that money supply is not increased over its demand. It should also keep it in view that aggregate supply of money is in accordance with the productions and services prevailing in the markets so that inflation could be confined. Further issuance of new currency notes may invariably be backed with gold and other precious metals to keep the currency in strong position and at international standard.

ii) Reduction in Reserve Ratio: In all over the world the banking sector is facing shortage of credit i.e. credit crunch causing stagnation of financial activities. For the purpose of monetary injection Reserve Ratio and reserve requirement should be reduced to some extent.

iii) Merger and Amalgamation: Due to the financial crisis many banks of the world are not in a position to feed blood in their banking activities resultantly they are facing core hardships to exist themselves. To save them from collapse the process of amalgamation and acquisition may be initiated on war footing basis by the central banks with the collaboration of sound banking channels.

iv) Micro Finance: For the flourishing of cottage industries and fish farming micro finance may be granted to the prospective initiators and may have put vigilant eyes over their economic activities.

v) Boosting up Industrial and Small Scale Loans: Loans must produce activity and productivity so that economy could run smoothly and robustly. Through monetary steps Central Bank may boost agricultural and industrial loans so that agricultural and industrial web is established in all over the world to reduce unemployment and to increase GDP of the respective countries.

vi) Prevention House Building and Personal Loans: All commercial banks are forced not to grant HB and Personal Loans to their customers and stake holders. Only permanent employees of banks would be entitled to have Personal and House Building Loans under respective policy of the Bank. Housing Finance and Personal Loans should be granted by specialized banks such as House Building Finance Corporation and alike.

vii) Agro-based training institutions – Agro-based loans: It is the responsibility of a central bank to establish agro-based training institutions for imparting training to agricultural-oriented people regarding state-of-the art strategies for boosting up agricultural products. Central bank must take robust initiative that major parts of agricultural loans may be granted in shape of agricultural gears under lease system to avoid corruption. It will also boost up agricultural products.

Banking Steps:

Customer Oriented Approach: Customers are back-bone of all business entity and without customers no business entity can run their business affairs – customers are the livelihood and losing the customers is synonymous to losing the work leading bankruptcy or insolvency. Customers must be satisfied by providing them quality products and services so that long lasting relationship could be maintained.

Launching child banking: Major part of the world population is consisted of children that must be motivated to saving by launching child banking with the help of their educational institutions and guardian. By adopting this practice million amounts will be pooled up to banking sector which could be utilized in productive ways.

Enhancement of Profit: The banking industries are not granting due shares to their account holders causing dissatisfaction for the banking customers. To boost up the deposit volume and to attract the new customers profit ratio on their deposits must be raised to appropriate level.

Hard Loans: Strict and rigid terms and conditions should be imposed on processing the case of personal and unproductive loans so that their volume should be reduced.

Risky Loans: Strategies must be adopted by the banking sector to recover the outstanding risky loans.

Launching Dynamics Products: To have fund from the public the banking sector should launch dynamics products in the market on which profit is dynamic and increase on with the passage of time.

Corporate Steps: Corporate i.e. private sector plays an important role in economic development by way of their huge shares in the economy. They also play an important role in capital formation by direct and indirect investment. The corporate sector must be forced to take the following initiatives for welfare of the masses.

Corporate Civic Responsibility: All Corporate Sectors must allocate some determined percentage of their corporate income for the welfare of masses such as building of schools, colleges, hospitals, play-grounds etc.

Employees children education: All Corporate Sectors must bear the education expenditure of at least two offspring of each employee working in their sector upto Matric (Secondary) Level.

Medical Coverage: All Corporate Sectors must be forced to extend comprehensive medical facilities to their employees under Medical Insurance Systems through the contribution of employees plus employers.

Corporate Tax: AllCorporate Sectors must be forced to deposit all statutory and corporate taxes imposed under the rules of the Land to Govt. exchequer and not involve in tax evasion.

Public / Society Steps: Men attitudes towards others cannot attribute to up to the mark. They do not follow the under-noted instructions of the Holy Prophet in their business affairs and domestic dealings:-

“Whatever you like for yourself like the same for others”

If we follow the above instructions (piece of golden advice) with letter and spirit I assure you that a large number of evils prevailing in the world would be eliminated. I want to share a core example of hypocrite attitude of a common man. When a person is employed in any organization he wants to have maximum benefits from his employer such as bonuses, off-days allowances, House Building Loans, leave encashment, comprehensive medical facilities, foreign tour etc. On the other hand when he extends employment to some-one for domestic purposes he wants to give him minimum wages (below the market rate) and no off-days allowances and other legitimate benefits. In this way he exploits the domestic workers which must be avoided otherwise it can become harmful for the exploiting person or persons as exploitation produces revenge and disgusting. People are advised to follow the instructions of the Holy Prophet and get blessing of Allah otherwise ready to face consequences.

Thrift: People are advised to keep balance between expenditure and income to avoid bankruptcy as over expenditure beyond income leads to man to spread his hand before some-one.

Saving: People are advised to adopt the habit of saving so that they could not hurt badly by unforeseen happenings.

Avoidance of showing off: One harmful element of the society can be attributed to the tendency of showing-off which is leading to collapse the middle and lower middle class. We should not do replicathe elite people practice and should adhere to our own capacity.

Why does crisis occur?

Allah wants to disseminate knowledge in different ways and one method of dissemination knowledge is emergent of crisis in different sectors which creates an activity by way of contemplation to get the causes of crisis and initiate steps to remove it. Imagine if crisis had not occurred no activity in this sense would have been initiated and we were deprived of one segment of knowledge. It is established fact that due to bounded rationality we cannot prevent the crisis totally but through forehand remedial steps we can reduce its impact on the economy as we know that the world is a trial centre and moments of trials come in the age of human beings. We must face them and should make strategy to overcome the crisis by way of before-hand steps so that we could not affect severely with the strike of crisis. Time brings changes so we should pre-determine the changes to be occurred in the near future. The observance of pre-determined changes is known as Risk Management Strategy which involves the following activities that must be carried out to address the unexpected and unforeseen risks. Further as we know that risk and business go together but risk is not certain and due to uncertainty of risk insurance activities to cover the risk are robustly existed in the market.

Pooled-up fund:

A pooled up fund creating Disaster Recovery Capital must be established to mitigate the risk.

Back up Economy

We should make in order all major back up of the economy variables such as reserves of different economy categories so in the days of crisis these back-ups could run the economy smoothly.

Economy Continuity Plan

Economy Continuity Plan must be initiated by devising a strategy and considering the economic variables especially savings, consumption, investment and national income.

Liquidity Continuity Plan

During booms age all business enterprise especially banking sector must initiate Liquidity Continuity Plan and allocate reasonable fund for the purpose.

IT / Business Continuity Plan:

Tape Back-up and Disaster Recovery Site must be prepared & established so that all business activities could continue on the occasion of disaster.

Water Reservoirs

In the coming age the war can be broken out on the issue of water. To save the mankind from the disaster of war it the responsibility of world powers and United Nations to get prepared water reservoirs on top priority basis in all over the world as water cannot be generated.

Back-up Stock of Food

We should keep giant stock of eatable items enabling us to feed the mankind in barren and unproductive times.

Conclusion /Abstract and Keywords: In the end I conclude with the remarks that all kinds of exploitation / injustices must be removed in all economic and social regime – interest based economy must be converted into service based economy – Gold Exchange Standard must be revived immediately – Steps may be taken to flourish poor and middle level class by reducing the volume of millionaire and billionaire – strategy must be adopted to distribute wealth upto bottom lines to attain sustainable and equitable economic growth – educate the masses on equal basis especially in human ethics, science and agricultural spheres – ready to face “trials” and try to understand the teachings make by Allah in different ways – not cross the life-line in respect of consumption and expenditure – un-productive loans must be curtailed – productive loans must be enhanced – appropriate savings must be adopted – war on terror must be tackled by moderate ways based on justice to win the hearts of people not body – above all we should adopt the habit of thankfulness to Allah over His countless blessings and be patient over troubles.

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From: Syed Manazir-ul-Haq,

R-71, Block-3,

Gulistan-e-Jauhar,

Karachi

Pakistan

e-mail manazarulhaq@sbp.org.pk

Profile: Author is working in a Central Bank of Pakistan (State Bank of Pakistan) in the capacity of Officer Grade-2. He is M.A. (Economics) from Karachi University + DAIBP (P-1) (Banking Diploma) from Institute of Bankers in Pakistan. He has crossed 48 years of his life. He bears no remarkable disease by blessing of Allah Almighty.

Ref: i) Policy Note – US Subprime Mortgage Crisis and its Implications for World Economy by Nadia Nasir, SBP – September, 2007

ii) Macro Economics – by Shahid Hamid

iii) Financial crisis of 2007-2009 – Wikipedia – the free encyclopedia (internet)

About the Author

The author is serving in State Bank of Pakistan, Karachi as Assistant Director. He is M.A. (Economics) from Karachi University plus Banking Diploma (DAIPB-P-1) from Institute of Bankers in Pakistan. His age is 49 years. He is very fond of reading, writing and making discussion on different topics.