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Ban Compound Interest To Save The Planet

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The silly season has officially begun: http://timesonline.typepad.com/environment...ompound-in.html

Compound interest has been with us so long that we take it for granted. We borrow money and accept that we must pay interest to compensate the lender.

But look what happens. If we pay 3% on £100 then at the end of the first year we should pay back £103. If we fail to repay that then we must also pay 3% on the £103. This seems innocuous but the debt increases exponentially. A debt left unpaid, at 3%, doubles every 24 years. At 6% it doubles in 12 years.

Developing countries know all about this. "All that we borrowed up to 1985 or 1986 was about $5bn," said Nigeria's president in 2000. "So far we have paid back about $16bn. Yet we're being told that we still owe about $28bn. If you ask me what is the worst thing in the world, I would say it is compound interest."

The governments of rich nations, as Colin Tudge wrote recently in Resurgence magazine, have declared a war on poverty while presiding over an economic system in which the rich are bound to grow inexorably richer while the poor grow poorer.

You might ask: What has this to do with the environment? A great deal - because in order to repay debts businesses and whole economies must grow, and that usually involves consuming ever greater quantities of non-renewable resources. If a moneylender at the time of Christ had lent an ounce of gold at 5% it would today require an amount of bullion weighing several planet Earths in repayment.

Is there another way? There certainly is. Until relatively recently, the charging of interest was called usury - it was a sin. (If that word makes you feel uncomfortable, remember that it only means something that most people considered deeply wrong.)

And doing without money that was lent at interest didn't stop our predecessors trading, or building incredible monuments, from Westminster Abbey to the colleges of Oxford and Cambridge.

Even now, Muslims are taught that lending at interest is wrong. "There is no such thing as a 'usurious' rate of interest," writes the Islamic financier Tarek El Diwany in the same issue of Resurgence, "because all rates of interest are usurious." He describes alternatives to interest-bearing loans, such as the sharing of profit and loss, and points out that the universities, hospitals, welfare systems and infrastructure of great civilisations in Iraq, Spain and the Ottoman empire were all built without interest-bearing loans. "Interest-based finance is not a pre-requisite for society's sustainable advancement," he writes. (For more detail, see his site, The Problem with Interest.)

We'd do well to give it up. As the great Richard Douthwaite puts it in The Ecology of Money, "if we wish to live more ecologically, it would make sense to adopt monetary systems that make it easier for us to do so." But how?

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Ban maths!

I wonder how muslims manage to get mortgages or rental accomodation... both are ways of accepting the lending of a resource at interest.

with an Islamic mortgage, which strictly isn't lending but works in the same way ;p

You choose a house, Islamic bank buys the house and agrees to rent it to you for n Years at a fixed price which equivalent to the going rate of interest if you make all the payments the bank signs the house over to you at the end on the lease. All tied up with lots of contracts to make sure no-one steps out of line :) With islamic savings accounts, you receive profit on your money not interest ;p

currently the profit rate of 4% :P

http://www.islamic-bank.com/

There is subtle difference and its where the risk lies. All the money lies in the bank but not yours you have given it to the bank and you receive profit also the bank owns the properties and holds the risk? whereas conventional banks the property is owned by the population but they also owe the debt...

Finally I understand that Islamic banks aren't as exposed to the subprime CDOs due to the Islamic restrictions.

Edited by moosetea

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I wonder how muslims manage to get mortgages

Sharia mortgages, which involve a very literal interpretation of Sharia law. Google it if you can be bothered, but effectively the bank buys the house, and you rent it from the bank for a sum that equates to the cost of a repayment mortgage but is called rent, and after 25 years it is yours. Complete fiction, for they too are paying interest - just calling it something else, and setting up the legal documents to prove it is true.

or rental accomodation... both are ways of accepting the lending of a resource at interest.

No, that is a business venture. It is not interest on money - which is what is banned. It is paying for use of a resource.

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Ban maths!

I wonder how muslims manage to get mortgages or rental accomodation... both are ways of accepting the lending of a resource at interest.

If this is a real question then there is a lot of info out there:

http://www.mortgages.co.uk/islamic-mortgage.html

There are two options available to you that correspond with Muslim law:

The Murabaha Mortgage

This is only really an option for individuals/families who have a fair amount of capital behind them, because it is a condition of this Mortgage package that you are expected to pay (circa.) 20% of your home’s value, on the day of purchase. However from that day the house will be registered as your own. You may pay off any debt that is outstanding on your home at any point. This package offers a fixed repayment period that is agreed between you and your lender, any a monthly repayment amount that is fixed for the term of your mortgage.

So how does the Murabaha Mortgage work?; When you find the house that you wish to buy, you arrange a sale price with the vendor as normal, however the bank pays the purchase price, then immediately sells the house to you at a higher price (the higher price is determined by the original price of the property, and the repayment period that you will have agreed with the lender), minus the percentage you pay as deposit.

The Ijara Mortgage

This is a slightly more popular choice of mortgage, as you do not need a large amount of capital behind you to set up this mortgage, it is also slightly more flexible than its counterpart. An extra benefit to this type of mortgage is that it can even be taken out to replace an existing interest mortgage. The amount you pay each month is usually fixed yearly. The outstanding balance can be paid off at any time (usually) without incurring any penalties.

So how does the Ijara Mortgage work?

As with the Murabaha mortgage, you find a property that you wish to buy, and agree a purchase price with the vendor, the difference is that; your lender will then purchase, and gain ownership of the property. You will enter into a lease agreement with the lender. Each month you will be expected to pay rent to your lender and a contribution towards the purchase of your property.

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with an Islamic mortgage, which strictly isn't lending but works in the same way ;p

You choose a house, Islamic bank buys the house and agrees to rent it to you for n Years at a fixed price which equivalent to the going rate of interest if you make all the payments the bank signs the house over to you at the end on the lease. All tied up with lots of contracts to make sure no-one steps out of line :) With islamic savings accounts, you receive profit on your money not interest ;p

currently the profit rate of 4% :P

http://www.islamic-bank.com/

Sharia mortgages, which involve a very literal interpretation of Sharia law. Google it if you can be bothered, but effectively the bank buys the house, and you rent it from the bank for a sum that equates to the cost of a repayment mortgage but is called rent, and after 25 years it is yours. Complete fiction, for they too are paying interest - just calling it something else, and setting up the legal documents to prove it is true.

Good job Allah hasn't noticed, what with him being all seeing and that...

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No, that is a business venture. It is not interest on money - which is what is banned. It is paying for use of a resource.

Money is a resource.

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Good job Allah hasn't noticed, what with him being all seeing and that...

hehe maybe but the more I think about islamic finance the better it sounds.

All the Risk lies with the person/institution who has the money, therefore as an institution or individual you need to vet the people you are buying for or investing in with alot of analysis and throught. If it goes wrong for them you loose your money. TIMHO This extra risk slows the lending process down and makes the money system more stable, and makes more of the money go to the right places

Edited by moosetea

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hehe maybe but the more I think about islamic finance the better it sounds.

All the Risk lies with the person/institution who has the money, therefore as an institution or individual you need to vet the people you are buying for or investing in with alot of analysis and throught. If it goes wrong for them you loose your money. TIMHO This extra risk slows the lending process down and makes the money system more stable, and makes more of the money go to the right places

Good points, moosetea :) Smart lot the Arabs, great mathematicians and astronomers too. I wouldn't be surprised their rules relating to finance ended up being crystalised into their religion for very good reasons.

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How ridiculous. Fails to point out that the lender's money is being deteriorated at copound inflation.

Presumably 'cos the lender isn't dumb enough to lend out at less than the inflation rate?

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hehe maybe but the more I think about islamic finance the better it sounds.

All the Risk lies with the person/institution who has the money, therefore as an institution or individual you need to vet the people you are buying for or investing in with alot of analysis and throught.

Or securitize and sell to SIVs.

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Why's it silly?

Because it'll end up costing the borrower a lot more, and it makes it riskier for the lender to lend.

This of course is fine if you're lending for consumables like cars, houses and gadgets which are not investments, but when you're trying to build a business and need investment money, more expensive finance that is harder to obtain is going to be a problem.

Many people will not be able to start up their business in the first place and it will simply cause the rich to monopolise the businesses and keep the poor in their lowly place, since the 'bank' not only charges the full whack of 'interest' that it normally would have cost, but also dips it's beek deep into your profits and they have the right to impose conditions on how you run your business as well. Remember there is no such thing as a free lunch -- all moneylenders want their pound of flesh at the end of the day.

As for making the banking system more safe -- this also is an illusion, what brought the current malaise on was fraud, not the system itself.

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We'd do well to give it up

Sure. Just pass a law against the time value of money. No problems. While you're at it, why don't you pass another declaring resource to be infinite, and a third outlawing risk?

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Actually banning the lending with interest is a very good idea.

If it were done on a fixed commission,then that caters for other religeons that forbid interest.

It might also dampen down the inflation/deflation cycle,if the commission was an initial charge of the loan.

That keeps the bankers sweet,increases their spread and it's pretty simple to do.

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Actually banning the lending with interest is a very good idea.

How is it any different for borrowers who intend to repay principal?

And if you intend to only have borrowers who default on principal - who would want to lend?

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"If a moneylender at the time of Christ had lent an ounce of gold at 5% it would today require an amount of bullion weighing several planet Earths in repayment."

If he lent it at about 1.15% the borrower could then repay it with all the worlds gold produced by man.

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Why's it silly?

Banning the payment of interest would have about as much success as legislating sunny weather. The argument that it is necessary to consume exponentially increasing amounts resources to keep the economy going is also utterly bogus. It is shocking that such rubbish gets published, but at least it puts the quality of reporting in perspective. That is useful when taking a newspaper's word for something you don't know much about.

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How ridiculous. Fails to point out that the lender's money is being deteriorated at compound inflation.

Most "money lenders" are not lending either their money or their depositors money. If they were there would be no inflation as we know it today.

It is because banks create new "number money" on which interest is charged, that we have inflation and a growth bias to our economic system.

If you want an example of real bat shit insanity, have a look at how governments fund their spending deficit and what happens to the economies they govern if the should even try to slow the growth rate of their national debt.

Why someone in authority doesn't step back, take a look at the debt based financial system and burst out in hysterical laughter is big question.

Modern business, from manufacturing to agriculture, makes no common sense whatsoever. It only make sense in monetary terms at the expense of the environment and well being of the majority.

Actually banning the lending with interest is a very good idea.

If it were done on a fixed commission,then that caters for other religeons that forbid interest.

It might also dampen down the inflation/deflation cycle,if the commission was an initial charge of the loan.

That keeps the bankers sweet,increases their spread and it's pretty simple to do.

Agreed.

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Perhaps this Flintoff guy would like to start a campaign to ban compound inflation.

If you actually understood money..........................

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  • 399 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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