This article examines some of the things that are intrinsic to the Islamic economic system that would have eliminated the systemic problems related to the current economic crisis. The focus will be on ownership and the prohibited methods of increasing ownership. They include gambling, usury and criminal fraud. Deceit in trade, monopoly and price fixing are also discussed.

“Oh. you who believe ! Verily khamr (alcohol/intoxicants) and gambling and idols and divining arrows are only an infamy of Satan’s handiwork. Leave them aside in order that you may succeed. Satan seeks only to cast among you enmity and hatred by means of alcohol and games of chance, and turn you away from the remembrance of Allah and from prayer. Will you then stop (doing that)? ” (TMQ 5:90-91)

On an individual level it is easy to see how gambling and all games of chance leave people with grudges and a sense of loss. It is natural that a loser nurses a grudge against someone who takes his money and leaves him broke.

Let us now examine a more subtle form of gambling that is just as, if not more dangerous. Subprime mortgages have been blamed for the financial crisis but they’re spending five times more money (in Federal loans, injections, bailouts and guarantees) than the value of every subprime loan in the country combined. It should be clear that something other than subprime loans defaulting or a “housing correction”, as U.S. Treasury Secretary Paulson put it, is wrong with the system. How were those loans packaged and leveraged, according to the Bank of International Settlement into what amounts to a $700 trillion global derivative market? About a quarter of that amount can be attributed to a form of gambling called credit default swaps. It is referred to as a side bet because the actual players are not physically in the game. They bet for or against someone’s ability to pay a mortgage under the guise of an insurance policy. This policy pays off whenever a mortgagee defaults on his payments. This transaction is supposed to take place even though the purchaser of the insurance policy is not the one who owns the property. The word “supposed” was used here because the financial institutions involved in this form of gambling were caught off guard with the magnitude of the mortgage defaults and had not put aside enough money to pay them off, thus resulting in their insolvency. In the interim some of the players in this game were getting filthy rich off the misery of the home buyers who ended up in the streets. This form of gambling has the capacity to gut out the economy of a whole nation.

This practice (credit default swaps) was responsible for the Stock Market Crash of 1907, at which time it was outlawed. It resurfaced amidst a wave of deregulation hoopla in 2000, and the assumption that these financial institutions were in the hands of grown responsible men. Their doctrine proved to be “Get it, while the gettings good.” Unfortunately, the subprime mortgage crisis is only the first wave. Another wave resulting from option ARM (adjustable rate mortgages) along with a collapse in the commercial real estate market will put some more juice in the game for credit default swaps. This probably accounts for why at this late date no one of any importance has been called on the carpet for these deceptive practices.

Secondly, there is usury.

“Those who devour (take) interest (riba) cannot stand except as the one whom the Satan, by his touch , drives him to madness. That is because they say: Trade is just like riba, Allah permitted trade and forbade riba. The one to whom an admonition from his Lord comes and he refrains (in obedience thereto) , he shall keep (the profits of) that which is past, and his affair (henceforth) is with Allah. As for him who returns (to riba), such are rightful owners of the fire. They will abide therein eternally.” (TMQ 2:275)

The reality is that the one who takes interest is exploiting the effort of the person who gives it, and the receiver is compensated without spending any effort. Because the principal is not subject to any loss, it does not agree with the general rule: “Loss goes with gain.” Nowhere is this more apparent than in the banking system and the credit industry. The banking institutions parallel a Ponzi scheme in that they loan out their depositor's money and collect a vulgar amount of interest. If a home mortgage is amortized at 10% over twenty or more years, the house is paid for three times over. The difference between Madoff (Ponzi scheme rip off artist) and the larger banks when their greed caught up to them is that, the larger banks were anointed “too big to fail.” So these larger banks were able to gobble up already failed banks with tax dollars [($7.7 trillion bailout) according to Bloomberg November, 2008 article]. Even though like Madoff, the banks finally admitted that all their public statements were false and the supposed assets were worthless. This kind of merger can only create a riskier environment with more complicated books and less transparency. We need not spend a lot of time on the credit industry. Talk about someone living off your sweat! Anyone making minimum payments can be put into servitude most of their adult life for a mere $5,000 of credit and debt.

Thirdly, there is criminal fraud. Fraud, linguistically means deceit. If someone was defrauded in the market place, some deception took place. Criminal fraud is prohibited in Shar’a because it was confirmed in an authentic Hadith.

Bukhari narrated from ‘Abdullah ibn ‘Umar that a man mentioned to the Prophet (saws) that he deceives in trading. The Messenger of Allah (saws) said: “If you entered into trading say there is no deceit (khilaba).”

If fraud is proven, the deceived person has the choice to abrogate the sale or conclude it, i.e. if fraud appeared in the sale then the seller has to return the money and take the commodity. The purchaser is not allowed to take the indemnity, i.e. the difference between the actual price of the commodity and the sale price. This is because the Messenger of Allah (saws) gave him the choice to abrogate the sale or conclude it.

Ad-Daraqutni mentioned from Muhammad ibn Yahya ibn Hibban, he said that the Messenger of Allah (saw) said:

“If you purchased say there is no deception, then in every commodity you purchased you have the choice after three nights to accept (the commodity) and thus hold it or to return it back to the owner.”

During the hard times ahead we can expect criminal fraud to magnify as desperate retailers scramble to unload their inventory and hucksters come out of the woodwork selling dreams. Dreams to a society that is used to consuming a disproportionate amount of the world’s resources as long as they can reach for the plastic (credit cards). A people that have been so reduced to available markets via the media and the secondary school system that the word 'sale' has almost become an aphrodisiac. This is evidenced by the Black Friday trampling death at Wal-Mart.

With over 1.1 million layoffs in November and December of 2008 alone and the resulting joblessness increase, you can expect deceit based (bait and switch) scams to multiply.

The current Ocean's Eleven culture (get over and walk away cool) has the American economic system saturated with the evil side of money. Instead of “Change, we can believe in” the stretch will have to be made to change based on a belief system. A comprehensive system that deals with every area of human endeavor.

Deceit in Trade
The sale contract is binding once the contract of offer and acceptance between the seller and the purchaser is completed and/or executed. To eliminate disputes, the Shar’a made it prohibited for the people to deceive in trading and it made the one who deceives sinful whether he was the seller or the purchaser.

The deceit of the seller regarding the commodity is by hiding the defect from the purchaser, while he knows about it; or by covering the defect from the purchaser in a way which implies to the purchaser that there is no defect, or by covering the commodity in a way which shows that it is good. Deceit by the purchaser in the price is by counterfeiting the currency or by concealing a forgery while he is aware of it. The price (of the commodity) could vary according to the sold (commodity) because of the deceit in it and the purchaser may be encouraged to buy a commodity because of the deceit in it.

Such deceit in all types is Haram according to what Abu Hurairah narrated from the Messenger of Allah (saw), who said:

“Do not tie the udder(mammary glands with two or more teats) of the camels and sheep , and whoever purchased it after doing that, he has the choice after he milked it either to hold it if he liked it or to return it back together with a sa’a (a cubic measure) of dates.”

Ibn Majah also narrated from Abu Hurariah, who said that the Messenger of Allah (saw) said:

“Whoever bought a camel or a sheep with a tied udder, he has the choice to return it within three days together with a sa’a of dates or wheat” (which represents the price of  the milk he has gained).

Al-Bazzar narrated from Anas from the Messenger of Allah (saw) that

“He prohibited the selling of animals that are left not milked”.

So, these Ahadith are clear in forbidding the tying of the udders of camels and sheep, and forbidding the selling of an animal after it was left un-milked until its udder became enlarged to give the appearance that it is a dairy cattle, because this is deceit and is prohibited (Haram). This is because the prohibition of the Prophet (saw) regarding this was decisive. Ibn Majah narrated from ‘Uqbah ibn ‘Amir from the Prophet (saw) that said:

“The Muslim is the brother of the Muslim, and it is not allowed for a Muslim to buy a faulty thing from his brother without being shown that fault.”

Bukhari narrated also from Hakeem ibn Hizam from the Prophet (saw) that he said:

“The two traders (the seller and the purchaser) have the choice (to conclude or cancel the deal) before they departed (from each other). If they were honest and explained (the commodity and the currency), their sale will be blessed. But if they hid (the defect) and lied (to each other) the blessing of their sale will be eradicated.”

The Prophet (saw) also said:
“No one of us is allowed to deceive”, as narrated by Ibn Majah and Abu Dawud from Abu Hurairah.

Whoever earned something through deceit and cheating would not (legally) possess it, because deceit is not one of the means of ownership, rather it is of the prohibited means, and thus it (the thing obtained by deception) is a prohibited and illegal (Suht) property. The Prophet (saw) said:

“Any (human) flesh that grows from illegal (suht) property will not enter paradise, then the Hellfire deserves it more”, narrated by Ahmad from Jabir ibn Abdullah.

Monopoly
The monopolizer is the one who hoards the commodities until the price rises so as to sell them expensively such that it becomes difficult for the citizens to buy them. “No one monopolizes except the wrongdoer.” Al-Athram narrated from Abu Umamah, he said:

“The Messenger of Allah (saw) forbade that a foodstuff be monopolized”.

The condition of the monopoly is that it should reach a limit at which it becomes difficult for the citizens to buy the monopolized commodity; this is because the reality of the monopoly is not conceived except in such a situation. If it did not become difficult for the people to buy the commodity then it would not have been gathered or held back to be sold expensively. A prime example of this type of wrong doing was Enron. Before its demise from being the seventh largest corporation in the U.S., Enron was heavily involved in providing electricity to California. Because of its dominance, Enron was able to create a bidding environment (auction) for its services. To drive up the bids, some of the power grids were eliminated from the auction to create scarcity. When the smoke cleared, Californians had paid over five billion dollars in overcharges. To add to the insult, Californians were still subjected to rolling blackouts.

Price Fixing (Tas’eer)
Allah (swt) has left to everybody the right to sell his commodity at the price he likes. Ibn Majah has narrated from Abu S’aid, that he said, the Messenger of Allah (saw) said:

“Selling (trading) is by consent.”

But because it is possible that the State (government) may force pricing over the people, Allah (swt) prohibited it to set certain prices for commodities and then force people to trade (selling and buying) according to them.

Therefore, price- fixing was prohibited in Islam due to what Imam Ahmad narrated from Anas who said:

“Prices increased at the time of the Messenger of Allah (saw), so they said, O Messenger of Allah , we wish you would price (fix the prices). He (saw) said: “Indeed Allah is the Creator, the holder (Qabidh), the Open-handed (Basit), the Provider(Raziq), the Pricer (who fixes prices); and I wish I will meet Allah and nobody demands (complains) of me for unjust act I did against him, neither in blood or property.”

Also Abu Dawud narrated from Abu Hurairah, he said, “A man came and said, O Messenger of Allah, fix prices. He (saw) said:

“Rather Allah reduces and increases.”

The reality of pricing is that it is a grave Haram upon the nation under all circumstances, whether in the situation of war or peace, as it opens a hidden market (black market) in which people trade unseen by the government and away from its supervision. Price increases shift the possession of commodities in the direction of the wealthy to the exclusion of the poor. Moreover, pricing would have an effect on consumption, thereby effecting the production and may lead to an economic crisis.

In the famine year, which was called Ramadha (ashes) year, when famine occurred only in Hijaz due to food shortage in that year and thus food prices increased, ‘Umar ibn Al-Khattab did not fix the prices of the foodstuffs. Rather he ordered supplies of foodstuffs from Egypt and ash-Sham to be sent to Hijaz; thus prices dropped naturally without the need for pricing (any artificial adjustment).

We are all too familiar with the way farmers in the U.S. are subsidized not to grow certain products in order to keep the prices up. Let us compare the supply and demand scenario that occurred in Hijaz with the recent spike in oil prices. Contrary to popular belief, the price increases had nothing to do with oil sheiks or oil companies like Chevron. Large investment houses like Morgan Stanley, Goldman Sachs, and Barclays floated oil futures contracts to its customers. Even though Morgan Stanley does not own any refineries or gas stations, it does have an oil storage facility in New Haven Connecticut where it can hold (take out of circulation) 20 million barrels of oil. In this environment, a barrel of oil was traded at a ratio of 27:1 for every actual barrel of oil consumed in the U.S. The investor demand artificially lifted the price of oil from about $60 to $150 a barrel. To show the disconnect with reality, on September 22nd 2008 there was a $25 a barrel jump in one day. This jump occurred when the supply was high and the demand was low. This meant that prices should have fallen instead of going up, if left to adjust naturally.

We can see from some of the examples in our current reality, Islam is the only solution to any economic crisis. Islam does not give fertile ground for these destructive practices to take root. It is punished both judicially and psychologically. Because of its comprehensive nature, the Islamic system cannot be administered piece meal. We Muslims need to ask ourselves the fundamental question. Does the authority in human life on earth belong to Allah, or does it belong, even partially, to any one of His creatures exercising the power to enact laws that are not endorsed by Allah?

“Do they desire to be ruled by the law of pagan ignorance? But for those who are firm in their faith, who can be a better law-giver than Allah?” (TMQ 5:50)