Friday, December 04, 2009

Pain, not gloating

A number of people emailed to ask me why I haven't written blog entries in recent months.

The main reason is that most of the trouble that I have warned against in recent years, including about the faulty legal structures of so called sukuk as well as other debt instruments marketed as "Islamic" (see my 2006 book Islamic Finance: Law, Economics, and Practice, Chapter 6 on faulty sukuk structures), and the speculative bubbles that were again plaguing the Middle East (my 2009 book with Amy Jaffe -- an expert on energy markets -- Oil, Dollars, Debt, and Crises: The Global Curse of Black Gold), have come to pass. Contrary to what those who criticized me for my gloomy predictions may think, I had wished all along that I was wrong. When bad things happen, sincere people do not gloat: they feel too much pain to do that.

Therefore, I do not want to write to say "I told you so." I am, instead, starting to work on my next book project on Middle-East economic development. To the extent that the region's limited absorptive capacities have contributed to local bubbles and then global credit bubbles (1980s and again this decade), enhancing the region's real (i.e. industrial) growth prospects is in the region's as well as the world's long-term best interest. However, national-level industrial plans (as in Saudi Arabia, for instance) are too limited in scope.

My argument at recent conferences has been that we need an industrial plan at the regional level. Unfortunately, this type of plan would run contrary to the short-term profit motives that have fueled speculative bubbles, of which the debt culture that has been marketed as "Islamic finance," as well as closely-related debt-driven construction booms, are but two examples. Commissions that short-term rent seekers can collect in those two bubble industries prevent the region from focusing on the task ahead -- the last opportunity to use the region's mineral wealth as an engine for long-term industrialization.


Blogger Unknown said...

Jazak Allahu Khair for your comments. I appreciate your desire not to gloat, but some of us rely on your unique insights, especially given the industry is so corrupted by those with conflicts of interest. I hope your work on the new book is going well (I have read your other book which I found exceptional), but if you do have time every now and then, you will be adding a great amount of value to the muslim ummah (at least me!) by continuing to update your blog and commenting on current issues, regardless of the fact that you did warn of them many years ago. I am a postgraduate student in economics in the UK and I read economic blogs on a regular basis, for example Paul Krugman's, Willem Buiter's and Martin Wolf's economist forum etc. I have your blog saved as favourites amongst these names, and I check pretty much on a daily basis, and I have been extremely dissapointed not to have not heard anything since August (not even an Eid Mubarak). I do not know of any other muslim academic economist whose views I can read about, and this is an incredibly sad thing for me. Please view this blog as your duty to younger muslim aspiring economists who need an insight from a muslim who is at the same time a successful academic economist. Jazak Allahu Khar again.

10:30 AM  
Blogger Parvez said...

Asak Brother Muhammad

Dr. Gamal's insigts are indeed valuable. You can also read Tarek Al Diwany by clicking

You will find his writing equally insighful.

9:05 PM  
Blogger Unknown said...

Blogs are so informative where we get lots of information on any topic. Nice job keep it up!!

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12:55 AM  
Blogger Muhammad Saeed Babar said...


Thank you Dr. El-Gamal at last breaking the silence. Two writers of islamic Finance are my favorite. One is you and other is Tarek Al Diwany. Both of you don't hide behind the words and come up with something very clear. You have rightly pointed out it is the debt that creates bubbles. These bubble are bound to burst. Tarek Al-Diwani is his article "About Interest Based Money" has demonstrated that bubbles would be created and busted because of debt.

1:02 AM  
Blogger Bro. Kimara said...

Salaam Dr. El Gamal,

I also read your blog with intense interest. Your latest post is succinct yet timely. The shortsightedness of the current environment is frustrating to say the least. I believe if the petroleum and mineral resources of the MENA & 'Sub' Saharan Africa were developed in an intelligent coordinated way, the lives of these populations could provide a beacon light impacting the whole planet. Just my thoughts.

Ma Salaam.

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10:16 PM  
Blogger nhusain said...

Do you think the bankers can go after Dubai world assets in the US/UK courts? And have them enforce the unique contracts at the risk of UAE assets being at risk in the

Where is Taqi Usmani in the debt restructuring negotiations?

8:09 AM  
Blogger nhusain said...

Gulf news has a list of the profiles of the judges that will handle the bankruptcy. They are basically from the UK. I wonder if they will implement the sukuk contracts as they were written or just ignore that and treat the sukuk like its a regular bond.

7:58 PM  
Blogger Ibn Abee said...

Dr. el-Gamal:

I had written an e-mail to you earlier regarding having access to the website and utilizing the website to spread the 'true' message of Islamic finance and banking as a sadaqa jariya project.
I've read some of your postings and am aware of your historic position and stance. Would this be something that would be of interest to you? Even if you are not able to donate any of your time, would you mind if we used your work with the appropriate credit being given.
Jazakallah Khayr

8:38 AM  
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7:07 PM  
Blogger nhusain said...

The Kuwaiti parliament recently passed a law saying that all Kuwaitis with loans will be able to pay only the principle without interest within 10 years. The government is upset about due to the negative economic implications according to them. But this seems to be the correct decision.

2:33 PM  
Blogger nhusain said...

This is a good one by nassim taleb.

7:02 AM  
Blogger Unknown said...

Dr. Gamal's book on Islamic finance is insightful and I've learned from it. Indeed it talks about problems with legal structures of Sukuk. But problems with such structures were well known by the lawyers that were putting these together. Maybe, Dr. Gamal rightly predicted asset price bubble in ME. But what about such problems closer at home in US? Did Dr. Gamal see the asset price bubble in US? the problems with MBS, CDOs, and so on? Or is he only capable of seeing trouble in Islamic finance and ME?

1:17 PM  
Blogger Mahmoud El-Gamal said...

Funny that you should ask. The Oil, Dollars, ... book in fact looks at many structural problems in the global financial system, of which the Middle East and Islamic finance are but tiny parts.

2:18 PM  
Blogger nhusain said...

Nassim suggests a debt to equity swap to solve the mortgage crises. That is the bank takes equity partnership in the house instead of trying to foreclose. The debt to equity swap model is the favored mode of the famous Islamic Economist Khurhid Ahmed. And in another lecture on fora tv Nassim says all relgions discourage debt and Islam bans it.

6:41 PM  
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