The History Behind the Invention of the Digital Camera

The history of the digital camera dates back to the early 1950s. Digital camera technology is directly related to and evolved from the same technology that recorded  television  images. Digital Photography and the VTR In 1951, the first  video tape recorder  (VTR) captured live images from television cameras by converting the information into electrical impulses (digital) and saving the information onto magnetic tape. Bing Crosby laboratories (the research team funded by Crosby and headed by engineer  John Mullin) created the first early VTR and by 1956, VTR technology was perfected (the VR1000 invented by Charles P. Ginsburg and the Ampex Corporation) and in common use by the television industry. Both television/video cameras and digital cameras use a CCD (Charged Coupled Device) to sense light color and intensity. Digital Photography and Science During the 1960s, NASA converted from using analog to digital signals with their space probes to map the surface of the moon (sending digital images back to earth). Computer technology was also advancing at this time and NASA used computers to enhance the images that the space probes were sending. Digital imaging also had another government use at the time that being spy  satellites. Government use of digital technology helped advance the science of digital imaging, however, the private sector also made significant contributions. Texas Instruments patented a film-less electronic camera in 1972, the first to do so. In August 1981, Sony released the Sony Mavica electronic still camera, the camera which was the first commercial electronic camera. Images were recorded onto a mini disc and then put into a video reader that was connected to a television monitor or color printer. However, the early Mavica cannot be considered a true digital camera even though it started the digital camera revolution. It was a video camera that took video freeze-frames. Kodak Since the mid-1970s, Kodak has invented several solid-state image sensors that converted light to digital pictures for professional and home consumer use. In 1986, Kodak scientists invented the worlds first megapixel sensor, capable of recording 1.4 million pixels that could produce a 5x7-inch digital photo-quality print. In 1987, Kodak released seven products for recording, storing, manipulating, transmitting and printing electronic still video images. In 1990, Kodak developed the Photo CD system and proposed the first worldwide standard for defining color in the digital environment of computers and computer peripherals. In 1991, Kodak released the first professional digital camera system (DCS), aimed at photojournalists. It was a Nikon F-3 camera equipped by Kodak with a 1.3-megapixel sensor. Digital Cameras for Consumers The first digital cameras for the consumer-level market that worked with a home computer via a serial cable were the  Apple QuickTake 100 camera  (February 17 , 1994), the  Kodak DC40  camera (March 28, 1995), the Casio QV-11 (with LCD monitor, late 1995), and Sonys Cyber-Shot Digital Still Camera (1996). However, Kodak entered into an aggressive co-marketing campaign to promote the DC40 and to help introduce the idea of digital photography to the public. Kinkos and Microsoft both collaborated with Kodak to create digital image-making software workstations and kiosks which allowed customers to produce Photo CD Discs and ​photographs and add digital images to documents. IBM collaborated with Kodak in making an internet-based network image exchange. Hewlett-Packard was the first company to make color inkjet printers that complemented the new digital camera images. The marketing worked and today digital cameras are everywhere.

Psychology of the Unconscious - 1750 Words

Introduction Through the different processes of social attachment and detachment, individuals are shaped and influenced because of the way people and entities become connected in our shared worlds (Redman, 2008a, p. 181). These processes are important mechanisms by which collective worlds and the individuals who reside in these worlds are created (Redman, 2008b, p. 4). From a psychoanalytic point of view, sociologists suggest that these social attachments happen through processes that are, to some extent, unconscious (The Open University, 2014a). These processes, which range from thoughts and feelings to impulses and emotional textures, are not easily available to conscious reflection. However, the effects of unconscious activity can be located in conscious thought and witnessed in human interactions (Redman and Whitehouse-Hart, 2008, p. 60). These unconscious processes mediate our personal awareness of social worlds by ‘translating’ the individuals and entities we encounter in the o uter world into forms that ‘resonate with internal experiences, preoccupations, fantasies and senses of self-other relationships’ (Chodorow, 1999, cited in Redman, 2008a, p. 177). This assignment will explore how social worlds are mediated by unconscious processes using research surveillance from the television programme ‘Big Brother’, the Northern Ireland ‘Troubles’ and the case of Victoria Climbià ©. Furthermore, it will outline some potential criticisms of this claim. Transference, projection,Show MoreRelated The Development of Psychology Essay1156 Words   |  5 PagesThe Development of Psychology Psychology is defined as the scientific study of behavior and the mind. This definition implies three things. The first is that psychology is a science, a field that can be studied through objective methods of observation and experimentation. 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Internet Advertising Essay Thesis Example For Students

Internet Advertising Essay Thesis There are two primary ways to advertise on the Internet: 1. Register your Web site with major search engines so Internetvisitors can find you. 2.Place an ad banner for your site on another Web site that has alot of traffic (viewers). Ad banners allow viewers to link to yoursite when they click on the banner. Internet Advertising Advantages Relatively cost-effective. The costs can also be independent ofthe size of the audience. For example, a Web presence will costthe same regardless of how many viewers your site has. (You will,however, need to make sure your Internet Service Provider canhandle the volume of viewers you anticipate having. ) Advertisers can target specific types of viewers by positioningan ad banner on related Web sites. For example, if youretargeting people seeking information on a specific topic, you canpurchase ad space on Web pages that are related to this categoryin the major search engines (Yahoo, Infoseek, Lycos, WONET The Womens Online Network, etc.). So, an organic herb farmerselling through mail order might advertise through the organicfoods or gourmet cooking category. The indexing structure ofthese sites allows you to target your audience by geographiclocation and related interest area. Messages can be timely because editing the content is often easyand instantaneous. Ads on the Internet can be interactive. You can request viewerfeedback, take orders or answer questions instantly. Ad banners can run with as much frequency as you choose. TheInternet is constantly available! Internet advertisers can potentially reach a global audience. Asidefrom language barriers, anyone at any location in the world canaccess information about your products or services. Internet Advertising Disadvantages Internet advertising should not be approached in a vacuum. Instead, it should be one component of a comprehensive InternetMarketing strategy. Although the popularity of the Internet is rising remarkably, it isdifficult to gage the impact of advertising on the Internet. The range of costs to advertise on the Internet can vary greatly. Itis best to compare a number of highly-frequented sites todetermine the best way to spend your advertising dollars.Bibliography:

The Fault in Our Stars - Book Club Discussion

'The Fault in Our Stars' - Book Club Discussion The Fault in Our Stars by John Green has characters who ask big questions. Use this guide to help your book club think about some of the themes Green raises. Spoiler Warning: These book club discussion questions contain important details about the story. Finish the book before reading on. Do you like the first person style of the novel?Even though The Fault in Our Stars deals with timeless questions, it has many markers of the year it was written from facebook pages to text messages and TV show references. Do you think these things will affect its ability to endure over the years or do the concrete references enhance its appeal?Did you guess that Augustus was sick?On page 212, Hazel discusses Maslows Heirarchy of Needs: According to Maslow, I was stuck on the second level of the pyramid, unable to feel secure in my health and therefore unable to reach for love and respect and art and whatever else, which is, of course, utter horseshit: The urge to make art or contemplate philosophy does not go away when you are sick. Those urges just become transfigured by illness. Discuss this statement, and whether you agree with Maslow or Hazel.In support group, Hazel says, There will come a time when all of us are dead. All of us. There will come a time when there are no human be ings remaining to remember that anyone ever existed or that or species ever did anything...maybe that time is coming soon and maybe it is millions of years away, but even if we survive the collapse of our sun, we will not survive forever...And if the inevitability of human oblivion worries you, I encourage you to ignore it. God knows thats what everyone else does (13). Do you worry about oblivion? Do you ignore it? Different characters in the novel have different views and coping mechanisms to deal with life an death. How do you? Reread Augustus letter that Hazel gets via Van Houten at the end of the novel. Do you agree with Augustus? Is is a good way for the novel to end?What affect does the mingling of normal teenage problems (break ups, coming of age) with a terminal diagnosis create in the novel? For instance, do you think it is realistic that Isaac would care more about his break up with Monica than his blindness?Rate The Fault in Our Stars 1 to 5.

Childhood Poverty Essays (639 words) - Poverty,

Childhood Poverty Childhood poverty has been an ongoing problem throughout history. Although America is one of the richest nations, poverty still exists. Poverty not only affects America but it is also a concern in others parts of the world. Although there may seem to be massive amounts of food in the world, there are people that are bound by poverty. Poverty not only constricts the children but every member of that household. It brings about an inadequate amount of monetary resources needed not only for their survival but the survival of their children. In a household of four, with two of those individuals being children, the federal poverty level is $23,550. Among the many nations of the world there are over 16 million children in the United States that live in homes where the incomes are far below the federal poverty level. A household must make at least twice the federal poverty level in order for basic needs to be met Between the years of 2006 and 2010 the childhood poverty level has increased in the state of Florida by thirty-five percent. The number of children in the state of Florida living in poverty has increased by 35 percent between 2006 and 2010. This increase has especially affected African American and Hispanic youth. It has been stated that one out of every four or about 924,000 children in Florida, now live before the federal poverty line. Two-thirds of African American children live in families classified as low-income, meaning they earn less than $44,100 a year for a family of four (Santich, 2012). Poverty puts many children at risk as soon as they are born. Millions of children die every year before they reach the age of five by reasons that could have most often been prevented. The lack of improper nourishment, water and immunizations has been a great cause of death. The results of poverty are devastating. Poverty not only brings about death but it so often robs the childhood of millions of children around the world. These children no longer have the means needed to survive, develop and thrive (unicef, 2005). Poverty brings about inequalities in the opportunities presented to these children. It makes children more vulnerable to exploitation, abuse, violence, discrimination and stigmatization (unicef, 2005). Childhood poverty brings about an experience that shapes every aspect of a childs life. Poverty cannot be limited to just one area but we must understand that there are many dimensions of poverty mortality, morbidity, hunger, sickness, illiteracy, homelessness and powerlessness (unicef, 2005). Safe drinking water, adequate amounts of food to meet body requirements, sanitation facilities, health care, safe housing and education are being deprived from these children due to poverty. Research indicates that poor children are disproportionately exposed to factors that may impair brain development and affect social and emotional development. These risks include environmental toxins, inadequate nutrition, maternal depression, parental substance abuse, trauma and abuse, violent crime, divorce, low-quality child care, and decreased cognitive stimulation (stemming in part from exposure to a more restricted vocabulary as infants), (National Center for Children in Poverty). The high rates of poverty not only affect individual families but it brings about severe cost to society. Due to the effects of poverty on society it has brought about social problems that have become more difficult to solve. Our nation has been ranked as one of the highest nations in childhood poverty. Poverty still exists, but why is it in America? Within the last six years the wealth of America has grown by 60 percent which brings us to a striking $30 trillion but yet we also have grown by 60 percent in the number of homeless children. Why are we so blinded and calloused to the fact that poverty is detrimental and it needs to be dealt with.

Psychology, Theology, and Spirtuality by Mark R. McMinn Essays

Psychology, Theology, and Spirtuality by Mark R. McMinn Essays Psychology, Theology, and Spirtuality by Mark R. McMinn Essay Psychology, Theology, and Spirtuality by Mark R. McMinn Essay Through this book written by Mark R. Mcminn his intent has outlined for the readers the differences between the three overlapping rules of Psychology. Theology and Spirituality. This is a good book that is made particular by the writer for Christian counselors. pupils and curates to clearly understand the definitions of those three rules. The book is simply about talking to those people who are prosecuting their active integrating of religion. psychological science and divinity. It discusses authoritative Christianity and the application to our mundane job. The value of this book lies in its ability to sketch issues to the readers and do them believe exhaustively when chew overing on possible relationship between subjects. The book is besides considered catalytic in map. The first chapter trades with faith in the guidance office. Here the character of Jill is exposed and her dilemma trades with her consciousness of her depression and at the same clip overwhelmed with feelings of guilt and insufficiency. She knows that she truly necessitate aid but concerns in happening the right counsellor since she is acknowledging that her pick could hold profound deductions on her religious life. ( Mc. Minn. 1996. p. 3 ) From the counsellor’s perceptual experience. different point of views are given. Jill’s depression is worsened by her silly spiritual thoughts and she juts need logical and clear thought about the universe harmonizing to Counsellor A while Counsellor B is more of involvement in listening to Jill and he sympathize with her sing spiritual values because he believes that Jill needs a supportive comrade to larn more in associating to others and herself. Last Counsellor C tells Jill about guilt and depression where he helps Jill happen countries of wickedness in her life and admit those errors to later on repent and inquire God’s forgiveness. The following chapters discusses Psychological and Spiritual Health. and that in one manner or another the two must travel manus in manus in order to derive peace of head. The power of supplication is besides implicated on Chapter 3 every bit good as the Scripture in Chapter 4. The following chapters 5. 6. and 7 is about wickednesss that we made how to hold a good confession and subsequently on achieve forgiveness. For in chapter 8. salvation spiritually is truly at manus by traveling manus in manus with the lessons that the readers will acquire from the book’s chapters. Religion can be discussed in therapy but the power of alteration is found in curative relationship. ( McMinn. 1996. p. 3 ) This is a book about guidance and techniques and it focuses on the jobs we face in the guidance office. This is more of a aid for Christian Counsellors and research workers unite about certain cardinal inquiries and position that may ensue to an progressively effectual and relevant intercessions. Mention McMinn. Mark R. ( 1996 ) .Psychology. divinity. and spiritualty in Christian guidance.Wheaton. Illinois: Tyndale House Publishers.

Peer To Peer Multimedia Streaming Essay Example | Topics and Well Written Essays - 2500 words

Peer To Peer Multimedia Streaming - Essay Example However, the increase in the number of viewers, along with the rise in a number of other online applications, has made this architecture ineffective because of bandwidth bottleneck issues. One solution introduced to solve this problem is peer to peer (P2P) technology, wherein peers automatically relay streams to other peers. The P2P network they are connected to performs an algorithm that helps peers ï ¬ nd a relay for a speciï ¬ ed stream to connect to. In multimedia streaming service, the important factors to observe are playing time and network bandwidth utilization. The purpose of this report is to present a solution to these issues. The proposal is to utilize P2P caching service that exploits the proximity of connected clients, i.e. the temporal and spatial locality of cached streams to the clients. In this scheme, connected peer clients not only receive multimedia streams from a server but also send cached streams to peer clients like a proxy server upon request. One P2P technology that can support this architecture is called inter-overlay optimization. Figure 1 shows the different approaches employed in multimedia streaming starting from the centralized client-server topology to decentralized schemes, which includes IP multicast and P2P solutions. P2P can be further sub-divided into mesh-based, tree-based and hybrid overlays. Each peer can accept media data from multiple parents as well as provide services to multiple children (both parent and child are relative terms in place of master-slave relationship). The advantages of this solution are high resource utilization and fast discovery of fresh peers in a single mesh due to gossiping. The disadvantages are: quality of service cannot be guaranteed due to gossiping among peers and large buffer space needed to reduce the impact of autonomy of peers (in a dynamic environment). Example applications are Coolstreaming, Promise, and GNUStream. Each peer communicates only with one parent (per overlay) and provides service to a number of children such that a â€Å"tree† topology is always maintained (in an overlay). The advantages of this solution are: closely resembles original IP multicast ideas and low management overhead.

Digital Marketing Report( Gwynne's) Case Study Example | Topics and Well Written Essays - 1750 words

Digital Marketing Report( Gwynne's) - Case Study Example The key market that is served by the business is America. The business specifically targets Americans who live in NY, Colorado etc. There are several other online tutorials who teach Latin to students in the USA. Almost all of them are online based coaching classes who teach Latin based on teaching through SKYPE. The future direction for the business would be to advertise through online platforms such as face book and twitter and also contact the universities for conducting classes for the students of the universities. The current stakeholder’s in the organization’s marketing activities are the website of the company; you tube through which the company hosts the videos of classroom teaching to attract further students as customers. Other current stakeholders in the marketing activities of the organization are websites like Amazon through which the business markets textbooks written by the authors. In future the company intends to promote the business through social media websites and use them as marketing channels. Among the social media channels that the company wants to use in order to promote the business are Face book and Twitter. In future if the business goes big the company should hire more teachers, create a company promote online. The business may also provide free classes to the students so that they are attracted to undertake the full time courses. Amongst the existing channel mix for the business are the medium such as website of the company, and you tube. Most of the customers of the company connect with the company through the websites of the company. The website of the business also provides links about the videos dealing with classroom coaching by Mr. Gwynne. Other elements of the promotional mix that are used by the company to promote it are the newspaper in which the company advertises about itself. Amongst all the different marketing and channel mix that are used by the business to promote itself, the website

Sports Hunting is inhuman Essay Example | Topics and Well Written Essays - 1000 words - 1

Sports Hunting is inhuman - Essay Example t is often done as a sport and too many, sport hunting is an acceptable pastime, despite the glaring immorality that it represents in that human take the lives of living creatures for the sake of entertainment. Bearing in mind that modern humans consider themselves civilized because of their â€Å"humanness† among other things, sport hunting is the epitome of inhumanity and reflects badly on the civilization of humankind. Sport hunting does not only strip animals of their right to leave free in the wild but also contributes to the depletion of some of the already endangered species. Wild animals like elephants and tigers have a right to live out their natural lifespan no matter how long or short they are so when hunters kill these animals they reduce their lifespan considerably (Ford). This is immoral because humans strive to ensure that their lives  are  as long as possible; taking care of their health and having hospitals and other health care institutions to promote longevity. Considering that, humans have a right to live out their natural life, they should not engage in reducing the lifespan of other creature just so they may experience a rush of adrenaline to collect a few game trophies (Simmons 4). In the same way, it is not permissible to kill, and skin fellow humans for sports or use them for experimental purposes such as medical research, one should not be allowed to treat the animals in a manner, which they know they would never want to be treated, or treat other human beings. It is also worth noting that in sports, hunting does not always die, as result an animal may be hit by a hunter’s bullet and this might remain in its body. With no way of getting it out, the animal will likely live the rest of life maimed or in pain until it dies of from injury or inability to feed acquire food due to the same injury. For example, wolf hunting in North America often involves the use of traps,  these can hold the animal in agony for hours and even day before the

Impact of Financial Crisis on Islamic Banks

Impact of Financial Crisis on Islamic Banks Chapter 1 Background / Introduction of recent financial crises and Islamic banking system The credit crunch is widely blamed upon the sub prime crisis which originated in America, where banks offered housing loans to those known in the industry as ninjas (no income, no job, no assets). Such people often had poor financial track records. However these loans were subsequently repackaged into financial products known as ‘collaterised debt obligations (CDOs). They were then mixed in with ‘prime loans and sold on to other banks via the wholesale market. In theory, this trading in debts was meant to spread the risk of bad loans amongst many different banks, thereby reducing risk. In fact, it lead to the ‘sub prime problem infecting not just the banks that offered the dodgy loans in the first place, but a far, far greater number of banks who bought the ‘toxic loans via the wholesale markets. The knock-on effect of this was for banks to suddenly become unsure of the value of their ‘toxic assets and as a result to stop lending each other money, or to lend money only at much higher rates. As a result the London Interbank Offered Rate (LIBOR) shot up to unprecedented levels, which in turn massively increased the cost of providing loans to the general public according to Khan (2008). The Western perspective also argues that this initial problem with sub prime debts triggered a secondary problem whereby banks which relied for cash flow principally on accessing funds from other banks via the wholesale market, suddenly found they could no longer borrow enough money to meet their cash flow requirements This is what led to the crisis with collapse of 150 year old Lehman Brothers and take over of Merrill Lynch by Bank of America, which, more than any other bank relied on the wholesale market rather than its own depositor funds to meet the banks day-to-day cash requirements Khan (2008). According to Bashir (2008) the paralysis in interbank lending led in turn to banks drastically reducing the money they lent to customers, as well as dramatically raising the cost of existing loans. This in turn substantially reduced demand for property and led to the ongoing crash in the property market. This is now feeding back to create a yet bigger problem for the banks because property is what they mostly hold as collateral for all the debts people owe them. Evidently this collateral is now worth a lot less than a year ago, and this will inevitably lead to a much higher rate of loan defaults and repossessions Bashir (2008). Having covered a secular analysis, we now turn to Islam, which proposes a very different explanation for these problems. According to Haddad (2008) Islam does not consider money to be a commodity, which can be traded at a profit, that is to say a transaction that is interest (or usury) based. Thus the reality of negating this Islamic consideration provides us with the first part of the problem. Interest, known as Riba in Arabic, is one of the major violations of Gods law, and when it spreads through society becoming an established norm without any condemnation nothing can be expected but divine wrath. Islamic banks do not borrow or lend on international money markets because interest is not allowed, traditionally they have a larger proportion of their assets in reserve accounts with central banks. Islamic banking is based on the principles of risk sharing between depositor and investor in theory, meaning that customers practice greater oversight of an Islamic banks lending performance. Shariah law stipulates that Islamic securities should be asset-based, which means that a trader must own the asset being traded. This, in turn, proscribes most forms of futures trading, as goods that the seller does not own or will not deliver cannot be the subjects of an Islamic contract. Practices such as short selling, consequently, are not a feature of Islamic Banking according to Haddad (2008). According to Siddiqi (2009) Islamic finance is growing in various parts of the world. It has moved from a mere theoretical concept to a practical reality. Islam not only prohibits dealing in interest but also in liquor, pork, gambling, pornography and anything else, which the Shariah (Islamic Law) deems Haram (unlawful). Islamic banking is an instrument for the development of an Islamic economic order. The core principles of Islamic economics system are justice, equity and welfare. Islamic economics seeks to establish a broad based economic well being with full employment and optimum rate of economic growth, it will bring socio economic justice and equitable distribution of income and wealth. Islamic economics will also ensure the stability in the value of money to enable the medium of exchange to be a reliable unit of account and a stable store of value Siddiqi (2009). According to Bagsiraj (2009) in the Islamic economy, Islamic banks act as venture capital firms collecting peoples wealth and investing it in the economy, then distributing the profits amongst depositors. Islamic banks act as investment partners for those who need money to do businesses, becoming part owners of the business. The banks should only be able to recoup their original capital by selling their share of the mortgage/business at the prevailing market value. As real partners, Islamic banks should have no objection to owning real assets and hence should be ready to share the consequential risk. This scheme, although seemingly inconsequential, could constitute a major relief to Islamic banks clients, as they would no longer live under the burden of debt and fear of repossession Bagsiraj (2009). Further more, according to Siddiqi, (2009) Islam neither endorses the capitalist nor the communist financial model. However, both the capitalist and socialist systems share certain elements with Islam, such as encouraging people to work, to be productive and earn as much as they can. Islam promotes an awareness of the hereafter in the hearts and minds of believers and instructs them not to be overcome by greed or excessively attached to money. The Islamic economic and financial system is based on a set of values, ideals and morals, such as honesty, credibility, transparency, clear evidence, facilitation, co-operation, complementarities and solidarity. These morals and ideals are fundamental because they ensure stability, security and safety for all those involved in financial transactions. Islamic Shariah prohibits economic and financial transactions that involve lying, gambling, cheating, gharar (risk or uncertainty), monopoly, exploitation, greed, unfairness and taking peoples mone y unjustly Siddiqi, 2009. The aim of this research is to examine the extent to which the Islamic banks have been affected by the recent financial crisis in contrast with its conventional counterpart. Chapter 2 Literature review 1.1 Detailed history of credit crunch: According to BBC website a credit crunch is an economic condition in which loans and investment capital are difficult to obtain. In such a period, banks and other lenders become wary of issuing loans, so the price of borrowing rises, often to the point where deals simply do not get one. When a National Public Radio journalist asked the famous economists Nouriel Roubini, Kenneth Rogoff, and Nariman Behravesh, their reaction on the monthly report that was just released by the U.S. Department of labor, their answers were â€Å"Its worse then anybody had anticipated†; â€Å"Its pretty disastrous†, and â€Å"I am shocked† Langfitt (2007). Before the report was published, the economic forecasters view was that the report would show the U.S economy increased about 100,000 jobs in August. Instead there was a net loss of 4,000 jobs; there was no growth for the first time in four years. U. S Department of Labor (2007). The forecasters were not done getting it wrong, however, after publication of the jobs data, a number of them predicted the news would bolster the U.S. stock market, because they argued, the employment report practically guaranteed that the Federal Reserve would cut interest rate on September 18, Instead, investor panic over the employment report caused the market, which had been volatile during most of the summer, to quickly lose about 2% on all major indices as per Whalen (2007). The Federal Reserve did eventually cut rates as expected, but it took a number of reassuring comments by U.S. central bank governors on September 10 to calm Wall Streets fears according to Monica (2007). What is now clear is that most economists underestimated the widening economic impact of the credit crunch that has shaken U.S. financial markets since at least mid-July 2007. According to Times online (2009) years of lax lending inflated a huge debt bubble as people borrowed cheap money and ploughed it into property. Lenders were free with their funds, especially in the US, where billions of dollars of so-called Ninja mortgages no income, no job or assets were sold to people with weak credit ratings (called sub-prime borrowers). The informal notion was that if they ran into trouble with their repayments rising house prices would allow them to re mortgage their property as per times online (2009). It seemed a good idea when Central Bank interest rates were low; the trouble was it could not last. Interest rates hit rock bottom in America in 2004 at just 1 per cent, but in June that year they began to rise Bernank (2006). As interest rates jumped, US house prices started to fall and borrowers began to default on their mortgage payments sparking trouble for us all BBC websites (2009). According to Mullan, 2008 easy money conditions made funds available to finance millions of US ‘sub prime borrowers, less well-off people who in earlier times would not have been seen as credit-worthy enough to get a plastic card never mind a home mortgage. These extra homebuyers helped reinforce the pre-existing rise in property prices, producing price hikes in many regional markets across the US. By summer 2007, the market had turned house prices were falling and default levels were raising Mullan, 2008. When the sub prime crisis hit, liquidity froze in the wholesale money markets, not just in the US but also across the Western world nytimes (2008). Following the common pattern of all credit crises, at a certain point never precisely predictable, because of the ‘elastic nature of credit debt becomes too extended for some borrowers when their circumstances change, default levels begin to grow, and the upward spiral of credit expansion and asset price appreciation turns into its unwelcome opposite Mullan, 2008. Just as mortgage issuance and rising US house prices fed on each other for several years, so now price falls and mortgage foreclosures reinforce each other BBC websites (2009). The difference with the credit crisis this time is that the necessity for writing off the bad debts spreads far beyond the original lenders, the banks and the other institutions, which issued the sub prime mortgages, repackaged the debts and sold them on elsewhere into the financial system the process of passing on debt from one institution to another has long been a feature of the financial markets, this activity became so frequent that the terminology of ‘securitization became commonplace, as bank lending was repackaged and sold on as bonds or securities, the same underlying value of a piece of financial paper (or electronic account) becomes reproduced often multiple times elsewhere in the financial system Economichelp.org (2008). In essence, such loans are resold as assets to others so that the same underlying value becomes used many times over, is what the credit system has been about since its early days. This time, in fact since the 1980s, the scale and scope of the repackaging of debt was simply more extensive than ever Mullan (2008). Hence the emergence of trading in ‘derivatives instruments derived from the original credit note that dominates modern financial markets trading. More recently, over the past few years, this practice spawned a number of new acronyms which have been a feature of the terminology for todays crisis: ABSs (asset-backed securities, with the ‘assets often being those home mortgages); CDOs (collateralised debt obligations); and SIVs (structured investment vehicles these are the alternative secondary financial bodies which invested in the new mortgage-backed financial instruments) according to Mullan (2008). 1.2 Causes of credit crunch Inaccurate Credit ratings: According to Acharya, Viral, Bharath, and Srinivasan, (2007) The Collateralized Debt Obligations (CDO) market has grown substantially since 2001 with issuance volume reaching $551.7 billion in 2006. While securitization makes financing more accessible for firms and households1, it also presents regulatory challenges, as rating agencies and institutions struggle to keep up with the rapid pace of financial innovation on Wall Street. According to Coval, Jurek, and Stafford (2008) Since summer 2007, both academics and practitioners have blamed complex CDOs for being, in part, responsible for the current sub prime crisis and credit crunch. While more than 85% of the dollar value of CDO securities issued was rated AAA by either Moodys or Standard and Poors (SP), 3 several major banks and financial institutions eventually had to write-off substantial portions of their balance-sheets related to investments in CDOs, largely those backed by sub prime mortgages. In 2007, Moodys downgraded $76bn in CDO securities and another $150bn remained on credit watch as of January 2008. Downgrades in November 2007 alone numbered 2,000 and many downgrades were severe, with 500 trenches downgraded more than 10 notches.4 The ensuing confusion about the true value of these complicated securities and the extent of exposure by financial institutions, incited a credit crunch with effects beyond sub prime mortgage related investments. In another words the securities, especially the now-notorious C.D.O.s, for (collateralised debt obligations) were probably too complex for anyones good. Investors placed too much faith in the rating agencies which, to put it mildly, failed to get it right. It is tempting to take the rating agencies out for a public whipping. But it is more constructive to ask how the rating system might be improved. Thats a tough question because of another serious incentive problem. Under the current system, the rating agencies are hired and paid by the issuers of the very securities they rate which creates an obvious potential conflict of interest. The following figure shows the typical collateralised debt obligations (CDO) structure and CDO issuances over time respectively: 1.3 Sub prime market collapse: According to Khan (2008) As the housing sector continued to inflate due to the appetite for housing by Americans, the sub prime sector continued to also grow. Commercial banks entered what they considered a buoyant market that could only raise, many Americans refinanced their homes by taking out second mortgages against the added value to use the funds for consumer spending. The first sign that the US housing bubble was in trouble was on the 2nd April 2007 when New Century Inc the largest sub rime mortgage lender in the US declared bankruptcy due to the increasing number of defaults from borrowers. In the previous month 25 sub prime lenders declared bankruptcy, announcing significant losses, with some putting themselves up for sale. Khan (2008) also highlights the crisis that then spread to the owners of collateralized debt who were now in the position where the payments they were promised from the debt they had purchased was being defaulted upon. By being owners of various complex products the constituent elements of such products resulted in many holders of such debt to sell other investments in order to balance losses incurred from exposure to the sub prime sector or what is known as ‘covering a position. This second round of selling to shore up funds and meet brokerage margin requirements is what caused the collapse in share prices across the world in August 2007, with the market getting into a vicious circle of falling prices, leading to the further sales of shares to shore up losses. This type of behavior is typical of a Capitalist market crash and is what caused worldwide share values to plummet. What made matters worse was many investors caught in this vicious spiral of declining prices did not just sell sub prime and related products; they sold anything that could be sold. This is why share prices plummeted across the world and not just in those directly related to sub prime mortgages Khan (2008). International institutes who poured their money into the US housing sector realized they will not actually receive their money that they loaned out to investors as individual sub prime mortgage holders were defaulting on mass on such loans this resulted in all those who took positions in the housing sector not being able to pay the institutes they borrowed money from. It was for these reason central banks across the world intervened in the global economy in an unprecedented manner providing large amounts of cash to ensure such banks and institutes did not go bankrupt Khan (2008). According to bbc.co.uk the European Central Bank, Americas Federal Reserve and the Japanese and Australian central banks injected over $300 billion into the banking system within 48 hours in a bid to avert a financial crisis. They stepped in when banks, such as Sentinel, a large American investment house, stopped investors from withdrawing their money, spooked by sudden and unexpected losses from bad loans in the American mortgage market, other institutions followed suit and suspended normal lending. Intervention by the worlds central banks in order to avert crisis cost them over $800 billion after only seven days. 2.1 Islamic Banking: The beginning of Islamic Banking: The earliest writings on the subject of Islamic banking and finance date back to the forties of the twentieth century Nejatullah (1981) and the earliest practice can be traced to early sixties Mahmud (1995). The literature showed ambivalence between the model of an intermediary designed after conventional commercial banks and one like an investment company serving individuals seeking profits as well as the community needing development. Models of commercial banking based on two-tier Mudaraba came from economists aspiring to build an alternative to a system of banking and finance hinged on interest. Some of them placed the issue in the larger context of the struggle between capitalism and socialism in which Muslim intellectuals projected Islam as having a different approach resulting in a distinct economic system with its own financial institutions. Community initiatives looked forward to something workable while avoiding interest. The nineteen-sixties saw the establishment of an interest-free bank in Karachi, that of Tabung Haji in Malaysia, and saving-investment banks in Mit Ghamr in Egypt, that were based on sharing profits and avoided interest. Only Tabung Haji survived, Haji (1995), thanks to its roots in the community, its narrow focus, official blessings and clear structure as a business. Early in the nineteen seventies came the Dubai Islamic Bank, taking deposits in current as well as investment accounts and engaging in profit-making activities directly as well as through working partners. The Islamic Development Bank, which started operations in 1975, was designed to serve Muslim countries and communities by arranging finance for trade and development on non-interest bases. By late nineteen-seventies there were half a dozen more banks in the private sector in Egypt, Jordan, Kuwait, and the Gulf. The following decade saw a rapid expansion bringing the number of banks to dozens by the end of the decade. To banks were now added non-bank financial institutions, like investment companies and insurance companies IAIB (1997). According Mohammad (1970) till the end of the nineteen-seventies, largely a plea for replacing interest in bank lending by profit sharing. This would change the nature of financial intermediation, making the fund owners as well as the financial intermediaries share the risks of enterprise with the fund users. Early literatures main emphasis was on fairness. Making the fund-user-entrepreneur bear all the risks of business and allowing fund owner and bank claim a predetermined return was regarded to be unjust. The environment in which productive enterprise was conducted did not guaranty a positive return, so there was no justification for money capital claiming a positive return irrespective of the results of enterprise, it was argued. Hadi (1973), Nejatullah (1968). It was also argued that most, though not all, the other problems of capitalism were rooted in the practice of lending on interest. Among these problems were unemployment, inflation, poverty amidst plenty, increasing inequa lity and recurrent business cycles Mohammad (1955), Ala (1961), Mahmud (1972), According to Mohammad (1970) abolishing interest and replacing it by profit sharing could solve these problems. It was not until the next decade that Islamic economists were able to fortify these claims by sophisticated economic analysis, especially at the macroeconomic level. The focus at this stage was largely on pointing out the deficiencies of capitalism and linking them to the institution of interest, among other things. With this went the arguments showing that it was possible to have banking without interest and that it would not adversely affect savings and investment Ala (1961), Ala (1969) Iqbal (1946), Nejatullah (1969). Hasan (2005) The most significant development during the late nineteen-seventies and early eighties was the advent and proliferation of Murabahah or cost-plus financing. What the businessman got from the Islamic bank under this arrangement is the commodity he needed purchased by the bank at his request, with the promise to purchase it from the bank at a price higher than its purchase price, to be paid after a period of time. Each Murabahah transaction created a debt. Compared to funds supplied on a profit-sharing basis, funds invested in Murabahah transactions were safe. Within a couple of years of the introduction of Murabahah in late nineteen seventies, it conquered the landscape of Islamic finance, assigning Mudarabah or profit-sharing to a corner accounting for less than ten percent of the operations. Security of capital invested rather than magnitude of returns to capital ruled the roost, insofar as the fund owners were concerned. However, the proliferation of Murabahah did give a big boost to Islamic finance during the coming decades. Their total number by year 2004 may have exceeded 200, spread over more than fifty countries. Archer and Karim (2002) the seventies also saw Pakistan officially committing to interest-free Islamic banking, followed by Iran and Sudan in the eighties. Meanwhile Malaysia developed a new approach of introducing Islamic banking and finance under official patronage, while the main system continued along conventional lines Indonesia followed in early nineties. This pattern later became the model for certain countries in the Gulf, like Bahrain, Qatar and the UAE. With the spread of Islamic financial institutions across the globe and enlargement of the size of funds managed by them, came the involvement of big players in the international financial arena like Citibank, HSBC and ABN AMRO according to Archer Karim (2002). According to Vogel and Hays (1998) in the development of theory of Islamic finance and banking, the late seventies and the eighties saw many significant contributions. Murabaha or cost plus financing, acknowledged only grudgingly in documents such as the Islamic Ideology Council of Pakistan Report on Elimination of Interest from the Economy, earned full recognition as well as respectable rationale. The controversy around its legitimacy, its efficacy hardly had any impact on the speed with which it conquered the landscape of Islamic finance. Practitioners of Islamic finance report they tried to push through sharing based Finance but the results were not encouraging Attiyah (2007). The laws of the land did not (may be, could not) offer the financier same protection from false reporting of profits by the users of funds, even against outright fraud and deception, not to speak of delay in payment, as was offered to borrowers in a lending contract. There seemed to be no room for collaterals. On top of all this there were projects to be financed that simply defied profit-sharing finance, like long term municipal plans to lay sewage-pipes in a city. In this case, returns to the finance would accrue over many decades in the future while costs had to be met in the present. In the absence of a market on which shares could be floated, even medium term Mudarabah bonds designed to finance development of WAQF property did not succeed Khairallah (1994). Recourse to trade based modes of finance became necessary. This happened with privately established Islamic banks in the Gulf area as well as with the Islamic Development Bank. By the early nineteen-eighties, Murabahah had become the dominant mode of Islamic finance everywhere. As pointed out above, early theory had failed to pay due attention to trade based modes of finance and to the issue of capital protection. Murabahah seemed to fill the gap. According to Khairallah (1994) the macroeconomic implications of Islamic banking were still being worked out on the assumption that it would be largely based on profit sharing. It was argued that financial intermediation based on profit sharing rather than lending will contribute to greater stability in the economic system in general and the financial markets in particular. It was also argued that such a system would be more efficient than the conventional system Khairallah (1994). 2.2 An overview of Islamic Banking and Financial products: The earliest Islamic financial product to appear on the scene was investment deposit with an Islamic bank or investment certificate issued by an Islamic investment company IIBI (1995). Both were based on profit-sharing/ Mudarabah between the depositor/certificate holder (Rabbal-mal) and the bank/investment company (Mudarib). The next to appear were based on sale. Murabahah is sale with a mark-up on purchase price, payment being deferred. Ijarah is sale of usufruct of an equipment or real estate owned by the seller. Murabahah proceeds on the basis of a purchase order by a client who commits to buy the commodity involved. Originally introduced as contracts between two parties both Ijarah and Murabahah ended up in the form of securities. Bypassing controversies around operating leases versus financial leases Nejatullah (2005b) The market seized upon Sukuk. Ijarah bonds are investment certificates indicating ownership of a real asset subject to a lease contract yielding predetermined rent yields, they are very popular in the Gulf, unlike the Sukuk based on Murabahah receivables that are considered valid only in Malaysia. Adam and Thomas (2004). Other sale-based modes in Islamic finance are Salam and Istisnaa Islamic banks started by using them as bases for extending finance to agriculture and industry respectively. As they had no interest in taking possession of the commodities or the manufactured goods involved, there was usually a parallel contract reversing the flow so that the bank ended up with cash, larger in amount than that paid by it in the first contract. In their more developed forms, the Islamic financial market now has Sukuk based on Ijarah, Salam and Istisnaa. The buyers of Sukuk periodically get a predetermined income over and above the privilege of redemption at par on maturity, as in case of conventional bonds. According to (http://www.bankislam.com.my) there are efforts to develop secondary markets on which these Islamic bonds could be traded. If and when these efforts succeed, the same markets could handle variable return Mudarabah bonds or Sukuk based on Mudarabah/musharakah. The big difference would be in there being no guaranteed value on redemption as these investors are vulnerable to losses too, unlike those who invest in fixed income Sukuk mentioned earlier. We have to examine, first how trade based modes of finance got in, and second, how bond-like Sukuk were constructed. Later on, we go on to economics: the impact of fixed income financial products on an economy aspiring to be Islamic. Malaysia introduced sale of debt (Bay Al-Dayn) in Islamic finance. It also brought in Inah, a way of obtaining cash now against a larger amount of cash to be paid after a period of time, on the basis of sale contracts on deferred prices followed by buyback contracts at lower cash prices. The first Islamic bank to come up in Malaysia, Bank Islam Malaysia Berhad, started its operations in 1983. It is now marketing about 50 innovative and sophisticated Islamic banking products and services, comparable to those of their conventional counterparts (http://www.bankislam.com.my). A second Islamic bank, Bank Muamalat Malaysia Berhad commenced operations in 1999. The Central Bank of Malaysia also decided to allow the existing banking institutions to offer Islamic banking services using their existing infrastructure and branches. The long-term objective of BNM is to create an Islamic banking system operating on parallel lines with the conventional system This involves some interaction between the two systems, which is overseen and organized by the central bank, Bank Negara Malaysia, which has in-house National Shariah Advisory Council. An Islamic Inter-bank Money Market launched in 1994 plays a significant role in this regard (http://www.bnm.gov.my). There is also Mudarabah Inter-bank Investment facilitating interaction between deficit and surplus Islamic banks. The backbone of the whole structure seems to be the Government Investment Issue (GII). It was originally based on ‘the Shariah contract of Qard Hasan, the holder being given back only what he/she gave. ‘Any return on the loans (if any) is on the absolute discretion of the government. But, in 2001, the basis of Government Investment Issue (GIIs) issuance was further enhanced to accommodate the need to develop further the secondary market activities of the Islamic money market. An alternative concept of GII based on Sell and Buy Back Arrangement was introduced in June 2001. Under this arrangement, the Government will sell its identified assets at an agreed cash price to the buyer and subsequently buy back the same assets from the buyer at an agreed purchase price to be settled at a specified future date (http://www.bnm.gov.my). Saleem (2006) says besides complying with the prohibitions against interest and the financing of forbidden activities, Islamic banking products are based on the concept of property exchange, profit and risk sharing, and certainty. Uncertainty (gharar) is not permissible, and contracts for banking services must clearly define the responsibilities and rights of the customer and bank as to the ownership of property, fees, and risk sharing. 2.3 Istisnaa The Istisnaa the second kind of sale where a commodity is transacted before it comes into existence. This allows the Bank to order for the goods or equipment required for a construction project according to the choice of the client and delivers them to the client. The client agrees to pay in installments at specified dates. There are two sub types of Istisnaa contracts, which are classified based on the commodity bought or sold Saleem (2006). 2.4 Ijarah Islamic Investments ‘Ijarah is the process by which (Usufruct of a particular property is transferred to another person in exchange for a rent claimed from him/her). It is the equivalent of ‘Leasing in commercial banking. This allows the Bank to order for Capital assets required for the customer against a rental agreement with him. The title Impact of Financial Crisis on Islamic Banks Impact of Financial Crisis on Islamic Banks Chapter 1 Background / Introduction of recent financial crises and Islamic banking system The credit crunch is widely blamed upon the sub prime crisis which originated in America, where banks offered housing loans to those known in the industry as ninjas (no income, no job, no assets). Such people often had poor financial track records. However these loans were subsequently repackaged into financial products known as ‘collaterised debt obligations (CDOs). They were then mixed in with ‘prime loans and sold on to other banks via the wholesale market. In theory, this trading in debts was meant to spread the risk of bad loans amongst many different banks, thereby reducing risk. In fact, it lead to the ‘sub prime problem infecting not just the banks that offered the dodgy loans in the first place, but a far, far greater number of banks who bought the ‘toxic loans via the wholesale markets. The knock-on effect of this was for banks to suddenly become unsure of the value of their ‘toxic assets and as a result to stop lending each other money, or to lend money only at much higher rates. As a result the London Interbank Offered Rate (LIBOR) shot up to unprecedented levels, which in turn massively increased the cost of providing loans to the general public according to Khan (2008). The Western perspective also argues that this initial problem with sub prime debts triggered a secondary problem whereby banks which relied for cash flow principally on accessing funds from other banks via the wholesale market, suddenly found they could no longer borrow enough money to meet their cash flow requirements This is what led to the crisis with collapse of 150 year old Lehman Brothers and take over of Merrill Lynch by Bank of America, which, more than any other bank relied on the wholesale market rather than its own depositor funds to meet the banks day-to-day cash requirements Khan (2008). According to Bashir (2008) the paralysis in interbank lending led in turn to banks drastically reducing the money they lent to customers, as well as dramatically raising the cost of existing loans. This in turn substantially reduced demand for property and led to the ongoing crash in the property market. This is now feeding back to create a yet bigger problem for the banks because property is what they mostly hold as collateral for all the debts people owe them. Evidently this collateral is now worth a lot less than a year ago, and this will inevitably lead to a much higher rate of loan defaults and repossessions Bashir (2008). Having covered a secular analysis, we now turn to Islam, which proposes a very different explanation for these problems. According to Haddad (2008) Islam does not consider money to be a commodity, which can be traded at a profit, that is to say a transaction that is interest (or usury) based. Thus the reality of negating this Islamic consideration provides us with the first part of the problem. Interest, known as Riba in Arabic, is one of the major violations of Gods law, and when it spreads through society becoming an established norm without any condemnation nothing can be expected but divine wrath. Islamic banks do not borrow or lend on international money markets because interest is not allowed, traditionally they have a larger proportion of their assets in reserve accounts with central banks. Islamic banking is based on the principles of risk sharing between depositor and investor in theory, meaning that customers practice greater oversight of an Islamic banks lending performance. Shariah law stipulates that Islamic securities should be asset-based, which means that a trader must own the asset being traded. This, in turn, proscribes most forms of futures trading, as goods that the seller does not own or will not deliver cannot be the subjects of an Islamic contract. Practices such as short selling, consequently, are not a feature of Islamic Banking according to Haddad (2008). According to Siddiqi (2009) Islamic finance is growing in various parts of the world. It has moved from a mere theoretical concept to a practical reality. Islam not only prohibits dealing in interest but also in liquor, pork, gambling, pornography and anything else, which the Shariah (Islamic Law) deems Haram (unlawful). Islamic banking is an instrument for the development of an Islamic economic order. The core principles of Islamic economics system are justice, equity and welfare. Islamic economics seeks to establish a broad based economic well being with full employment and optimum rate of economic growth, it will bring socio economic justice and equitable distribution of income and wealth. Islamic economics will also ensure the stability in the value of money to enable the medium of exchange to be a reliable unit of account and a stable store of value Siddiqi (2009). According to Bagsiraj (2009) in the Islamic economy, Islamic banks act as venture capital firms collecting peoples wealth and investing it in the economy, then distributing the profits amongst depositors. Islamic banks act as investment partners for those who need money to do businesses, becoming part owners of the business. The banks should only be able to recoup their original capital by selling their share of the mortgage/business at the prevailing market value. As real partners, Islamic banks should have no objection to owning real assets and hence should be ready to share the consequential risk. This scheme, although seemingly inconsequential, could constitute a major relief to Islamic banks clients, as they would no longer live under the burden of debt and fear of repossession Bagsiraj (2009). Further more, according to Siddiqi, (2009) Islam neither endorses the capitalist nor the communist financial model. However, both the capitalist and socialist systems share certain elements with Islam, such as encouraging people to work, to be productive and earn as much as they can. Islam promotes an awareness of the hereafter in the hearts and minds of believers and instructs them not to be overcome by greed or excessively attached to money. The Islamic economic and financial system is based on a set of values, ideals and morals, such as honesty, credibility, transparency, clear evidence, facilitation, co-operation, complementarities and solidarity. These morals and ideals are fundamental because they ensure stability, security and safety for all those involved in financial transactions. Islamic Shariah prohibits economic and financial transactions that involve lying, gambling, cheating, gharar (risk or uncertainty), monopoly, exploitation, greed, unfairness and taking peoples mone y unjustly Siddiqi, 2009. The aim of this research is to examine the extent to which the Islamic banks have been affected by the recent financial crisis in contrast with its conventional counterpart. Chapter 2 Literature review 1.1 Detailed history of credit crunch: According to BBC website a credit crunch is an economic condition in which loans and investment capital are difficult to obtain. In such a period, banks and other lenders become wary of issuing loans, so the price of borrowing rises, often to the point where deals simply do not get one. When a National Public Radio journalist asked the famous economists Nouriel Roubini, Kenneth Rogoff, and Nariman Behravesh, their reaction on the monthly report that was just released by the U.S. Department of labor, their answers were â€Å"Its worse then anybody had anticipated†; â€Å"Its pretty disastrous†, and â€Å"I am shocked† Langfitt (2007). Before the report was published, the economic forecasters view was that the report would show the U.S economy increased about 100,000 jobs in August. Instead there was a net loss of 4,000 jobs; there was no growth for the first time in four years. U. S Department of Labor (2007). The forecasters were not done getting it wrong, however, after publication of the jobs data, a number of them predicted the news would bolster the U.S. stock market, because they argued, the employment report practically guaranteed that the Federal Reserve would cut interest rate on September 18, Instead, investor panic over the employment report caused the market, which had been volatile during most of the summer, to quickly lose about 2% on all major indices as per Whalen (2007). The Federal Reserve did eventually cut rates as expected, but it took a number of reassuring comments by U.S. central bank governors on September 10 to calm Wall Streets fears according to Monica (2007). What is now clear is that most economists underestimated the widening economic impact of the credit crunch that has shaken U.S. financial markets since at least mid-July 2007. According to Times online (2009) years of lax lending inflated a huge debt bubble as people borrowed cheap money and ploughed it into property. Lenders were free with their funds, especially in the US, where billions of dollars of so-called Ninja mortgages no income, no job or assets were sold to people with weak credit ratings (called sub-prime borrowers). The informal notion was that if they ran into trouble with their repayments rising house prices would allow them to re mortgage their property as per times online (2009). It seemed a good idea when Central Bank interest rates were low; the trouble was it could not last. Interest rates hit rock bottom in America in 2004 at just 1 per cent, but in June that year they began to rise Bernank (2006). As interest rates jumped, US house prices started to fall and borrowers began to default on their mortgage payments sparking trouble for us all BBC websites (2009). According to Mullan, 2008 easy money conditions made funds available to finance millions of US ‘sub prime borrowers, less well-off people who in earlier times would not have been seen as credit-worthy enough to get a plastic card never mind a home mortgage. These extra homebuyers helped reinforce the pre-existing rise in property prices, producing price hikes in many regional markets across the US. By summer 2007, the market had turned house prices were falling and default levels were raising Mullan, 2008. When the sub prime crisis hit, liquidity froze in the wholesale money markets, not just in the US but also across the Western world nytimes (2008). Following the common pattern of all credit crises, at a certain point never precisely predictable, because of the ‘elastic nature of credit debt becomes too extended for some borrowers when their circumstances change, default levels begin to grow, and the upward spiral of credit expansion and asset price appreciation turns into its unwelcome opposite Mullan, 2008. Just as mortgage issuance and rising US house prices fed on each other for several years, so now price falls and mortgage foreclosures reinforce each other BBC websites (2009). The difference with the credit crisis this time is that the necessity for writing off the bad debts spreads far beyond the original lenders, the banks and the other institutions, which issued the sub prime mortgages, repackaged the debts and sold them on elsewhere into the financial system the process of passing on debt from one institution to another has long been a feature of the financial markets, this activity became so frequent that the terminology of ‘securitization became commonplace, as bank lending was repackaged and sold on as bonds or securities, the same underlying value of a piece of financial paper (or electronic account) becomes reproduced often multiple times elsewhere in the financial system Economichelp.org (2008). In essence, such loans are resold as assets to others so that the same underlying value becomes used many times over, is what the credit system has been about since its early days. This time, in fact since the 1980s, the scale and scope of the repackaging of debt was simply more extensive than ever Mullan (2008). Hence the emergence of trading in ‘derivatives instruments derived from the original credit note that dominates modern financial markets trading. More recently, over the past few years, this practice spawned a number of new acronyms which have been a feature of the terminology for todays crisis: ABSs (asset-backed securities, with the ‘assets often being those home mortgages); CDOs (collateralised debt obligations); and SIVs (structured investment vehicles these are the alternative secondary financial bodies which invested in the new mortgage-backed financial instruments) according to Mullan (2008). 1.2 Causes of credit crunch Inaccurate Credit ratings: According to Acharya, Viral, Bharath, and Srinivasan, (2007) The Collateralized Debt Obligations (CDO) market has grown substantially since 2001 with issuance volume reaching $551.7 billion in 2006. While securitization makes financing more accessible for firms and households1, it also presents regulatory challenges, as rating agencies and institutions struggle to keep up with the rapid pace of financial innovation on Wall Street. According to Coval, Jurek, and Stafford (2008) Since summer 2007, both academics and practitioners have blamed complex CDOs for being, in part, responsible for the current sub prime crisis and credit crunch. While more than 85% of the dollar value of CDO securities issued was rated AAA by either Moodys or Standard and Poors (SP), 3 several major banks and financial institutions eventually had to write-off substantial portions of their balance-sheets related to investments in CDOs, largely those backed by sub prime mortgages. In 2007, Moodys downgraded $76bn in CDO securities and another $150bn remained on credit watch as of January 2008. Downgrades in November 2007 alone numbered 2,000 and many downgrades were severe, with 500 trenches downgraded more than 10 notches.4 The ensuing confusion about the true value of these complicated securities and the extent of exposure by financial institutions, incited a credit crunch with effects beyond sub prime mortgage related investments. In another words the securities, especially the now-notorious C.D.O.s, for (collateralised debt obligations) were probably too complex for anyones good. Investors placed too much faith in the rating agencies which, to put it mildly, failed to get it right. It is tempting to take the rating agencies out for a public whipping. But it is more constructive to ask how the rating system might be improved. Thats a tough question because of another serious incentive problem. Under the current system, the rating agencies are hired and paid by the issuers of the very securities they rate which creates an obvious potential conflict of interest. The following figure shows the typical collateralised debt obligations (CDO) structure and CDO issuances over time respectively: 1.3 Sub prime market collapse: According to Khan (2008) As the housing sector continued to inflate due to the appetite for housing by Americans, the sub prime sector continued to also grow. Commercial banks entered what they considered a buoyant market that could only raise, many Americans refinanced their homes by taking out second mortgages against the added value to use the funds for consumer spending. The first sign that the US housing bubble was in trouble was on the 2nd April 2007 when New Century Inc the largest sub rime mortgage lender in the US declared bankruptcy due to the increasing number of defaults from borrowers. In the previous month 25 sub prime lenders declared bankruptcy, announcing significant losses, with some putting themselves up for sale. Khan (2008) also highlights the crisis that then spread to the owners of collateralized debt who were now in the position where the payments they were promised from the debt they had purchased was being defaulted upon. By being owners of various complex products the constituent elements of such products resulted in many holders of such debt to sell other investments in order to balance losses incurred from exposure to the sub prime sector or what is known as ‘covering a position. This second round of selling to shore up funds and meet brokerage margin requirements is what caused the collapse in share prices across the world in August 2007, with the market getting into a vicious circle of falling prices, leading to the further sales of shares to shore up losses. This type of behavior is typical of a Capitalist market crash and is what caused worldwide share values to plummet. What made matters worse was many investors caught in this vicious spiral of declining prices did not just sell sub prime and related products; they sold anything that could be sold. This is why share prices plummeted across the world and not just in those directly related to sub prime mortgages Khan (2008). International institutes who poured their money into the US housing sector realized they will not actually receive their money that they loaned out to investors as individual sub prime mortgage holders were defaulting on mass on such loans this resulted in all those who took positions in the housing sector not being able to pay the institutes they borrowed money from. It was for these reason central banks across the world intervened in the global economy in an unprecedented manner providing large amounts of cash to ensure such banks and institutes did not go bankrupt Khan (2008). According to bbc.co.uk the European Central Bank, Americas Federal Reserve and the Japanese and Australian central banks injected over $300 billion into the banking system within 48 hours in a bid to avert a financial crisis. They stepped in when banks, such as Sentinel, a large American investment house, stopped investors from withdrawing their money, spooked by sudden and unexpected losses from bad loans in the American mortgage market, other institutions followed suit and suspended normal lending. Intervention by the worlds central banks in order to avert crisis cost them over $800 billion after only seven days. 2.1 Islamic Banking: The beginning of Islamic Banking: The earliest writings on the subject of Islamic banking and finance date back to the forties of the twentieth century Nejatullah (1981) and the earliest practice can be traced to early sixties Mahmud (1995). The literature showed ambivalence between the model of an intermediary designed after conventional commercial banks and one like an investment company serving individuals seeking profits as well as the community needing development. Models of commercial banking based on two-tier Mudaraba came from economists aspiring to build an alternative to a system of banking and finance hinged on interest. Some of them placed the issue in the larger context of the struggle between capitalism and socialism in which Muslim intellectuals projected Islam as having a different approach resulting in a distinct economic system with its own financial institutions. Community initiatives looked forward to something workable while avoiding interest. The nineteen-sixties saw the establishment of an interest-free bank in Karachi, that of Tabung Haji in Malaysia, and saving-investment banks in Mit Ghamr in Egypt, that were based on sharing profits and avoided interest. Only Tabung Haji survived, Haji (1995), thanks to its roots in the community, its narrow focus, official blessings and clear structure as a business. Early in the nineteen seventies came the Dubai Islamic Bank, taking deposits in current as well as investment accounts and engaging in profit-making activities directly as well as through working partners. The Islamic Development Bank, which started operations in 1975, was designed to serve Muslim countries and communities by arranging finance for trade and development on non-interest bases. By late nineteen-seventies there were half a dozen more banks in the private sector in Egypt, Jordan, Kuwait, and the Gulf. The following decade saw a rapid expansion bringing the number of banks to dozens by the end of the decade. To banks were now added non-bank financial institutions, like investment companies and insurance companies IAIB (1997). According Mohammad (1970) till the end of the nineteen-seventies, largely a plea for replacing interest in bank lending by profit sharing. This would change the nature of financial intermediation, making the fund owners as well as the financial intermediaries share the risks of enterprise with the fund users. Early literatures main emphasis was on fairness. Making the fund-user-entrepreneur bear all the risks of business and allowing fund owner and bank claim a predetermined return was regarded to be unjust. The environment in which productive enterprise was conducted did not guaranty a positive return, so there was no justification for money capital claiming a positive return irrespective of the results of enterprise, it was argued. Hadi (1973), Nejatullah (1968). It was also argued that most, though not all, the other problems of capitalism were rooted in the practice of lending on interest. Among these problems were unemployment, inflation, poverty amidst plenty, increasing inequa lity and recurrent business cycles Mohammad (1955), Ala (1961), Mahmud (1972), According to Mohammad (1970) abolishing interest and replacing it by profit sharing could solve these problems. It was not until the next decade that Islamic economists were able to fortify these claims by sophisticated economic analysis, especially at the macroeconomic level. The focus at this stage was largely on pointing out the deficiencies of capitalism and linking them to the institution of interest, among other things. With this went the arguments showing that it was possible to have banking without interest and that it would not adversely affect savings and investment Ala (1961), Ala (1969) Iqbal (1946), Nejatullah (1969). Hasan (2005) The most significant development during the late nineteen-seventies and early eighties was the advent and proliferation of Murabahah or cost-plus financing. What the businessman got from the Islamic bank under this arrangement is the commodity he needed purchased by the bank at his request, with the promise to purchase it from the bank at a price higher than its purchase price, to be paid after a period of time. Each Murabahah transaction created a debt. Compared to funds supplied on a profit-sharing basis, funds invested in Murabahah transactions were safe. Within a couple of years of the introduction of Murabahah in late nineteen seventies, it conquered the landscape of Islamic finance, assigning Mudarabah or profit-sharing to a corner accounting for less than ten percent of the operations. Security of capital invested rather than magnitude of returns to capital ruled the roost, insofar as the fund owners were concerned. However, the proliferation of Murabahah did give a big boost to Islamic finance during the coming decades. Their total number by year 2004 may have exceeded 200, spread over more than fifty countries. Archer and Karim (2002) the seventies also saw Pakistan officially committing to interest-free Islamic banking, followed by Iran and Sudan in the eighties. Meanwhile Malaysia developed a new approach of introducing Islamic banking and finance under official patronage, while the main system continued along conventional lines Indonesia followed in early nineties. This pattern later became the model for certain countries in the Gulf, like Bahrain, Qatar and the UAE. With the spread of Islamic financial institutions across the globe and enlargement of the size of funds managed by them, came the involvement of big players in the international financial arena like Citibank, HSBC and ABN AMRO according to Archer Karim (2002). According to Vogel and Hays (1998) in the development of theory of Islamic finance and banking, the late seventies and the eighties saw many significant contributions. Murabaha or cost plus financing, acknowledged only grudgingly in documents such as the Islamic Ideology Council of Pakistan Report on Elimination of Interest from the Economy, earned full recognition as well as respectable rationale. The controversy around its legitimacy, its efficacy hardly had any impact on the speed with which it conquered the landscape of Islamic finance. Practitioners of Islamic finance report they tried to push through sharing based Finance but the results were not encouraging Attiyah (2007). The laws of the land did not (may be, could not) offer the financier same protection from false reporting of profits by the users of funds, even against outright fraud and deception, not to speak of delay in payment, as was offered to borrowers in a lending contract. There seemed to be no room for collaterals. On top of all this there were projects to be financed that simply defied profit-sharing finance, like long term municipal plans to lay sewage-pipes in a city. In this case, returns to the finance would accrue over many decades in the future while costs had to be met in the present. In the absence of a market on which shares could be floated, even medium term Mudarabah bonds designed to finance development of WAQF property did not succeed Khairallah (1994). Recourse to trade based modes of finance became necessary. This happened with privately established Islamic banks in the Gulf area as well as with the Islamic Development Bank. By the early nineteen-eighties, Murabahah had become the dominant mode of Islamic finance everywhere. As pointed out above, early theory had failed to pay due attention to trade based modes of finance and to the issue of capital protection. Murabahah seemed to fill the gap. According to Khairallah (1994) the macroeconomic implications of Islamic banking were still being worked out on the assumption that it would be largely based on profit sharing. It was argued that financial intermediation based on profit sharing rather than lending will contribute to greater stability in the economic system in general and the financial markets in particular. It was also argued that such a system would be more efficient than the conventional system Khairallah (1994). 2.2 An overview of Islamic Banking and Financial products: The earliest Islamic financial product to appear on the scene was investment deposit with an Islamic bank or investment certificate issued by an Islamic investment company IIBI (1995). Both were based on profit-sharing/ Mudarabah between the depositor/certificate holder (Rabbal-mal) and the bank/investment company (Mudarib). The next to appear were based on sale. Murabahah is sale with a mark-up on purchase price, payment being deferred. Ijarah is sale of usufruct of an equipment or real estate owned by the seller. Murabahah proceeds on the basis of a purchase order by a client who commits to buy the commodity involved. Originally introduced as contracts between two parties both Ijarah and Murabahah ended up in the form of securities. Bypassing controversies around operating leases versus financial leases Nejatullah (2005b) The market seized upon Sukuk. Ijarah bonds are investment certificates indicating ownership of a real asset subject to a lease contract yielding predetermined rent yields, they are very popular in the Gulf, unlike the Sukuk based on Murabahah receivables that are considered valid only in Malaysia. Adam and Thomas (2004). Other sale-based modes in Islamic finance are Salam and Istisnaa Islamic banks started by using them as bases for extending finance to agriculture and industry respectively. As they had no interest in taking possession of the commodities or the manufactured goods involved, there was usually a parallel contract reversing the flow so that the bank ended up with cash, larger in amount than that paid by it in the first contract. In their more developed forms, the Islamic financial market now has Sukuk based on Ijarah, Salam and Istisnaa. The buyers of Sukuk periodically get a predetermined income over and above the privilege of redemption at par on maturity, as in case of conventional bonds. According to (http://www.bankislam.com.my) there are efforts to develop secondary markets on which these Islamic bonds could be traded. If and when these efforts succeed, the same markets could handle variable return Mudarabah bonds or Sukuk based on Mudarabah/musharakah. The big difference would be in there being no guaranteed value on redemption as these investors are vulnerable to losses too, unlike those who invest in fixed income Sukuk mentioned earlier. We have to examine, first how trade based modes of finance got in, and second, how bond-like Sukuk were constructed. Later on, we go on to economics: the impact of fixed income financial products on an economy aspiring to be Islamic. Malaysia introduced sale of debt (Bay Al-Dayn) in Islamic finance. It also brought in Inah, a way of obtaining cash now against a larger amount of cash to be paid after a period of time, on the basis of sale contracts on deferred prices followed by buyback contracts at lower cash prices. The first Islamic bank to come up in Malaysia, Bank Islam Malaysia Berhad, started its operations in 1983. It is now marketing about 50 innovative and sophisticated Islamic banking products and services, comparable to those of their conventional counterparts (http://www.bankislam.com.my). A second Islamic bank, Bank Muamalat Malaysia Berhad commenced operations in 1999. The Central Bank of Malaysia also decided to allow the existing banking institutions to offer Islamic banking services using their existing infrastructure and branches. The long-term objective of BNM is to create an Islamic banking system operating on parallel lines with the conventional system This involves some interaction between the two systems, which is overseen and organized by the central bank, Bank Negara Malaysia, which has in-house National Shariah Advisory Council. An Islamic Inter-bank Money Market launched in 1994 plays a significant role in this regard (http://www.bnm.gov.my). There is also Mudarabah Inter-bank Investment facilitating interaction between deficit and surplus Islamic banks. The backbone of the whole structure seems to be the Government Investment Issue (GII). It was originally based on ‘the Shariah contract of Qard Hasan, the holder being given back only what he/she gave. ‘Any return on the loans (if any) is on the absolute discretion of the government. But, in 2001, the basis of Government Investment Issue (GIIs) issuance was further enhanced to accommodate the need to develop further the secondary market activities of the Islamic money market. An alternative concept of GII based on Sell and Buy Back Arrangement was introduced in June 2001. Under this arrangement, the Government will sell its identified assets at an agreed cash price to the buyer and subsequently buy back the same assets from the buyer at an agreed purchase price to be settled at a specified future date (http://www.bnm.gov.my). Saleem (2006) says besides complying with the prohibitions against interest and the financing of forbidden activities, Islamic banking products are based on the concept of property exchange, profit and risk sharing, and certainty. Uncertainty (gharar) is not permissible, and contracts for banking services must clearly define the responsibilities and rights of the customer and bank as to the ownership of property, fees, and risk sharing. 2.3 Istisnaa The Istisnaa the second kind of sale where a commodity is transacted before it comes into existence. This allows the Bank to order for the goods or equipment required for a construction project according to the choice of the client and delivers them to the client. The client agrees to pay in installments at specified dates. There are two sub types of Istisnaa contracts, which are classified based on the commodity bought or sold Saleem (2006). 2.4 Ijarah Islamic Investments ‘Ijarah is the process by which (Usufruct of a particular property is transferred to another person in exchange for a rent claimed from him/her). It is the equivalent of ‘Leasing in commercial banking. This allows the Bank to order for Capital assets required for the customer against a rental agreement with him. The title

Samsung Case Study

Strategy Presentation on Countering Threat from Chinese Company BBackground ackground †¢ Samsung founded in 1938 by Byung-Chull Lee. †¢ 1950’s Economic Stabilization – Korean War – Samsung lost all assets – aimed to help rebuild Korean economy; entered the manufacturing industry (sugar, fabrics) – became a leader in modern business practices (recruiting from outside) †¢ 1960’s Expansion of Key Industries – entered electronics and chemical industries – 1969 established Samsung Electronics Co. as a division of the Samsung Group. In 1970s, Samsung's entry into the semiconductors business was pivotal for the company, to that end, creation of Samsung's semiconductors and telecommunication Co. in 1978. – – – laid the groundwork for electronics in Korea helped the domestic economy grow paved the way for exports †¢ 1980’s: Samsung was manufacturing, shipping, and selling a wide range of ap pliances and electronic products throughout the world. – – – A more comprehensive electronics company established Semiconductor and Communication corporation began memory chip business †¢ Early 90’s: Integration and Globalization – – Sales at Samsung Group grew more than 2. times between 1987 and 1992. Mid-Late 90’s: Implementing new management strategies Samsung Product Range Some of Samsung products Home Multimedia Mobile Multimedia Personal Multimedia Core Components Core-Competencies Samsung- Core Competencies High Quality Standards Superior Efficiency Innovation Drive Customer Responsiveness Reliable Products †¢ Reliable Products †¢ Work with design firms †¢ Located main R&D †¢ Learning new design †¢ Employee welfare facility and fabs at rules and application †¢ Active Recruitment a single site †¢ A common design of foreign Talent †¢ Performance platform with †¢ Global Strategy as ed promotion customization as per Group †¢ Reward but requirement †¢ Employees global no Firing business skills Policy Ability to customize product to †¢ Regional Specialist †¢ Debate based customer demands program agreements Increasing Competition Rank Company Market Share 1 Samsung 34% 2 Hynix 22% 3 Micron Technology 15% 4 Elpida Memory 14% 5 Qimoda 5% Industry Analysis: Porter’s Five Forces †¢ Fierce Rivalry due to increase in capacity & cyclical downturn Industry †¢ Entry of new Chinese companies Rivalry †¢ Suppliers are likely to becomes more concentrated and offer about 5% discount on bulk purchaseSupplier †¢ Buyers are largely OEM with no one controlling more than 20% of the market. Buyers †¢ Buyers are likely to negotiate hard for prices. Entry Barrier Substitute †¢ High entry barriers due to requirement of capital investment and complex †¢ Chinese firms going for joint ventures and access to foreign investment. à ¢â‚¬ ¢ Memory chips did not have any substitutes but old technology is likely to be replaced by more advanced technology. SWOT Analysis Strength Weakness Opportunity Threats †¢ Diversified product line to cover all customer needs †¢ High market share in Mobiles, Memory Chips and LCD High Brand value from multiple sponsorships †¢ High investment on research and development †¢ Customers place question on durability of products †¢ Lack of focus on niche market †¢ Low Average salary in the market †¢ Strong and growing customer demand for high-end products †¢ Young population gives a chance to develop customer base for future †¢ Intensifying competition †¢ Low cost Chinese products †¢ May lose advantage of DRAM technology to new Nana Tech Competitive Advantages of Chinese Firms †¢ Access to cheap labour and local engineering talent †¢ Government subsidies †¢ Easy access to local & international financial capital Lower cost structure †¢ Willing to endure years of losses to gain market share Competitive Advantages of Samsung †¢ Dedicated workforce of manual labourers and engineers †¢ Strong product portfolio †¢ SDRAM, DDR SDRAM, DDR2 SDRAM, RDRAM, other DRAMs †¢ Early mover advantage in increasing wafer-size †¢ Sustained levels of high operating margins †¢ Adoption of â€Å"stacking† method for fabrication Competitive Advantages of Samsung †¢ Strategic co-location of R&D and fabrication facilities †¢ Enabling an efficient cost-structure †¢ Favourable environmental conditions †¢ In-house competitions for new product developments Active involvement of junior staff and engineers in discussions regarding new products leading to innovation Competitive Advantages of Samsung †¢ Strong HR Policies †¢ †¢ †¢ †¢ Investment in employees’ higher education Active recruitment of foreign talent Goodwill towards employees 3 levels of Performance-based incentives †¢ Project-based incentive †¢ Productivity-based incentive †¢ Profit-based incentive Strong Financials Samsung Micron Infineon Hynix SMIC COGS/Sales 23% 44% 33% 44% 32% SG&A/Sales 12% 26% 9% 16% 8% R&D/Sales 11% 13% 14% 13% 18% Labor/Sales 11% 21% 16% 11% 8% Sales 5. 08 4. 48 4. 73 4. 58 4. 3 COGS 1. 19 1. 98 1. 57 2. 01 1. 84 SG&A 0. 59 1. 18 0. 44 0. 74 0. 34 R&D 0. 56 0. 56 0. 67 0. 61 0. 8 Labor 0. 54 0. 94 0. 75 0. 51 0. 34 Lower Raw material, Labour, Depreciation, R&D costs. Higher Selling Price! Resulting in better financial indicators: Lower COGS/Sales Lower SG&A/Sales Lower R&D/Sales (Exhibit 7d) The Big Question Can Samsung weather the Chinese Threat? Yes, Samsung continues to retain and gain market share. Samsung has a high brand value- Can leverage on Brand Equity. Wide Range of Product Offerings for sustenance. Deterring New Entrants Strategies to deter new entrants StrategyNiche Products Price Cut Cut down on pric e and Innovate on niche force a price war and products and drive competitors out explore new of the market markets Excess Capacity Acquisition Increase output and Acquire small force down prices to entrants with good make market entry potential to perform unprofitable Way Forward †¢ Keep Innovating and Invest heavily in R&D †¢ Focus on New Niche Products †¢ Maintain Reliability and Quality of Product †¢ Focus on More Foreign talent including talent from China as well †¢ Invest in lower end chip factories in china †¢ May look towards increasing the average salary Thank You