Category: Margarita Poluektova

The man who sold the Eiffel Tower... twice

5/6/2016

BUSINESS
Margarita Poluektova

Crafty people always find ways to make money, whether it is legal or not. Some become so creative in their ambitious plans to profit for doing nothing so their frauds end up in history. Victor Lustig was a con artist from Austro-Hungarian Empire, famous for scams on transatlantic cruise ships: since the ocean liners were usually loaded with rich people, it was a perfect environment for a chevalier of fortune. During the First World War Lustig settled in the US, just in time to make profit from the unfolding Prohibition, and in May 1925 the adventurer went to France, where he became responsible for one of the most impressive cons of all times.

It were those May days in Paris when a short article in a newspaper caught Lustig’s attention. There was a statement that the Eiffel Tower was in such a poor condition that the extensive repair was required. A brief comment followed: the expenses of maintaining the attraction, such as keeping it painted, caused a lot of financial issues, so the government was even considering to dismantle the tower completely. Back in 1925 it was not as a shocking news as it would be today. The Eiffel Tower was never planned as a permanent construction: ironically, the most recognizable Parisian cultural icon of modern times was designed only for the Exposition of 1889 and was supposed to be removed as soon as this world’s fair was over. However, the construction proved to be valuable for the communication purposes and so it was not torn down just yet, but in the first quarter of 20th Century no one could be entirely sure what destiny awaits the Eiffel Tower. That is why the remark that it can be demolished intrigued Lustig the most. The idea which came to his mind was incredible and promised large and easy profit: if the public was indeed questioning whether the Eiffel Tower would remain forever on the Champ de Mars, but nothing was happening yet, Lustig would be the first one to sell the rights to tear it down. And get rich.

How is it possible to sell something if you do not own it? In case of Lustig, it was not difficult. First of all, he had a counterfeiter of documents make him official government stationary and personally appointed himself as Deputy Director General of the Ministère de Postes et Télégraphes. Then Lustig contacted some scrap metal dealers (five or six, sources vary) and invited them to his hotel suite in order to discuss an urgent matter. After the dinner Lustig did a surprise announcement: the government has decided to dismantle the Eiffel Tower, and his guests were chosen as the most trustworthy businessmen. Lustig said that his responsibility was to choose only one dealer to carry out this task. He noted that the tower was never intended to be permanent, and emphasized that this government decision was controversial and therefore should be kept secret to avoid the public outcry.

There is no surprise that the dealers found the idea of getting the Eiffel Tower metal profitable and attractive, and therefore were willing to pay as much as to get to windward of the other rivals. In a few days they submitted their bids, but Lustig had already chosen his victim. André Poisson was the most passionate about the deal: feeling that he did not really belong to the inner circles of the business community in Paris, he believed that obtaining the Eiffel Tower contract would help him to secure a place in a big league. So Lustig informed Poisson that he has won the rights to the tower’s metal. However, the ‘Deputy Director General’ hinted that there was a small problem: he ‘confessed’ that as a government official he does not make enough money and so needs to find other ways to supplement his income. Poisson understood immediately and offered a bribe to secure a deal. The Eiffel Tower was sold. With all the funds for the tower plus a large bribe in a huge suitcase, Lustig light-heartedly fled for Austria towards the life of luxury.

Lustig did not even make any attempt to hide and enjoyed lavish lifestyle in Vienna for six months, checking from time to time whether the reports about his fraud would hit the French papers. But there were none: it seemed like Poisson was too embarrassed and humiliated to inform the police. So Lustig decided to return to Paris, where he contacted some other scrap metal dealers and pulled the same scam with them. Yes, this is right: the smooth operator sold the Eiffel Tower again. However, this time Lustig was not so lucky. His new victim reported to the police about the con, and the story exploded in the press.

Luckily for him, Lustig evaded arrest and headed to the US. Incredibly, the con artist sold the Eiffel Tower twice in history, made a fortune and got off scot-free. This is inconceivable to the extent that it starts to seem funny; and ironically, Lustig’s surname (meaning “funny” in German), speaks for itself.

Margarita Poluektova is a second-year Politics, Philosophy and Economics student at the University of Manchester

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Islamic banking: How to make profit under Sharia law

3/20/2016

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FINANCE
Margarita Poluektova

How do banks make profit? It is no secret that they benefit from interest rate received from loan repayments. However, assumption that every single bank operates in this way is not justified: indeed, Islamic ones do not charge interest rate at all. That is why the fact that Islamic finance has been growing rapidly over recent decades and its global assets are now estimated to be around $1.5 trillion across the banking sector makes it a real financial phenomenon.

The reason why Islam prohibits to profit from interest rates lies in the principles of Sharia law depicted in the Qur’an (the word of God) and the Sunan (teachings of Prophet Muhammad). Islamic finance is based upon the fact that money is solely a medium of exchange and has no intrinsic value, and anyone living in accordance with Sharia is not allowed to make any profit by lending or receiving money. To be consistent with these rules, charging interest, riba, is prohibited and has no application in Islamic finance. However, the Sharia-compliant banks have proved that there are alternative effective ways of making profit without violating religious laws.

Modern Islamic banking is based on buying and selling goods and services. Thus, banks can profit from trading using ijara or murabaha contracts. With a ijara scheme, the bank provides property or equipment on lease or rental basis. An example of this contract is purchasing a house for a customer and reselling it with management costs added. With a murabaha scheme, the bank purchases requested goods and profits by reselling them to the customer with a mutually negotiated margin added. This is considered to be a reward for the risk that is assumed by the bank. Another way to profit under Sharia is with a musharaka scheme. This is a joint venture, in which the bank and the customer contribute to the operating capital and share the returns and risks in agreed proportions.

The difference between the operation of non-Islamic and Islamic banks can be illustrated by the following example. When a customer wants to buy a car for £10,000, the non-Islamic bank calculates that at 4% interest rate £10,000 over the course of 5 years would be worth £11,049.91, so the customer will have to make the monthly payment of £184.17. The bank calculates the interest rate every month: first payment would be fully interest, and the last would have no interest in it. During the loan it is possible to delay a payment, refinance or pay partially or fully. Islamic banks, however, take a different approach. When the customer requests a car, under the murabaha scheme the bank gets it for £10,000 and suggests that the customer can buy this car from the bank for a higher price, for example, £12,000 (the price is usually higher than in a non-Islamic bank). For a course of 5 years, £12,000 would be split into the monthly payment of £200. During the loan, as opposed to non-Islamic banks, it is not possible neither to delay a payment nor refinance. However, if the customer pays a loan fully before the time it is due, most Islamic banks would pay an early repayment reward. In that case the profit would be reduced, but a bank would still gain from this transaction.

The success of Islamic finance is undeniable and impressive since on its emergence it could not have been predicted that the alternative ways of making profit would work as well as charging the interest does. Thus there is no surprise that it is becoming more and more popular around the world, and nowadays non-Muslim customers are also able to participate and benefit from Islamic banking scheme. In 2004, the Islamic Bank of Britain was established, and it operates entirely in accordance with Sharia law. It has branches in London, Manchester, Leicester and Birmingham and offers a range of Sharia-compliant financing deals.

Margarita Poluektova is a second-year Politics, Philosophy and Economics student at the University of Manchester

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The basic income concept is becoming a reality

2/17/2016

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POLITICAL ECONOMY
Margarita Poluektova

In June 2016, Switzerland will be for voting on a radical plan, according to which adults will be paid 2,500 Swiss Francs (£1,764) on a monthly basis whether they work or not. According to this basic income concept, all citizens and residents are to be entitled to get this extra payment without exceptions, regardless of the level of income and without the necessity to work.

In the eyes of activists, the basic income is crucial for eradicating poverty. This entire concept is not new. In 1967, Martin Luther King Jr. wrote: "The solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income.” There is no doubt that poverty alleviation has already taken place as a result of overall economic growth denoted after industrial revolution, with food shortages becoming less common as well since the development of modern agricultural technology. However, the issue still remains. Even though it has been successfully addressed by various economic and humanitarian means, 16.4 % of the population in the European Union, making 80 million people, live below the poverty threshold, whereas in Africa almost one out of every two people still lives in extreme poverty. At the same time it is notable that world GDP has quadrupled during the 20th century, so it is hence logical to assume that it is possible and even necessary to redistribute this increased amount of wealth between those who are in need. This is when the basic income system might appear an ideal solution. Indeed, the Basic Income Grant Pilot Project was already implemented in Otjivero-Omitara in Namibia in 2008-2009, where eventually the reduction of poverty level was denoted. If the strategy has already succeeded on this experimental level, putting a real basic income scheme to life seems extremely achievable.

Is it possible to finance this ambitious project? Recent studies show that it is not as unrealistic as it might seem. Any additional income would have to be taxed and made subject to social welfare contributions. The basic income is to be set at 60% of average income, and people would become net tax payers only if they earn more than the average income. This is how it would become a huge redistribution program: all people receiving less than average income would be entitled to both basic and other income. At the same time, for every citizen the incentive to work would be provided, for any additional income would significantly increase general income. So the potential concerns whether people would no longer want to engage in professional world because they allegedly would not need to work to make a living seem eventually unfounded and unlikely.

However, it is evident that the implementation of basic income cannot be achieved in one go, as there are still various complicating factors that need to be addressed. The concept itself appears to be too idealistic and perfectionist to be put into practice all over the world, since arguably only the wealthiest countries have the practical ability to operate with such an ambitious way of redistribution concerning sufficient amount of money. Switzerland is indeed the closest to put this strategy to use in the nearest future, with the guaranteed basic income making 55% of the average wage. However, it is very unlikely that the Swiss referendum will succeed this time around; on the other hand, even if the majority voted in favor of introducing basic income, its realization would take some time. Nevertheless, even if at least one country eventually implements this scheme, there is no doubt that it would become a policy model for other states and perhaps introduce a new era with a successful complete eradication of poverty.

Margarita Poluektova is a second-year Politics, Philosophy and Economics student at the University of Manchester

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The man who sold the Eiffel Tower... twice

Islamic banking: How to make profit under Sharia law

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