The Devious Dervishes of Turkish Banking: part two

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 by Bel Suave


A BYZANTINE MAZE!

    -Knossos_silver_coin_400bc.jpg
    -Knossos_silver_coin_400bc.jpg
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    3 years ago
    Knossos Silver Coin..with Maze Imagery..Perfect image for the Labyrinth of Lies We Encounter in our return engagement with the Dervishes of Turkish Banking!

    After taking a look at the way the new, internet-based media differs in form and function from how print journalists traditionally pursued their craft, Part One reviewed plans, hatched in 2012, to draw Turkeys’ private gold savings into the banking sector - and ultimately into the reserves of its’ Central Bank.. Success in this enterprise required novel ways to pitch the idea… of converting one’s tangible wealth into a fiduciary asset held in the custody of others. As it turned out, it also required a stretching of the truth past what would ordinarily be considered the breaking point!

    It also turned out that, as I went back into the recent past in recreating the story, its’ many related aspects formed a multi-stranded yarn - and a tale worth telling! So, I would ask the reader indulgence for deviating from what was going to be the follow up to Part one: here we will follow the story of the how the gold savings of Turkeys’ citizens became the target of its; neo-liberal, pseudo-Islamist elites. That will take up almost all of this part two. While SOME of the serial inaccuracies, over-simplifications, and/or misunderstandings that result from the modern form of internet journalism which is overly-reliant upon a telephone and internet connection, rather than the traditional form of beat reporting will be touched upon in this segment ...

    it would be impossible to mine all of that rich vein of material in one go! The sequestration of Turkish citizenry's traditional store of wealth by forces of finance and state, is a story unto itself …and therefore a Part Three is necessitated – there, the promised follow up will be featured!

    The first time I opened a gold account was at a ‘participation bank’ – the term refers to the banks charter as being in conformance with Islamic practice whereby profits must accrue from other than taking direct interest. In the long history of Islam, the injunction against usury and interest taking formed a core part of its theology – a theology that only recently has begun to make accommodations to the outside world, as western technologic and financial hegemonies have made themselves felt throughout Asia and the Middle East. In the area of the former Ottoman Empire, including Turkey itself, where ayn currency –gold dinar and silver dirham – have been replaced by dayn –paper currencies - one facet of this accommodation has been the arrival of western-style fiat banking and its’ associated principles of measuring the cost of capital in increments of time to which the charges of compounding interest are applied as a measure of the ‘opportunity cost’ therein.

    In traditional Muslim culture, this measurement of money by time is ‘haram’ – outside of the law! The practice of lending money at interest is “:Riba” – literally, “excess” in Arabic… a proscribed practice that is as sinful as incest in the eyes of the Islamic law makers. As modern western capitalism has penetrated into the economies of all these countries, the need for workarounds to this problem has become evident. One such remedy is application of the term darurah,(meaning "extreme necessity") to the conflict a believer has in holding an interest-bearing account. Because of practical necessity of living in this modern world in other words, a Muslim may be excused from sin in holding an interest bearing account, it is claimed, by this remedy. Likewise, the banks themselves may absolve themselves in this manner for deviating from the principles of Islam.

    More recently, the creation of so-called participation banks has created a perception of Islamic Banking as another – interest free – form of finance. By operating in the manner of an ‘investment bank’ – that is, investing in businesses rather than loaning money at interest, these banks market themselves as giving relief from haram. The customers do not receive ‘interest’ on their deposits, rather, they are able to receive ‘dividends’ on their capital in the form of a share of the banks; profits from the businesses it lent that capital.
    This workaround is effectively a way to avoid the problem of interest but it does not in any way give relief to the problems of fractional reserve banking – problems that are so evident of the moment in all of the worlds’ economies. But I leave discussion of this tension between modern attempts to accommodate Islamic gold and silver based finance to the fiat systems of the West till another time. What matters for this story is that the “Islamic” or “participation banks” were the first to offer ‘gold accounts’ to their Turkish customers – tapping into the savings of their customers with a success that their more western-modeled competitors soon came to envy!
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    kuveyt logo.png
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    It was by opening a gold and a silver account at Kuveyt Turk Participation Bank that I first learned the mechanics of how gold was to be monetized by the banks.
    Through articles I had read, like this one –

    “Deniz Kalkan, a 32-year-old housewife in Istanbul, is ready to move her gold. “I’ll put these in a deposit account as soon as I get the time,” Kalkan said of the half-dozen gold coins she has collected and stashed in her apartment. “It’s much safer to keep them in the bank than at home.”

    When Kalkan brings in her coins, she’ll be joining a wave of Turks responding to a drive to lure an estimated $302 billion of hidden gold into the economy to help ease the nation’s current-account deficit, the world’s biggest after the U.S. Gold-based deposit accounts surged 15 percent this year through the end of July, three times the increase in standard savings accounts, according to the central bank.

    The gold accounts give customers an amount in Turkish lira equivalent to the weight of the precious metal they turn over to the bank. They can then withdraw cash or take out loans, while the lender is able to sell or hold onto the gold.  http://www.bloomberg.com/news/2012-10-29/turkish-banks-go-for-gold-to-lure-302-billion-hoard.html

    ...my understanding was that gold could be bought and sold through the banks. Through putting some of my lira savings into the so-called gold account I learned that the XAU element of the game referred to the virtual ‘grams’ which were reflected in my balance. These were no more ‘gold’ than a piece of flint can be called a diamond, but they tracked the performance of gold in the market. And while I could put my real gold into the bank, I would not be able to receive the same tangible form of it back again – unless I was dealing in kilo quantities! What I learned was not what I had expected or hoped for. Puzzled, I felt I had to do some more research.

    As someone who held a good part of their assets in physical precious metals at the time, I was directly interested in how this new plan might work for me. I was not happy, for instance about having to pay 500 liras yearly for deposit boxes, and the insecurity of holding my stash around home was a constant stress. The idea of being able to keep a portion of my stack in the bank – and either earn interest on it, or use it as a security to borrow against seemed one that killed several birds with one stone.
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    While I could earn around 10% with my paper savings in a lira time deposit, to me it was important to be gradually switching all my fiat assets into some form of hard asset. By buying the Meskuk and Ziynet coins produced by the State Mint I had a widely recognizable and easily convertible store of asset, with little premium over the cost of minting since the Turkish mint produces the largest number of gold coins in the world. The Ziynet has a more decorative function, often sold with an brass hook soldered on for threading onto a chain to make a bracelet. The ¼ Ziynet is a common gift for weddings and other occasions. The Meskuk, derived from an Arabic word for coin, comes in four different sizes, from 1.8 to 36 grams, is issued with a year date that is based upon the year of the Republics’ founding, 1923. Both Meskuk and Ziynet are legal tender, though the face value is not recorded on the coin, and both have a purity of 91.66 or 22 karat.

    The State Mint has produced gold coins since 1452, and is unique in the as the only State Mint remaining which produces coins on demand for anyone who brings in gold in the LBMA standard kilogram form. They have minted more than 150 million Meskuks and Ziynet since 2002 alone - making them the most popular gold coins in the world! This represents 404 tonnes, 13 million oz used in production of the two coins, and puts into perspective the fallacious reasoning and undeserved attention placed upon the topic of retail coins sale of Western nations. Turkeys' citizens in fact purchase more gold than any other country in the world except for China and India - whose populations dwarf its' mere 70 million by magnitudes! The poorly informed group of western-based media pundits who offer their expert analysis of the wide world of gold on a daily basis show not the slightest recognition of this great gap in their knowledge of their area of “expertise,” content to cater to the ethno-centric biases of their readership.

    There are three LBMA accredited private refiners in Turkey - Istanbul Gold Refinery and Nadir Metal Rafineri A.S. have been lately joined by Atasay, a jewelry company with multiple retail outlets across the country as well as refining and wholesale wings. I have bought kilo and half kilo bars of silver from IAR, and plate gold of 99.9 purity from Nadir, knowing that they of a quality no less than that produced by PAMP or ARGOR-HERAEUS Swiss refineries, although they are almost unknown in the West.
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    The plate foil format offered me the opportunity of selling in small pieces. I once sold a portion to an assayist who quickly cut off and weighed 50 grams and paid in cash. Imagine trying to pull that off in your LCS! But that was before I discovered the small sized gram gold offerings of IAR & NADIR–which the post office now sells! From half a gram to 100 gram sized bars packaged in a protecting cover can now take the place of the less standardized plate for my domestic travels. These, and the Meskuk 36gr coin became my preferred purchase format for gold.

    The jewelry sector of the Turkish gold market is no less vibrant. The traditional wedding wrist bracelets are by far the most common production, but the variety in any of the innumerable shops in each and any town is very extensive. In the bazaars of Istanbul or Izmir, you can walk into a shop to eyeball the cases, and if something catches your eye, the owner is quick to make whatever arrangements needed to secure a sale. Often, he will invite you to sit down for a meal, afterwards you will discuss exactly what modifications you might like made to a piece - his workshop is located close enough by that his craftsman can have the job done in less than an hour. I’ve sometimes traded Ziynets in for a piece of handcrafted jewelry than I just could not leave without, knowing that the quality of the work – on gold of 22k – not the 14 or 16 k stuff almost always used in the western jewelry industry, is cut above almost anything else in the world!
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    If gold and/or silver are your thing, living in a country such as Turkey, where more than ¾ of the populace holds savings in some form of precious metals, is a whole different experience than that of the western world… where 95% of people have no contact with the metals outside of wristwatch or wedding band. And while it’s not surprising that the modern banking industry would seek to convert its customers into the same kind of hapless victims of ignorance, the odds of them succeeding would not be high – unless they were heavily STACKED in their favor!

    A campaign of tv and print media ads was launched in 2012, pushing the benefits of ‘gold deposit accounts, gold time deposit accounts, gold loans or gold credit cards. The big banks competed with each other to draw in the most savings by having branch exchange days – where a visiting assayist supplied by a refiner like Istanbul Altin Refinisi would measure the delivered jewelry or coins and their value would be converted into “XAU” – grams of ‘gold’ held in an account which the customer could access at will.
    I’ve placed the world gold in italics above because the word, in the hands of the public relation experts of the modern neo-liberal Turkey, has developed a ‘fungibility’ that gives new meaning to the phrase ‘taking liberties with the truth!’ What goes into the banks in the form of that hard asset we associate with the word gets transformed somewhere in the process of its’ re-definition into a simulacra of itself – a virtual currency of neither gleaming luster nor durable form – a currency in fact identical to the one that comes of ink presses not mines! The gold that come out of those gold accounts, in other words, will be a representation of its’ value in paper. No matter whomever says whatever to the contrary, that is the bottom line for anyone attempting to access their ‘gold’ after selling it to the bank – for a sale it was- not a deposit, loan, or lease.
    The reader will understand by now, how little this picture resembles the dreams I had formed of being able to place my gram bars and Meskuk coins into the care of a custodian who would hold them with promise of release at my pleasure – and afford me credit in more liquid terms in the interim! Faced with this great gap in promise and execution, I was beginning to doubt my own wits!To illustrate the manner in which this essential distinction is hedged around, a handy example can be found on the pages of Ziraat Banks internet portal:
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    With your Gold Deposit Account you can buy and sell gold in TL and USD. Easily accessible on demand through our extensive countrywide network of branches as well as our Internet Branch.
    • With your Gold Deposit Account you can buy and sell gold exempt from income tax and free of any charge, with a minimum transaction amount of 1 gram.

    • Gold bought and sold through these accounts is of 1000/1000 purity. Announced gold prices are prices for 1000/1000 purity gold.

    • Physical gold delivery is not available during account opening or transactions. Similarly, physical gold payments may not be made.
    Should anyone have any difficulty with the translation, here’s the simple summation – you will not get gold back from a Turkish Bank into which you ‘deposited’ gold. That is true today and it was as true three years ago when the campaign began. Suggesting otherwise has been the habit, as we shall see… of reporters, bank spokespersons, and government authorities for the whole of that time.

    I don’t wish to focus unnecessarily negative attention on Ziraat, a government-owned bank, for using these methods of obfuscation, because at least they are showing this information - however lacking in clarity - on their website. Banks like Garanti simply now avoid all mention of the details in print – where they can be legally held responsible for undertakings and promises, and leave it to the customer to find out in the end that they were led to believe something just not true! I can say that there were, a couple of years back, a great deal more pages on their website, describing their gold offers than there are now – the ones I remember have clearly been taken down, and unfortunately I was under no impression back then that there would need be made screenshots of what would became evidence of their duplicity!

    Notice that I mentioned that Ziraat Bank is government owned. That is true of several of the largest operating banks in Turkey, Halk and Vakif being similarly direct ‘subsidiaries’ of the state! If that does not complicate the picture enough for you, the largest “private” bank in the country, ISbank, is 28% owned by the CHP – Turkeys’ largest present opposition party. The AKP government has pursued a policy of favoring its adherents and bagmen in the commercial world, such that many advertising and media companies have been either sold to or are under the control of parties allied with the State… as a result, the interest of that State are often understood to be identical to those companies’ interests. The potential for a dilution of objective reporting standards should be obvious. If you thought there were sometimes ‘conflicts of interest’ with western governments and their banking and financial sectors, you need to imagine a whole new dimension to the issue to get a handle on Turkeys’ situation!

    With this triad of interested parties – government, banks, and a media with close ties to both, coalesced a common purpose. What might have been construed as financial fraud – and dealt with as such by the financial authorities of the government tasked with protecting its citizens from crime has instead been given complete carte blanc. This puzzling absence of oversight can be attributed to one salient fact - that the government of the day was in a situation which highly motivated search for a means of lessening its foreign exchange and reserve imbalances. The transfer of private gold holdings onto the balance books of the Central Bank of Turkey was identified as a sure means of doing just that! To which end, the banking sector was granted leave by legislation to increase the amount of gold it could hold as reserves from zero to 10% - later to 20%; this proved so successful that it was ultimately raised to 30%.

    To conclude this segment, what needed to be facilitated by this scheme - a grand transfer of real wealth from the private domain into the hands of financiers and the government - required the trust of the populace that its’ government was properly supervising the promises of the banks. There was, instead, a common interest in fomenting a perception about the monetization scheme that was, shall we say, less than wholly accurate! It took me several years to fully grasp that fact, and cut through that natural credulity which had given the benefit of the doubt to 'the authorities.'

    Part Three will detail the winding road to my reaching that realization!
   
    Devious Dervishes of Banking – Part Three
    Turkish Banking Sector - Brigands of the Information Highway
    Bel Suave
   
    The Devious Dervishes of Banking: Part One
    A Cautionary Tale of Journalism's Sad Retreat from Modern Medias
    Bel Suave
    Original Release: January 15 2015