Why those who are too big to fail should be charged ? !

There has been ample debate about need for greater regulation of financial firms. Am sure with so many people employed with financial firms and so many other blaming their unemployment on the same firms, there are opinions on both sides. There are two points on which I have a definite thinking. The consumer protection laws and need for such a agency and the second, the subject of this post, that firms who are too big to fail should be asked to comtribute to 150 billion dollar fund.

The second point is a part of the bill being debated in the house to overhaul the regulation of financial sector. I think it makes perfect sense for such a fund and asking firms to contribute to it in relation to their size. The simple logic is this. So far it has been illustrated that too big is actually an insurance against failing. Because by now everyone knows if you are too big and 'interconnected', you will (have to) be bailed out by the government. To big is then actually an insurance in itself, leading to the moral hazard and temptation of, often, indulging in risky business practices. So like any other insurance, it makes sense that a premium be charged for it.

Update [ Jan 6, 2009] - On, a slightly different note, I think its important that I put down the name of the bill. The bill is called, "Wall Street Reform and Consumer Protection Act." No campaign speech that, a really name for a law. Yes, there is a lot in a name. My apologies to Shakespeare. But then he hadn't met the politicians of today

The huge difference in work-cultures

Yesterday, I was at the office of a non-profit I am involved with here in New York. I noticed something that made me think and compare the working styles and, the so called open door policies.


It so happened that a gentleman whom I recognize by face as the Executive Director, the senior-most person in the organization, walked over to a door in the hallway. Standing outside the room he asked, " Would you like to talk to me about that video shoot/press release (or something similar) right now." The lady inside the room mentioned that she was working on another project/assignment at that time. He responded with the equivalent of - Fine, we will do it at a later then. He later strolled over to my work-space, said hello, and inquired if he could ask a question. I must mention that we have never met formally, till today.


I tried my best to recall anything remotely similar to that in my five years of experience in India but couldn't. I have worked in highly unstructured software setups and fast growing private sector insurers and have had some really great bosses. But the notion of hierarchy, and your boss having the final say on your time is embedded in our work culture. I don't think any Indian could have ever responded in the way the lady or the gentleman did. Our culture where age and position imply authority, is partly to blame. The expectation of deference to your superiors' wishes built into Indian nature, is further strengthened by the fierce competition due to India's huge population. As a result most of us fast realize, consciously or sub-consciously, that "Yes Sir" is the safest and often the fastest, route to career growth.


It is pertinent to mention that the non-profit actually serves Asian clients, including South Asians. The question is, if we can do it here, why not back home?

Strategies in a Recession - Proctor & Gamble

Business school cases often consist of how companies adapt their strategies for different times. By that benchmark last one year has provided a life's worth of learning for managers. I have read and observed numerous instances of companies changing strategies to adapt to the consumer's spending habits and changing priorities - the new normal.

Lately, P&G, known for is investment in R&D and known to introduce a new product only when it was 30% better than an existing one, made a significant deviation in response to its falling sales. It introduced 'Tide Basic', a lower cost version of its Tide line of detergent. The product, at least initially, was offered for sale only at value chains. To distinguish it from the regular Tide products, the company has used yellow for packaging.

With rise in the savings rate of American households, while you can debate whether the move to cheaper store brands is due to the recession or has it been happening for a while, there is no doubt over the result. Consumers are moving to cheaper brands. P&G has taken he learning from this to evolve its strategy.

In the word's of the new CEO McDonald it is, "purpose-inspired growth" strategy of touching and improving more consumers' lives in more parts of the world…more completely." According to this HBR interpretation the company now plans to touch more lives with its emerging economy focus and bring on more affordable products. To me that implies that there is another organization that has realized the its growth drivers now lie in emerging markets and it needs to adapt its style ( and its product portfolio for the consumers). Even is the developed markets consumers are becoming extremely sensitive about how they spend and companies have to adapt their product portfolios.

Books Update - Five people you meet in Heaven (Mitch Albom). I am motivated to read the more popular, Tuesdays with Morrie

Predictably Irrational (Dan Ariely)

Credit Bubble in a Slum ?

Far away from the credit boom of USA from 2004 - 2007, both in distance and in time.

A front page article in the Wall Street Journal states that the micro-finance push maybe creating a credit bubble in India. What started as a social initiative, caught the eyes of investors due to higher returns. Micro-finance loans have interest loans to the tune of 24% - 39% and are generally given to women (more than 90%) who are supposed to be better repayers. Apparently the RBI (Reserve Bank of India) does not regulate interest rates in this market except for advising organizations not to charge too high rates.

Today the number of lenders offering micro-finance has jumped almost 400% from 50 in 2004 to more than 200 in 2008. NBFC (Non Banking Financial Companies) have entered the fray. The loaned amount has grown from less than 0.5 million to 2.4 million. As a result, atleast in some towns and villages there are too many lenders are chasing few good borrowers and - funds loaned for starting business are being used to buy TVs or spent on marriages. Apparently in some over-crowded markets - lending practices are lax; it is often difficult for lenders to cross-check with each other or to verify the utlisation of funds. I just hope the stories of Ramanagram are not being repreated across the country.

This is not to the say that the credit needs to Rural India are being met. Rural Indian economy has very few sources of funds and an even lesser understanding of financial products. I know this by virtue spending an year scaling my organization's distribution beyond metros. It will be really unfortunate if poor lending practices deprive the region and the people their chance for development.

The article published on August 13, 2009 written by Ketaki Gokhale is titled - A Global Surge in Tiny Loans Spurs Credit Bubble in a Slum. You can read it at the WSJ website, but a subscription is needed

New India Film Festival and Interview with Nandita Das (MoMA)

I had my fill of Indian Cinema at the New India film festival at Museum of Modern Art. Five movies (so far) with three of them introduced by actors/directors. The souvenirs include autographs of Nasserudin Shah and Nandita Das.

Nandita Das, an actress I greatly admire was here to talk about her debut as a director in Firaaq (Search/ Quest) which showcases the aftermath of riots in Gujarat. Here is the text of my interview with Nadita Das published at desiclub.com

Movie Update: Firaaq (Nandita Das), A Wednesday (Nasserudin Shah), Oye Lucky Lucky Oye (Abhay Deol), The Voyuers (Bengali, Buddadeb Dasgupta) and Quickgun Murugun (Tamil/Telugu).

Reviewing India's election

You may call this an optimistic take on the Indian election but it seems logical that after quite some time this year's election results favour someone who has been out of focus of the business of governance for a while, the Indian voter. Read this article explaining how the Indian voter is the real winner of the lastest Indian National elections. My take may might sound unusual yes, but I am convinced of the outcome

Book Update: The Time Machine & The Invisible Man, both by H G Wells.

The Talibanization of Pakistan - II

The concluding part of the the my article at desiclub.com explores the consequences of a talibanised state and the future of the country. Read it here

Lessons from Jim Rogers' life - a gift to us & US

Take a guess as to which country is being mentioned in the following paragraph.

The country X enjoyed a huge bubble in the _____. When it burst in _____, prices collapsed, sending the economy tumbling. Regrettably, the government and the 'central bank of the country X' kept trying to halt the natural, cleansing effects of this recession by propping up many of the companies in trouble. Just as a forest fire serves to clear out deadwood and underbrush so that the forest can renew itself, recessions help to ensure healthy future growth. In 'the country X' , the business that should have been liquidated became "zombie companies" surviving, albeit barely, on government's artificial support. Everything was Band-Aided with quick fixes. While this delayed a decline, it also postponed the country's recovery. A country can actually spend more money trying to stave of a recession than the recession might cost.

You probably think that I am talking about USA. However this is a passage describing 'the lost decade' of Japan by Jim Rogers. Though Jim mentions in passing that America followed the same route in 1970's, he might as well be presaging what may be coming ahead, considering the way the American debt & fiscal deficit has ballooned. To use a cliche, "History repeats itself." As Jim mentions, a country can spend more money trying to avoid a recession than the recession might itself cost. Sounds even more familiar. After all, only last week the Fed chairman Ben Bernanke pointed out that US needs to control is spending & deficits. Of course he did not talk about the fact the balance sheet of the fed itself has been increasing in size as it has been buying just about anything - mortgage backed securities, corporate debt and the T-Bills issued every few days by the US government.

But, lets come back to Jim Rogers, the guy who made enough money to retire at the age of 37. The book in question, " A Gift to My Children - A Father's Lesson for Life and Investing," is packed with knowledge and wisdom. In his own words,
the book is different from his earlier books in the sense that its about the larger lessons distilled from his experiences. Lessons about thinking for yourself, using common sense, learning history, philosophy and languages and making the world a part of your perspective. Lessons, which we all could use. In less than 100 pages Jim packs lessons that can use at all stages of your life and earlier you learn these lessons, the more you can get from them.

As a aside note, according to Jim, 21st century belongs to China. He does not like India and Russia as investment options. So much so that he has moved to Hongkong & is making sure that his two daughters know Mandarin.

Indian winner at Spelling Bee: A story without a happy ending

Last week, in a repeat of last year a child of Indian origin won the Spelling Bee, a contest among American school going children, yet again. Infact of the 11 children who made to the final, 8 were of Asian origin, of which definitely 6 and probably 7 were Indian.

Its easy to be tempted and say Indians or Asians are a smarter race and overlook the logical and more rational conclusion that most Indian & Asian children generally end up working far harder than their counterparts. Read my article Indian winner at Spelling Bee : A story without a happy ending published on a website for South East Asians

The Talibanization of Pakistan-I

Read my take on the past and the present of the Talibanization of Pakistan published here. The next article in this series will explore what future may mean for the country.

Book Update : Gone with the Wind (Margaret Mitchell). I had always wanted to read this one. A wonderfully written love story against the backdrop of the old south, the Civil War and the abolition of slavery. A tale of survival and determination. The perspective is slightly tainted, through the eyes of rich white landlords. Nevertheless, it does capture the pain and hardships war caused in the Southern states of America. Having read it my only regret is why didn't I read it earlier. Imminently inspiring & re-readable over and over again.

Are Sri Lankan Tamilians children of a lesser God Pakistanis?

Maybe they are. Sri Lankan Tamilians are children of a lesser God because their country does not share a border with Afganistan. The discrimination and the quiet are horrifying. UN wants greater aid for Pakistan's refugees where the military offtensive against the Taliban is less than a few week old and it ignores what has been happening in Sri Lanka for months now. Thousands, probably millions of civilians trapped in a narrow belt which the government has been shelling to oust the rebels. The Lankan government has banned international media while an unabated genocide continues. The best UN could do there was to express a sentinent over the high number of civilians killed. As if offering speeches over the matter will solve the problem. Countries like UK and Norway seem to have done better than the UN.

Though I am for humanitarian relief whereever there be a need, why such discrimination against Sri Lankans ? And why are Pakistani refugees get a better treatment ? Isn't it a reflection of the motivation of the money that the agency is giving out ?

The coverage : Sri Lanka warned on 'war crimes'
UN calls for massive Pakistani aid

Slumdog Millionaire: When the movie is better than the book

Last November (2008), I watched Slumdog Millionaire. I don’t think I can express how I  felt. Maybe it was one of those bad days when things are not going too well in your world. The movie was heavy with the harsh realities of the life of more than a third of the Indian population. I left the theatre with a strong desire to do something to make a difference and a desire to read the book on which the movie is based. This post reviews the book and the movie (maybe I will post an update on what I have done since then if it does end up making a difference in some one's life).
Slumdog Millionaire is based on the novel, Q&A written by Vikad Swarup, an Indian diplomat. Vikas Swarup, in an interview, mentioned that when Danny Boyle, the director of Slumdog Millionaire, told him that he would preserve the body of his book, Swarup should have realized that Danny would kill the soul. This heightened my expectations of the book. Such a dramatic and powerful movie can only be based on really well written-book, or so I thought. Maybe I should mention that I belong to the old school where books are better than movies, even if the movie has won six Oscars.

Anyway I got a chance to lay my hand on Q&A, now republished as Slumdog Millionaire last week, and I have the following comparison to offer. The movie is indeed based on book’s content and follows the structure of the book, as a series of questions on the popular show -Who wants to be a billionaire? That’s where the similarity ends. The book is no more than a collection of loosely bound short stories while the movie is solid commentary on Indian society with a focus on urban Indian poor. Unfortunately the book does not develop its characters, focusing instead on a series of disparate events, some of them unbelievable. While the movie floors you not only with its characters, but also by vividly capturing the life of Dharavi, believed to be Asia’s biggest slum, in the heart in India's financial capital Mumbai. If the purpose of the author was to make a generic commentary on India, he needed even more meat on the bones, which the book does not have. The author’s way of capturing the role religion plays in Indian society, through a protagonist with the name ‘Ram Mohammed Thomas’ (RMT) is far more unrealistic & ineffective than the movie’s depiction of a mob.
There are lots of other changes that the movie’s screenplay makes, small big and other small. It omits stories of RMT aka Jamal Khan (the name of the movie’s protagonist) as a bartender and his adventures in Delhi at an Australian Diplomats house. It also twists the story line, introducing an under world don while omitting a contract killer. Overall, the screenplay effectively makes a collection of short stories into a coherent movie, one that rises above its individual characters while reflecting the reality of life of the urban Indian poor. It however does this while ensuring that the characters are well developed. In this case the movie is far better than the book.

Both Democracies - Yet Poles Apart

Last year I spent a lot of time following the US Presidential election. The Indian elections this year have made me compare notes: How do elections in the world's largest democracy compare with elections in world's largest economy.?

For a start, I was really intrigued by the involvement of the ordinary American into the political process and the fact the campaign was fought on real issues. Yes, there were diversions about Bill Ayers and the religion of present President of the US but the majority of the campaign was on matters that affected the life of an ordinary American - healthcare, economy, pro-choice or pro-life (can't understand why this should be a election issue), Iraq , Afganistan and such. Turn the globe about 180 degrees to India and you fail to spot a single national issue in this election. A string of regional parties splitting, resplitting, aligning to the point where your head spins with confusion.

The two men contesting the king's chair aka Presidency of the World's largest economy, even at their most bitter, treated each other with respect. Incontrast, the two old men at the helm of two of India's largest parties have hurled insults and abuses at each other. And once you move a little lower in the ranks of the parties you are shocked at hatred and virulous remarks that you hear.


Last but probably the most important, because it explains some of the above, is the apathy of the middle class Indian towards the elections. Infact a majority of Indians think what they can achieve in their lives is despite the government rather than because of it. They can not relate to the politicians who them. On top of that is the age and generation gap. 40% of India's billion plus population is young but unfortunately young political parties have old and middle age people at the helm of affairs and in their 2nd line of command. Manmohan Singh & L K Advani and both more than 70 years old.
This article from the New York Times offers a perspective (requires a free signup)

Movie Update : The Fast and the Furious - IV . Some really great action sequences and car chases. Keeps you at the edge of that seat
State of the Play : Average to Interesting.

Of NRI Marriages

My post on this subject does not belong here, so its a good idea to read it where it got published. Link

Working in a foreign land

In reference to my last post on February 15, the business week article by Vivek Wadhwa,(Senior Research Associate at the Labor and Worklife Program at Harvard Law School), is a good read for facts & figures about legal foreign workers on H1-B & other visas in America

Wadhwa quotes research to point that H1 B's have aided innovation and made a significant contribution to patents. But what struck me was the fact that how even the legal migrant workers, even in the so called high skilled category are shortchanged - be it money, quality of work, benefits or promotions. With so many people still keen on coming and continuing to work here, I wonder if tougher immigration laws thus have the reverse effect then i.e, once people get in, they try to stay longer because its difficult to get in. Nevertheless, I am still amazed at people who consider themselves smart and intelligent taking professional discrimination just to stay here. I guess a lot of factors contribute, including personal. A female friend who is married to a migrant gave up a hugely successful career in India to come here. She joined the US operations of her company later, only to find second grade treatment along with the decrease in her responsibilities and stature. She now says that she has given up on career advancement.

Read the article, not just the body but also the comments to get perspective on immigration from both sides

Banks find accounting tougher than non-profits?

An important take-away, from  last hearing of the congress committee where the nine top bank CEOs presented their case regarding the update on new loans and how the bailout funds were spent, was the banks stand that the money that has been injected into their balance sheets can not be tracked separately.

   

Have been catching up a little bit on the non-profit space these days. Interestingly this article here article explains that, what banks claim as impossible, non-profits do on an everyday basis. 

Apparently it a basic requirement in non-profit accounting to track the money received for any particular project is spent on that project only. The link here.

The article calls it, soup-kitchen accounting. Interesting right? But hold on before you blame the banks, maybe the never received the money at all. This may sound quirky but another article points that the government has been actually injecting capital into bank holding companies and not banks. With banks barely managing to stand upright, shareholders have non incentive to inject the money into those subsidiaries. Link

Maybe we all have been whipping the wrong poster boy.

Making the case for being an open economy

While it may seem counter-intuitive at first, the most profitable imports for any economy are the skills and talents that it gets from other countries. USA has raced ahead as imported talent from all over the world innovated to take the country on the road to development. I remember brain-drain to the developed west and ways to stop it used to a common debate topic in school and college in India



Thomas Friedman makes the case for staying away from the protectionist urges in NY times editorial that quotes two Indians.

“All you need to do is grant visas to two million Indians, Chinese and Koreans,” said Shekhar Gupta, editor of The Indian Express newspaper. “We will buy up all the subprime homes. We will work 18 hours a day to pay for them. We will immediately improve your savings rate — no Indian bank today has more than 2 percent nonperforming loans because not paying your mortgage is considered shameful here. And we will start new companies to create our own jobs and jobs for more Americans.”

“If you do this, it will be one of the best things for India and one of the worst for Americans, [because] Indians will be forced to innovate at home,” said Subhash B. Dhar, a member of the executive council that runs Infosys.. , the well-known Indian technology company that sends Indian workers to the U.S. to support a wide range of firms

Link to the Thomas Friedman's article.

The 'threat of protectionism is being recognised across the world with the UK prime minister Gordon Brown advising against it in the Wold Economic Forum at Davos this year & the director general of WTO Pascal Lamay calling for free flow of trade information in this hour of crisis

Link

Unfortunately its difficult not to be populist when your people are hurting and its often difficult to explain how being open to trade, immigration and employment could be the best policy.

Update : Had just finished this post when I saw a new update from marketwatch that the G-7 nations have made a pledge to avoid protectionism amid turmoil. Link

2009: Clouds of a long recession ?

Central Park, New York on a cloudy winter afternoon. The dull sky bespeaks of the upcoming gloom, only silver lining being a slight hint of color.

Its just that I have not been able to capture the color yet in the news around me, not as yet. In fact things seem to be becoming gloomier in real life. Brace for a dark night.

2009 : The burden of an year

“What can be said in New Year rhymes,

That's not been said a thousand times?

The new years come, the old years go,

We know we dream, we dream we know.

We rise up laughing with the light,

We lie down weeping with the night.

We hug the world until it stings,

We curse it then and sigh for wings.

We live, we love, we woo, we wed,

We wreathe our prides, we sheet our dead.

We laugh, we weep, we hope, we fear,

And that's the burden of a year.”

                                      Ella Wheeler Wilcox (American Poet & Writer, 1850-1919)

Movie Update : 

The Curious Case of Benjamin Button - Highly Recommended

Yes Man : Average