Tuesday, March 20, 2018

Scoring with credit



Saw this meme in FB and this is something close to my heart.. have never understood the idiots who run these institutions... somebody's credit score is low you charge him more??? in fact if you give him an incentive ie when he has made all his payments on time and has crossed $24302 as per this example then his loan is over.. period... why should he pay extra when he has been paying on time... in fact his interest rate would still be higher as he would have paid more per month till he hits $24302 than the other guy..

an even more interesting aside..
If ones score is low then instead of a higher rate of interest doesnt it make better sense to RESTRICT the loan amount rather then give a higher loan in the first place at a higher rate of interest??

These are the idiots who have been running/ created the system and no regulator anywhere in the world has called out this very obvious fraud/ stupidity...

But then i guess "Stupid is as stupid does"..

Thursday, November 30, 2017

Mining for coins..and passing the parcel..

In the olden days many made their fortunes in mining for precious metals. In the past decade a new kind of mining has taken the world by storm to create a brave new world of pioneers willing to risk aplenty in search of their holy grail in hitting the motherlode. This mining is called "crypto currency".

So what is this and how does it work?

Crypto currencies are digital codes resulting from a mathematical formulae which not only limits the number of codes that can be "mined" BUT also provides three layers of security so that the ownership of the person through a complete recording of all the transactions on each code is done. Hence it is with a bit of trepidation one wondered how some hacked pieces of code can be "transacted" away in future as the last transacted owner will not be the "seller" hence invalidating the sale. Unless of course it was a direct theft where the uninitiated owner was "conned" into "parting" with his "code" not being aware of the importance of the application of his password.

So how does this work actually? A mathematical formulae creates the pieces of code and the creator of this then releases the same through a token (similar to a pre-ipo sale) sale. Once enough noise is created, then the same are allowed to be bought and sold and the price being a direct function of demand and supply, the price of the piece of code varies. The most famous of these cryto currencies is "Bitcoin".

So is this a good thing? Well if governments were to replace all their cash with crypto currencies, then they would no longer be able to print fiat money as they deem fit, the run up or down of a currency will be magnified and this would destroy economies faster then you can say "hey". For eg., if the government has to restrict money supply, then they will have to "transact" the currency which due to their large buys/ sells will directly impact the price of the currency itself. Also the USD as the defacto global currency will be hoarded leaving hardly anything for the people within the country to transact with!!

Coming to the present, no country has legalised crypto currency as "legal tender" - hence the author is amazed at the concept of people buying something which is nothing more than a piece of digital code, which cannot be used to pay your property taxes or your medical bill!! The chinese government levied a transaction tax, made a bunch of money and then when they had their fill, outlawed the same. This is the fate that is going to befall all crypto currencies.

So you may trade and make money BUT make sure you are not holding the can when the music stops.. also dont forget the last time the financial markets fell in love with a mathematical formulae, (gaussian formula) we had the 2008 crisis.

Tuesday, November 28, 2017

Bail in, bail out and bail bonds... is there a difference?

Recently i got a couple of forwards on whatsapp regarding a proposed bill by the GOI based on an article here http://www.thehindu.com/opinion/op-ed/banking-on-legislation/article20005363.ece .

The whatsapp article is reproduced below:
*This Tsunami will wipe out your money lying in the Banks*

I now get on with my "banking Armageddon amendment" that is under way. Read the post and all the links that I have provided here and you will understand as to how the "kitchen sink" is thrown at you by this Govt. 

1. Banks, the world over, get into problems, when the loans advanced by them are not repaid on time, by the borrowers. When the economy is in a slow-down, many of these borrowers go belly up and become NPAs. 

2. Normal banking prudence suggests that the banks should auction the assets given by the borrower as security, at the time of taking loans. Generally banks insist on 150% security of the loan amount. For example, if a borrower wants Rs.100 as loan, he has to provide security worth Rs.150 before availing the loan.

3. However, for big borrowers, every norm is flouted and when they become NPAs like that of Anil Ambani in Telecom, you are talking of outstanding dues worth Rs.45,000 Cr. Now the question is, who will replace the funds, that were loaned to him.

4. Today the NPAs of Indian Banks, amount to over Rs.10 Lac- Cr. Jaitly or Urjit Patel do not give the actual figures. To resue these banks, the Govt. has 2 options. They are called "bail-out", which means the Govt. uses the taxpayers' money to fund the bank. This is very wrong but it has now been happening, quite regularly in India,

5. The other monstrous option is called "bail-in". The is the term that forms the very pivot of this post and has never been resorted to, in our country earlier. Now what is "bail-in". The dictionary meaning of "bail-in" is - "rescuing a financial institution on the brink of failure "by making its creditors and depositors" take a loss on their holdings". A bail-in is an internal process and is the opposite of a bail-out, which is external and handled by Govt. with budgetary allocation. 

6. You just deposit your money in a bank as a "Savings Deposit or Fixed Deposit" to use it whenever you want. You have no clue as to how well the bank is managed. Now Modi & Jaitely have got a bill approved by the Cabinet called "The Financial Resolution and Deposit Insurance (FRDI) Bill, 2017" and this has now been referred to a Joint Parliamentary Committee before getting it passed in the Parliament.

7. This bill covers "bankruptcy of businesses such as banks and insurance". Financial resolution includes solutions for banks facing ‘imminent’ risk to their viability & their very existence, depending on their capital, asset worth and quantum of NPAs.

8. Now comes the wily Jaitley into the picture. This Bill also introduces the provision for a “bail-in”, whose purpose is to provide capital to absorb the losses of a bank and ensure its survival. Here, survival does not mean safety of depositors’ money, but restoration of capital of the bank. The bail-in empowers the bank to cancel a liability owed by the bank or change the form of an existing liability to another security.

9. In simple words, it means that your savings account balance of Rs.15 lacs, can be reduced to Rs.1 lac, which is mandatory by law. Or they can convert your savings account balance of Rs.15 lacs to a Fixed Deposit, repayable after 5 years, giving you of 5% annual interest. 

And you can nothing about it. If you had kept that money for your daughter's marriage, it is bad luck and you cannot access your money for the next 5 years. View this link, to know more. http://www.thehindu.com/opinion/op-ed/banking-on-legislation/article20005363.ece

10. A question may arise in your mind, if such things happen abroad. Certainly yes and in a big way. Cyprus was the first country to the face "bail-in" in 2013. The depositors lost 47.5% of their savings in phase-1. They also had a phase -2. See the report from Cyprus Mail, which screams "Lenders set Bank of Cyprus bail-in at 47.5%" View the link. http://cyprus-mail.com/2013/07/28/lenders-set-bank-of-cyprus-bail-in-at-475/

11. After this, the G-20 Nations, comprised of Nations that include US, UK, Japan, Germany, France, China, Australia, Canada and others have officially approved this process. Incidentally India is also a part of G-20. View the link. https://www.nestmann.com/its-official-the-worldwide-bail-ins-are-coming

12. When the banks make hefty profit, you don't get anything but when they are into losses, "suppliers & depositors have to lose their money. And the heartless duo of Modi & Jaitley have come up with yet another brutal aspect. Just unbelievable. 

13. To recover the money from the defaulters, there is no attempt so far by the Reserve Bank of India to blacklist these entities from getting further loans or prevent their managements from retaining a majority equity stake, as penalty for the huge haircuts (writing off loans) being taken by banks. Ambanis & Essars can go away scott free and we depositors have to clean the toilet. 

14. In a nut-shell they are now trying to shift the responsibility of rescuing the "sinking banks" from the Govt. to the Suppliers & Depositors of the Bank. The borrowers can go on a fishing trip. Trust in Banking Industry would be decimated. People would gradually close all their bank accounts and keep their cash under the bed. Bloody madness. 

Share this extensively thru' every social media. This bill should not be allowed to become an act.  

FB link :https://www.facebook.com/b.r.muralidharan/posts/1615181888538789

LETS NOW look at the article in detail and see if the fear generated is real or just political drivel.. (after all the writer is a AAP supporter)
Points 1-4 talk about the process of crony capitalism which has been the bane of Indian economy ever since the Congress took charge in '47. So tying in this history with the Modi-Jaitley combo is just hilarious.

Points 5-9 is about the FRDI bill - A detailed analysis of this bill is a point for a separate blog, BUT suffice to say this is a bill for tackling insolvency in the Financial sector. (Non-financial insolvency is covered by the 2016 insolvency code). This is a very responsible bill and has been trivialised with some fear mongering as a result of the 2008 financial crisis. For eg., let us understand what happened in Cyprus. It was an economy possibly the size of east delhi which made it its business to compete with other tax havens and hence ended up with huge amounts of foreign money which needed to be deployed to give handsome TAX FREE returns to the worlds rich who are allergic to giving taxes in their respective countries. That the only known case of "Bail-in" happened here was possibly aided by the fact that the majority of the money in cypriot banks belonged to russian oligarchs. If one really applies ones mind, all insolvencies result in total loss, a bail in gives you an option to recover your losses BUT over a period of time. The GOI used a bail in for the UTI fiasco and the SUUTI has given positive returns in this case to the person who wrote the cheque to cover the losses ie the GOI. To cut a long story short there was a lot of hue and cry when the 47.5% haircut was applied on deposits over 1,00,000Euro BECAUSE there was no law in place to tackle such an eventuality. This government wants to educate the public that such an eventuality is possible and hence there is an ever present risk of loss of money in case of insolvency of a bank, insurance company etc etc. In a sense one should be happy for such fear mongers as without them this education of the public would be incomplete.

Point 10-13 - Talks all about the issues that caused the 2008 financial meltdown - is even one responsible person in the financial and political world willing to say that the same situation exists today. IF so then the central banker of that country is to be taken to task asap.

Point 14 - talks about drumming up support against the bill. If not this then what? as usual whether it is the leader of the AAP or its followers, they just shoot and scoot and are prime contenders for bail bonds..

For some other news on the FRDI - The unions of Public sector banks/ insurance companies are upset as they believe this bill will put an end to their monopoly on inefficiency and hence are against this bill.

Will leave you with a footnote to ponder over - would you rather know what would happen to your money in the event of a financial tsunami OR find out like the poor depositors in Cyprus found out AFTER the said event. I am sure we all know the answers to that one..