rituals - and making sense of them..

As more and more green initiatives are being thought up it the direct link between "sustainability" and being "a hindu" is becoming clear.

The latest one called "bioremediation" really nails it in!! This is the process by which contaminated soil is allowed to "regenrate" itself wherein potassium lactate (from milk) is mixed into the ground with. In other words "bioremediation" is the process that relies on the cleaning power of bacteria that grow naturally in groundwater on the contaminated site, helped along with a boost from potassium lactate!! Simple aint it!!

One of the main rituals of "Hindus" is the "Abhisekam" of its idols on a daily basis!! maybe the offering of milk(potassium lactate) after honey (to attract the bateria) was a daily sustainable decontamination process which today just remains as a "ritual".

Some of the other notable scientific discoveries and rituals are importance of gold in "nono-medicine" as gold goes and attaches itself to the affected tissues inside the human body thereby enabling the "directed" delivery of medicine. No prizes for guessing how gold was always valued in the olden days!!

Another scientific discovery "cow urine" to amplify the effects of allopathic drugs thereby making them more effective and it is this synergy of traditional knowledge, scientific validation and modern science that we as Hindu's need to pursue to give more meaning to our age old "tradition and rituals". Jai ho..

How to manage a DUD!! ask KP Singh

Delhi Land Finance is to merge another 100% promoter owned company with one of its 100% subsidiary - in a cashless deal. This is supposed to provide great value going forward to the shareholders of DLF.

Now for some history and the facts of the current issue:

DLF came out with a public issue some 3 years back at a price of 525 per share. It is currently languishing between 375 to 425. So thats 3 years of interest on 525 lost to the poor shareholder. Lets put a value to that - say 260/- share. Before the public issue the promoters tried to hoodwink the existing minority shareholders by forcibly acquiring their stake at a pittance. This held up the issue by a year as the matter was settled by the courts.

Fast forward to the current transaction. Going by their history of browbeating their shareholders and downright cheating them it is not surprising to find the total lack of transparency in this deal. But with what is available the following is clear:

step 1 - DAL bought assets from DLF (basically all those dud developments not sold) - this forced their other shareholder in DAL - DE Shaw to actually beg to be released from this partnership - which MR KP Singh happily did. (not surprisingly the debt in the books of DAL approximately equals the amount paid to DE SHAW.. hmmm..)

Step 2 - now that DAL is 100% owned by the promoters except for the convertibles that Symphony capital holds - due in 2012 for which also the promoters conveniently hold a call option - the promoters can go ahead and merge it any which ways they deem fit!!

Step 3 - look for a patsy - in other words the shareholders of DLF.

Now the beauty of the transaction is that the debt on the books of DAL which is approx 2300 crores is equal to 4 years rental of all the assets of DAL. including interest we are looking at a scenario where the shareholders of DLF will get nothing for almost 6 years.

The only person benefitting in all this is KPS who otherwise will have to sell his DLF holdings to ward off personal financial ruin which has been brought about by badly placed real estate bets and for borrowing in the cash market to trade on his own shares to keep the price UP!! he tried doing that with DLF cash through a buy back but found that it was not workable. So the first step is to buy the shares low in benami names and then once the price is up to a respectable level the company would "buyback" and that way you pay off the "cash loans" through guaranteed profits for the lenders by trading in DLF shares. NEAT AINT IT?!!

Action points:

1. SEBI to check on the status of the buyback - what were the prices the shares were bought back and dates of trade.

2. flow of funds from DAL to DLF and the sources of these funds.

3. flow of funds from KPS to DE Shaw - source of these funds.

4. loan taken in DAL - where the money was utilised?

I think the above should more than put a full stop to the mess that is DLF today and a word of caution to the investors of DLF - BEWARE for the company is a DUD!!

2012 - apocalypse NOW!!

The Mayans got it wrong!!

OR DID THEY!!

Considering that certitus paribus intelligence of man would lead him to the ultimate in self realisation - we as a species would have evolved to the next. consider this extract: (taken from here - http://consciousflex.blogspot.com/2009/05/losing-yourself-yet-gaining-universe.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+ConsciousFlex+(Conscious+Flex))

"You believe you are not separate, but if nothing is separate, then that means you are everything. If you are everything, then that means you are nothing because there is nothing here to compare yourself to anything else. If you are everything, then you would have the power to control all aspects of yourself as everything. (But) You can't control anything, because you are nothing. Nobody is there to make a choice to choose something."

The Mayans had predicted that humanity as a whole by the end of this one gigantic mayan cycle would have reached this pinnacle of self realisation that you are everything and nothing!! So if you are nothing you cease to exist. End of the material world as we know it!! Boy did we get the Mayans wrong!!

The death of the unborn & living the American dream..

USD 39207(federal debt) + USD 54129 (personal debt) + USD 345396 (unfunded liabilities) + USD 5760 (interest dues) + USD 7922 (state plus local debt) / USD 42710 (per capita GDP) = 10.60

10.6 years or 3869 days the citizens of the US will have to work, NOT spend a dime they earn and only then they will pay off the staggering debt of their country. In other words every child that is born in the US today is already indebted for the AMERICAN DREAM their parents have lived to the extent of 11 years of his productive life!!

The figures for India are not that encouraging:

total national debt = 2898917.52 crores

guaranteed debt = 100206.78 crores

Total Long & Short Term Debt (Multilateral + bilateral+IMF+Export credit+Commercial borrowings + Rupee Debt) = 227688 crores

TOTAL = 32268 per capita debt (State debt data is not available but we can add another 200% of this)

to the above add 100% towards personal debt which is more than the actual anyways and we arrive at a figure of 129000/- per capita debt. Considering a per capita income of 96000/- it means that every Indian has to work for 491 days to pay off his debt.

From the above it is clear that the major democracies of the world have failed in securing the future of its citizens and more importantly the unborn ones.

The reason why it does not look rosy going forward for India is that personal credit is on the rise like America and public debt is on the rise like America AND the most telling thing is that 50% of the debt has been added in the past 12 years. In other words what debt was added between 1947 to 1997 has been doubled in the past 12 years - NO WONDER WE HAVE A BOOMING ECONOMY. After all this is the American dream aint it?

Auditors and an election

After the great Indian "balle(o)t" circus (GIBC) which rolled by in the early part of this year it is now the turn of the Institute of Chartered Accountants to have their triennial exercise. As with the GIBC this has its share of masala, with contestants hosting parties to canvas for votes wherein you have free flowing wine, belly dancers and promises of sharing the powers of office once elected.

In the past 60 odd years since this profession was brought into being by an act of parliament, there has been a lot of water that has flowed under the proverbial bridge(global trust bank, loan melas, satyam, MCD etc). But what has amazed me this time around is the amount of money being flashed around and the willingness of some to be hypnotised by the same. The more one sees a democracy the more one feels disenchanted that money rules (obama - fallen prey to money - cannot get any of his stated policies rolling and when the dust settles down on this "postponed" crisis the rich would have gotten richer and the poor well they would be dead i guess!!) or brute force (mayawati - an IAS officer thought it better to commit suicide rather than resign?).

Maybe the process of democracy has to be reviewed and a better system wherein there is a continuous appraisal of the elected needs to be constructed? One starting point of appraisal is a report on how every "petition" by the electorate was disposed and in what time frame and how the affected vote on the resolution of the issue agitated in the petition. readers are encouraged to expand on this.

google and how its tackling the recession

Do you use chrome? The web browser from google? If yes have you at times had to experience a "broken link" message whenever you are looking to access a new url? This has been happening just too often recently with me to be taken down as internet bandwith problems. So it looks like google is engaged in some underhand dealings with its clients who pay per click to google for directing any traffic towards them.

Above are two images taken a minute apart. The first time I tried to access the site it said "broken link" but when i persisted with the same url - it went through. If instead of persisting with the url entry in the address bar I had taken the easier option of clicking on the view cache option - google would show the traffic as directed by them to the site and charge them for the same. There are other insidious ways - for example when you are typing a website url - chrome suggests - now we are used to "inline complete" with IE browsers. So we happily click on this "suggestion" and the poor website ends up paying for the "click" to google because this is technically a search made which resulted in a "click" via google servers.

google is most welcome to prove otherwise. To imagine what they would do if allowed to take over our os's is anybody's guess.

Clubs, schools and education..

Increasingly we find "premium", "world", "exclusive", "international", "holistic", "360degree" adjectives when it comes to schools. This is akin to clubs where the criteria for admission are predefined like all male, all with a particular title, all smokers, etc etc. Here the unspoken criteria for most of these schools is the money - if you can afford it - welcome!! This creates an exclusive club of the moneyed and an aspiring group who want their child to be part of this "club" because the criteria is money and not education. After all it is for an education that the kids are going to the school - so how can education be the criteria for admission in the first place?!

Personally I would prefer the school nearest to place of residence as that allows for more extra curricular activities without a lot of time spent on travel as traffic is an issue in most metros today. Boarding schools are not discussed as they are a separate breed and require different parameters like psychological effects of separation etc. There is a saying in tamil - a child which studies will study anywhere!! So dont perpetuate this ranking of schools but as parents participate more in the education of your child and you will be surprised that the ranking of the school does not matter.

refer earlier blog http://forsec.blogspot.com/2009/02/home-schooling.html for more..

missing children and the sarva siksha abhiyan (SSA)

In my yearly visits to the hinderlands in Tamilnadu I had remarked at the increased traffic of school kids in the past 5-7 odd years. This was a program started by the erstwhile BJP government and its effects were seen immediately in Tamilnadu.

I find the reason for that now. Check out http://www.hindustantimes.com/News-Feed/tamilnadu/Making-schools-fun/Article1-481150.aspx .

The movement was so taken to heart by many IAS officers who as collectors of districts would personally directly monitor the daily attendance levels of the schools in their district. So it not surprising for me to see so many "missing" children on their way to school all those years back!! The BJP got two good things to the country - Kalam as chief motivator (he was no machiavalli to be called a president !! - chk out http://forsec.blogspot.com/2009/08/water-finds-its-own-level.html) and the SSA - the true impact of this will be felt in the next decade when all these people bring a much needed moderation to the political and social fabric of this nation.

Maybe India will be shining after all!!

From the HT article it is clear that Tamilnadu has shown maximum progress while other states have lagged behind. That does not mean there is no progress - it just shows since personal interest by the powers that be has not been applied, the effects are to that extent muted. But everywhere in India one sees the missing children on the way to school!!

doobye

So the excesses of capitalism takes its toll. The latest being the emirate of Dubai with a $80Billion hole in its balance sheet. Without any concrete policy measures on how they are going to stimulate demand in their local economy one doesnt see how the bond holders will ever be paid back unless of course big brother Abudhabi were to pitch in with the required moolah. It was so pathetic watching big professional investors saying that this was a surprise as they always "expected" Abu Dhabi to bail Dubai out!! Sounds familiar doesnt it? If the US government is stupid enough to not let the rich lose any money - why would any other self respecting capitalist allow that to happen?!

Hence this is a major inflexion point for the doomsayers that all will fall down if one falls down. So Dubai cannot fail or else for most of the expats in dubai to borrow the catch phrase of the emirates "fly buy dubai" - it would look more like "bye bye Dubai".

doob - in hindi means to sink..

Dont go with the herd Mr Hirohisa Fuji

As the yen appreciates the call for intervention from vested interests and so called stakeholders of "growth" gets louder by the day. It is clear that a bout of deflation is a must if Japan has to come out of its lost decade and a half which might become the lost double decade!! As noted earlier by me - Japan can still manage to come out of this shining if it were to only:

1. Convert 30% of Yen debt into $ denominated debt

2. Pay off the newly created $ liabilities with its mountain of US treasuries

3. Use a part of its US treasury assets to buy up SEZ's in the middle east and other Asian countries with large local consumer demand.

By including these SEZ's into the GDP of Japan going forward - they can to some extent negate the negative effects of the appreciating Yen and also at the same time maybe avoid the double issues of debt trap and also get rid of some of the $ assets which today hang like an albatross around anybody's neck who is unlucky enough to hold them!!

So Mr Fuji (btw is it a double "ii" or a single "i"), dont listen to these economists of "growth" - because they are only looking to feather their nests - the public be damned and how does it matter if your country is also pushed into the abyss? Be the pioneer in shepherding your country through the diagnosis of deflationary doom by using this as an opportunity to pare down your mountain of debt and $ assets.

In hope of a sovereign fund action from Japan soon!!

Brother Vs Brother - Charade continues

As the case between the Ambani brothers reaches the concluding arguments, as a common man who will be impacted to the extent this will affect my power costs, one has been following this charade.

It bemuses me that a lot of facts have been allowed to be agitated by the Supreme court which as far as I am aware a body which only allows appeals on points/ interpretation of law or on the understanding of the constitution. The only new issue being debated is whether a NELP guideline or a direction of a ministry of the Government supercedes an agreement between private parties. On the background of the Indian constitution this is a no brainer - obviously the government dikat runs over any private agreement. DUH!

At the same time the supreme court cannot ignore the rights of an individual and in this case millions of shareholders as well. The best solution is (again based on existing law)

1. The government rate is to be applied only for computation of taxes due to the government - hence government interest is protected in full.

2. the rate to be paid by RNRL to RIL should be what was agreed in the family agreement - no more no less.

3. Based on 2 above NTPC also pays the enhanced tax but buys gas at lower rate.

CASE CLOSE!!

Of course the issue of who will pay the enhanced tax due to the government remains? As RNRL is the person to pay the tax as the end user it stands to reason that they would bear this.

So why are M/s Jethmalani, Salve and Parasar making such elaborate arguments when as people who have taken an oath as officers of the court to help the judge arrive at the truth they should have closed this on day one. Maybe the incentive of money is really strong to keep the argument alive!

Medical tourism

Recently my mom was hospitalised in Israel for a "gall stone". The hospital there was getting ready for an operation for which the estimated bill raised with the Insurance company was approx. 8 Lacs INR. Things so panned out that she recovered from the "stone attack" within 24hrs and landed in India and after consulting the doctors here got the gall bladder removed from a Government Hospital.

Just to compare the costs - Apollo (considered 5 star in healthcare) would have cost 10% of the Israeli hospital. And the Government hospital cost 5% of whaat Apollo would have cost or in other words it cost 0.5% of what the Israeli hospital would have cost!!

The whole experience from consultation, investigation, admission, operation and discharge was completed like in a conveyor belt system. The crowds there are to be seen to be believed!! The nursing staff were very helpful and as its the norm - most government hospitals are also medical schools - you have a bunch of students following the doctor in his rounds, who also impart some knowledge to the patient as to what they did during surgery.

The rooms had flat screen TV with dish cable to boot!! Breakfast was served with the morning newspaper. Lunch, dinner and tea were on the dot both with respect to time and taste. All fine vegetarian fare. There was no expectation of a tip and even when one was offered the same was refused!!

Oh by the way did I mention that all the services are FREE for the poor of the nation? These rooms come at a princely sum of INR300 per bed per day. Compare that with the 45000/- per day in Israel!! JAI HO!!

Feeling claustrophobic - just open the window!!

A buddhist monk in Myanmar did just that - only problem was he was in an aircraft ready for take off!! The pilot was one surprised guy to see the chute deploying as he was carrying out the pre flight checks. Luckily nobody nor any property was damaged and the flight left 7 hours latee.

This begs a serious question with respect to air safety. What stops a similar event from occurring when the flight is in motion? In the backdrop of terrorism it acquires a very dangerous connotation as one doesn't need to carry any weapons on board. The terrorist needs to just make sure he gets to sit next to the emergency exit rows and the rest they say is history!!

So next time just make sure that you are the one sitting in the exit row seat!! :-)

how to make 4000 into 5000?

Ask Booz Allen and NACIL!!

extract of their report at http://www.livemint.com/2009/11/17234955/Booz-drafts-Rs5000-cr-savings.html?pg=1

"Going by Booz Allen’s three-year cost-cutting plan, the airline will be able to save at least Rs400 crore by March 2010, another Rs1,400 crore by March 2011 and yet another Rs2,300 crore by March 2012, he said. “The three-year cost-cutting plan will help Air India to save about Rs4,100 crore. Together with the revenue-enhancement measures, which will be executed immediately, cost cutting would yield Rs5,000 crore savings in next 18 months,” said this executive."

I never knew that "increase in revenue" can be clubbed under "cost cutting". This is akin to real estate company ads which have become more and more desperate recently. sample this "100% sold out - call 99xxxx for some select apartments" LOL. What levels people will sink to - to misguide the public!! more public money down the drain. the government is better off just selling this junk crate that flies!!

life of ahimsa..

MY LIFE IS MY MESSAGE - Gandhiji

There is a Q raised on this - "Does it mean that, his message must be carried out in the same way, only with our life" - FB user

Interesting Q. Actually the British never killed him - it was a post independence free indian who killed him. To look at this spiritually - once ShriKrishna's work was over he was felled by a hunters arrow and so was Gandhi by an assassins bullet as his work was over. But these are only "physical" things. The true abiding teaching of both are relevant even today!!

The "munna bhai" movies have rekindled the mahatma's message in a new generation of Indians and citizens of the world who otherwise didnt know HIM or his message other than from history text books.

There is a clamour every year for giving Bapu a Nobel peace prize. I personally feel that he is beyond any committees reach to "honour" him. If however Indians feel a certain lack in not being so honoured - it is their individual and collective lack and not that of Bapu. Just as our Gods dont need any defending when they are painted by MF Hussein, the one true torch bearer of Ahimsa doesnt need anybody's stamp of approval for the way he lived his life! The best approval or award people can give the Mahatma is by remembering him and trying to lead ones life the way he lived his!!

Even Martin Luther King who put in practice so effectively Gandhiji's teachings fell to an assassins bullet. An elephant is worth a million alive as well as dead - it is true of people who tread the path of ahimsa. Gandhi alive made the British get in touch with their inner self. Gandhi dead helped India escape the clutches of divisive Right wing politics. Similarly within 4 decades of Martin luther king's death the US has its first afro-american president. (Btw king was awarded the Nobel peace prize!!)

The other issue that people in the spiritual path find difficult to digest is that "you meet the death the way you led you life" - so how does one reconcile the violent end met by "Ahimsa Gandhi"? Would any other form of death be befitting of great champion warriors? For warrior he was - and very unfair at that too! His choice of weapon was such that there was no counter known to conventional warfare!! The only reply was to surrender!!

In memory of a great World Citizen. Om...

relentless march of capitalism..

SEBI released its guidelines for SME's getting listed on SE's

Let us analyse the guidelines para by para:

SME Exchange/ Platform:

Ø 1. Companies listed on the SME exchanges would be exempted from the eligibility norms applicable for IPOs and FPOs prescribed in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (ICDR).

Instead of a blanket exemption - those provisions seen as onerous could have been exempted. Looks like some vested interests need a quick turnaround in this to create the next "big" thing in investment banking(IB).

Ø 2. In order to have informed, financially sound and well-researched investors with a certain risk taking ability, a minimum IPO application size of Rs. 1 lakh would be prescribed.

All the more easier for these IB's to sell rubbish as most of the HNI's dont have time for research as they are busy making money. Only professional investors have the time to separate the rubbish from the good but they are anyways investing before the same is marketed by the friendly neighborhood IB.

Ø 3. The minimum trading lot would be Rs. 1 lakh.

Why?

Ø 4. An upper limit of Rs. 25 crore paid up capital would be prescribed in order for a company to be listed on the SME platform/exchange and a minimum paid up capital of Rs.10 crore would be prescribed for listing on the main boards of NSE and BSE.

What about those companies with paid in capital of less than 10Cr currently listed in the exchanges and who have no problems in meeting all the current requirements? Why are they being allowed to be exempted from takeover and public offer norms? This is the vested interest part discussed in point 1 above.

Ø 5. The offer document will have to be filed with SEBI and the exchange. No observations would be issued by SEBI on the offer documents filed by the Merchant Bankers (MBs).

Kindly elaborate puhleeazsee...

Ø 6. The MB to the issue will bear the responsibility for market making for a minimum period of three years. MBs would be allowed to do market making along with a disclosed nominated investor (like PE, VC, HNI and QIB). Under this arrangement, all the stock being bought and sold as part of market making will ultimately get transferred to the disclosed nominated investor with whom the Merchant Banker has a contractual agreement. Merchant Banker would have to disclose their intention of this arrangement and have it approved by stock exchanges where the issuer SME is listed.

Why this provision at all? Isnt the past lessons very clear that when a group of people corner a portion of shares of a company they will always manipulate its price? The better option would have been to deepen the bond market for these SME's instead of a charade of an IPO.

Ø 7. Certain well capitalized registered entities like Venture Capitalists may be allowed to have a contractual agreement with the Merchant Banker to share the burden of devolvement of underwriting obligation.

Well capitalised - Would you consider RIL to be well capitalised? Kindly define the parameters instead of some adjectival drivel.

Ø 8. During the compulsory market making period, promoters/acquirers will be allowed to dilute their shareholding only through offer for sale or to an acquirer and not to a market maker.

It would be so convenient that every time a promoter sells there is a matching buyer who has been "recommended" the stock by an IB!!

Ø 9. SEBI regulations on Takeover (Substantial Acquisition of Shares and Takeovers Regulations) will not be applicable to acquisition of shares through Merchant Banker /Market Maker provided that the Merchant Banker/Market Maker does not have the intention of taking over the management and there is no change in control (direct /indirect) of the company.

Well I dont intend to take over but as it so happens one fine day Narayan Murty decides to step down in the name of succession planning and viola the MB/ IB's man becomes the new chairman. convenient aint it?

Ø 10. Merchant Bankers who have the responsibility of market making and have a firm allotment made in IPO for purpose of market making may, at their option, be represented on the board of directors of the company in view of the commitment of market making subject to agreement of the issuer. However this will not be mandatory on the Merchant Banker.

Excuse me - come again - it is compulsory on the issuer to "offer" a Board seat and it is not compulsory for the MB to accept the same? Now how is this different from what one fears in point 9 from happening?

Ø 11. No separate category of Merchant Bankers will be created.

Why not? This only strengthens point 1 above - you can however bet that once the creme de la creme of the SME's have gone public a separate set of MB's would be allowed as the current MB's wont be bothered with the REAL SME's now will they?

Ø 12. Merchant Bankers will be required to ensure that the issue is 100% underwritten. However only a minimum percentage (15%) of the issue size will be mandated to be compulsorily underwritten by the Merchant Banker itself.

Now why is the 15% limit allowed I WONDER?

Ø 13. A minimum number of investors (say 50) shall be specified for the IPO only. There shall be no continuing requirement of maintaining the minimum number of investors. However, compliance with the requirements of Companies Act, 1956 needs to be ensured at all times.

LOL..- better to call this the back door way for all the PE/ VC managers who are stuck with their lemons to sell on the great Indian share mandi!!

Ø 14. No separate registration will be required for brokers intending to service companies listed on the SME exchange/platform.

What service do brokers directly provide companies currently i would like to know? As far as I am aware they provide services to the INVESTOR community to buy or sell stocks - period. Is this the unintended slip that shows the level of vested interest drafting the guideline that SEBI even forgot to remove the "private comments" of the MB/ IB/ VC/ PE before making the document public? LOLOL

Ø 15. Companies listed on the SME exchange/platform shall compulsorily migrate to an equity exchange/segment (main board) on exceeding the Rs 25 crore post issue paid up capital limit. Further also, if follow on offer/rights issue results in triggering of the above limit (of Rs. 25 crore) then the company would have to migrate to the main board.

First instance of principle of natural justice and application of LOGIC i guess - DUH

Ø 16. Companies listed on the SME exchange/ platform of an existing exchange may send to their shareholders a statement containing the salient features of all the documents as prescribed in section 219 (1) (b) (iv) of Companies Act, 1956. This information shall also be displayed on the website of the exchange. Further the Company shall compulsorily maintain a website on which this information can be displayed.

Many main board companies themselves dont do this. Now why insist on this for SME's I WONDER?

Ø 17. Investors with holdings of value less than Rs. 1,00,000 (such reduction in the holding may have been due to fall in prices or his having offloaded a part of the holdings previously), are allowed to off load their holding to the Market Maker in that scrip. (provided that the investor sells his entire holding in that scrip in one lot). Market Makers will be authorised to buy these shares from such investors.

Makes managing points 6 & 8 that much easier. !! LOL..

Ø 18. Preparation and submission of financial results (as mandated in the listing agreement) on a “half yearly basis” for SMEs, instead of “quarterly basis”.

Why cant they publish them monthly - what are they saving here? Any company has a status report daily in any case and so dont see the need for this relaxation.

Ø 19. All the provisions of clause 49 (corporate governance) need to be complied with.

First sensible guideline but then a true case of too little too late??

In short a pathetic attempt at pulling the wool over the investors eyes and coming from the market regulator - this is a new low for Indian capitalism!!

The biggest scam in this is the paid in capital as the benchmark. For eg. a company like MRF has a paid in capital of 4 crores. But its market cap is in excess of 2400Crores. So should not the definition be a combination of paid in equity and market cap say paid in equity of 25 crores and a market cap below 500crores or some such thing? DUH!!

Capitalism - can i have some Mo(o)re..

Oliver Twist wanted some more and we all want Moore. But really do we?

The entire movie was just his view and his path towards defining capitalism as "evil" - nowhere did he attempt to get to the root cause of all the current financial problems - consumerism and plain greed.

If the investors were not greedy (playing the lottery) and lapped up all the questionable deals that wall street sold them-

If people had not borrowed endlessly against their homes to finance a lifestyle they could ill afford (did banks really think that they could sell all these homes to recover)

If people had not lived like there was no tommorow

and so on and so forth..

The one thing he did show up was the 2nd bill of rights - which in my opinion for all the right reasons wasnt enacted - simply because they were the confused utopian rambling of a president who had gone soft after the years of hardship his people had undergone during the 2ndWW.

I mean looking at the list would make communist China blush:

- jobs for all!!

- money for all human needs and needs also includes recreation!!

- farmers to sell their produce at good rates (what will happen to all the middlemen?!!)

- free enterprise - now when was the last time that was there?

- housing for all (heard about lustron?!!)

- healthcare for all - ???

- education for all

- old age care for all

of course the original bill had a lot of adjectives like good, adequate, decent etc - now who is to decide on these measures? to be fair to FDR if he had lived to make this dream of his a reality maybe most of these adjectives would have been ironed out and maybe Moore would not have had an opportunity to make a film on the evils of capitalism but rather he would have made a film on the evils of communism!!

Now the confused mixed economy approach of India has worked for the past 62 years without a recession - with a 40% opening up of the economy we are into our first recession and stimulus package!! So a comparison of communism, socialism, mixed economy and capitalism would have been more academic, less dramatic but more truthful with respect to what Moore wants us to believe - that capitalism is "evil". It aint evil but definitely it is over rated. It also cannot provide the untold riches to all - there is place for only one king and he doesnt take too kindly to another on his turf or become king on his watch!!

The rich are the getting richer and this is aided and abetted by the political class which is financed by them in the form of loose fiscal policy and other covert policy measures which act as effective trade and competition barriers!!

It is at times like these that when one looks at what is happening in India and wants to thank ones stars for being born in this mixed economy which is so confusing that even recession so far has been confused from entering here in all its despair and depression!!

Can i have some more of this confusion please..

Cost or Price?

Henry Ford had this to say when he talked about mass producing his car:

"Our policy is to reduce the price, extend the operations, and improve the article. You will notice that the reduction of price comes first. We have never considered any costs as fixed. Therefore we first reduce the price to the point where we believe more sales will result. Then we go ahead and try to make the prices. We do not bother about the costs. The new price forces the costs down. The more usual way is to take the costs and then determine the price; and although that method may be scientific in the narrow sense, it is not scientific in the broad sense, because what earthly use is it to know the cost if it tells you that you cannot manufacture at a price at which the article can be sold? But more to the point is the fact that, although one may calculate what a cost is, and of course all of our costs are carefully calculated, no one knows what a cost ought to be. One of the ways of discovering…is to name a price so low as to force everybody in the place to the highest point of efficiency. The low price makes everybody dig for profits. We make more discoveries concerning manufacturing and selling under this forced method than by any method of leisurely investigation."

Not surprisingly the only company that follows it to the heart in the US is walmart and no special prizes for guessing that they are one of the enduring value creators. Ford itself lost its creators message somewhere along the way. The only other large scale follower of this is China - the manufacturers ask you whats the price you want for the product and then they arrive at that price by a matching cost structure.

Of course the big difference between Ford's time and now is that - there was only one acceptable quality for a car ie the T-ford. unlike the explorer, mustang etc etc today. Similarly for the chinese there are multiple quality levels - so you can have a battery priced at INR5 costing the manufacturer INR1 that lasts for 5hours and you can have a battery priced at INR11 costing INR3 but that lasts for 5 days.

So is Ford's thought process outdated today? I dont think so - the main underlying theme of his thought was that make a product at a cost that it will sell for. In todays world - nobody wants to sell at a price that will make the product sell - they want super profits and obscene salary costs to be added to the price of the product and make it "not sell" - and then they say there is a recession. Funny aint it?

I had always counseled that the price for any article is what the buyer is willing to pay - nothing more nothing less. This helps the cash to flow and one to remain in business - what do you think?

one more monument of corruption

The dedicated flyover to the airport in Hyderabad is built so poorly that driving on that is like driving on a giant sandpaper !! At places the 4 lane elevated road becomes a 2 lane with the remaining lane on each side just disappearing into the abyss. (currently a lot of rumblers and other so called safety directions are in place - but how long before somebody speeding by just goes off - the edge - literally!!). One explanation is that this flyover is still "work-in-progress" and these spots are likely "merge/demerge" arms yet to be built!! hope so..

Another poor attempt at design is the amount of curves in the flyover which willy nilly bring down your speed to sub 40 levels. For the money and time spent they could have instead made a metro on this route!!

Another harbinger of waste - only cars and airport bound buses can use this. In a capital starved nation to spend this amount of money (est of 600 crore) and use it only for one use is criminal to say the least. The airport is still seen as an elitist mode of transport where 97% of the population is still dependent on rail, bus or just anything that is available - and you go and build an elevated expressway at the cheap rate of INR50+crore for every km and deny its use for 2 wheelers, 3 wheelers, other non-airport bound commercial traffic etc. is a sure recipe to lose an election.

A similar fraudulant exercise is underway in delhi with a dedicated line to the airport. This line will run from the city centre to the aiport. an extension(1km) to delhi's largest subcity (dwaraka) is also planned. but a crucial link to gurgaon which is just another 6km's would save more than 50% of the estimated 1 lac vehicles which move from west/nw delhi to gurgaon besides connecting the airport. Why this crucial link between west delhi and gurgaon is continually ignored is anybodys guess.

dealing in death

Last year when i was looking at alternate asset classes to invest in - my insurance agent told me that i could buy out lapsed insurance policies from people not in a position to continue paying premium for various reasons. So this got me to do some research and as it turns out, some of the usual suspects ie goldman sachs, credit suisse, jpm etc etc were already dabbling into this.

now if a company like GS is into this you can take it for granted that this was another unregulated sector available for exploitation!!

now let us look at some of the reasons - common and otherwise as to why policies lapse:

1.1. the person just plain forgot and is hence unwilling to revive it paying the penalty.

1.2. the person does not have the money to continue making the premium payments.

1.3. the person would like to encash his policy as he no longer has anybody to leave the money (not uncommon in todays world where the younger gen at times predeceases the older..)

1.4. the person would like to get the money early for some expenditure.

etc etc..

what is the exploitation that is possible here?

2.1. once the policy is purchased as the benefits are still payable on the death of the insured there is an incentive in ensuring the early death of the seller. as we know that there are no criminals and psychopaths in this business so mainly policies of people terminally ill would be purchased, one presumes..

2.2. pricing would be opaque as there is no transparent pricing mechanism or an exchange wherein these are traded.

2.3. as there is no clear government policy on this there is no scope other than civil courts in case there is any misselling etc.

now lets look at the potential of this market:

for all the reasons listed in 1 above, it is highly recommended that a market for this is created and allowed by the government.

what the government/ policy maker should do:

1. whenever a policy is traded - the details of the insured should be deleted and only the policy details should be traded.

2. repo transactions in these should be allowed.

3. insurance companies should be allowed to buy out these policies at the traded price plus a markup within 3 days of a deal to ensure that the insurance companies can better manage their life costs.

4. the exchange for the same should be under the purview of SEBI while the policy for the methodology is made by IRDA.

5. only local players to deal in these policies till cross border re-insurance is allowed.

6. securitisation of these policies should not be allowed.

a pro-active policy making body and the creativity of the investment banks can make this a most exciting space for investments for a long time to come.

anybody willing to bet on the death of a insured to profit?

reinventing price?

Following on the earlier post of aug 3 (bailout anyone) - the evolution of business is to reprice itself going forward.

So how would we define this process of repricing? is it just lower pricing (as in the case of airlines and now more recently mobile telephony) or is it pricing for the use of the individual bits and pieces of infrastructure as opposed to paying for the whole?

let me put this in perspective - historically all companies used the government way of pricing (maybe thats why nobody is happy with the govt anywhere) ie you pay a global tax and in exchange you get security, roads, water etc etc.. but what about the ordinary joe who doesnt use a car - why is he contributing for the road the same way as the car user who actually wears down the road as opposed to our pedestrian?

similarly private companies price products "globally" - customers who dont want certain features end up paying for the others and in times of competition actually end up subsidising others use of features that they dont use. for example the airline industry as it created excess capacity willy nilly cut its "global" prices to attract customers and also expand the base by converting users of other modes of transport to take to the air. now if they had along with the cut in rates separately charged for luggage (as some US airlines are doing now), food on board and pay per view movies in flight etc etc they would have been less worse off than they are now.

similarly if the government were to collect user fee for urban infrastructure from those living in cities and these were tendered out - i am sure people wouldnt mind paying these fees as opposed to taxes which all evade. of course as the private operator doesnt have a blank cheque like the govt to keep paying salaries if the user doesnt pay up, you can bet the enforcement of bill collection will also be right up to the mark.

hum mur

india joins the league of nations that waste resources. when icons like dhoni and harbajan buy a hummer just because they have the money, there are many others who waste just because they have the money.

what most nations forget is that, this is money that has been borrowed by mortgaging the future generations and irreversabily damaging the ecosystem that we depend on for our daily sustenance. "pralay" or "end of the world" is not far off at this rate.

the hindi meaning of "hum mur" is "we die"...

homeland security, a president and an actor

since 9-11 and the passing of the homeland security bill in the US - every muslim is deemed a terrorist unless otherwise proven innocent.

the most recent one when shah rukh khan was questioned for over 2 hrs in newark has caused a stir with the indian government responding quickly and demanding an answer from the american ambassador to india. the same government which did not respond when a former president (interestingly also a muslim) who is on the "exempt from security frisking list " until the same was leaked by the press a few months after the ugly incident which involved an american airline - continental.

now why this double standard? the former president maintained his dignity right through even though his personal security officer was taking issue with the airlines not to frisk the president - he just went ahead with the frisking and proceeded with life - till to his embarassment the story was leaked. on the other hand we have a movie star taken in for routine questioning (a few hundred people are questioned daily by HS) and this gets the government to react at the highest level?

i think the indian establishment has more to answer here than homeland security in the US for they had failed to react when a former president and that too one so dear to the public was practically manhandled by the continental staff in the name of security whereas they were efficiency personified when a movie star got a similar treatment.

is the indian government trying to tell the homeland security who they can and who they cant question? and at the same time allowing them to question the former leader of our armed forces who by law is entitiled to skip all security procedures anywhere in india and in the world where we have similar bilateral agreements?

shame on the government and shame on shah rukh for reacting the way he did.

yes it is wrong the way the homeland security does its job at times including racial profiling, cultural profiling, religious profiling etc etc but thats the way they have been going about their business. you dont like it - then dont go to the US. period.

PFRDA - printers devil?

i only hope the rate of INR2500/sft is a typo and not what is intended!!

refer http://www.pfrda.org.in/writereaddata/sublinkimages/Notification_November_14_2008978597363.pdf page 9.

even the swankiest address in delhi does not cost more than INR50/sft per month today!! like they say the devil is in the (fine) print!!

water finds its own level..

"Greed, in all of its forms -- greed for life, for money, for love, knowledge -- has marked the upward surge of mankind." - FROM THE MOVIE "WALL STREET" - 1987

when one looks at all the machinations that go on in corporate boardroom, the endless backstabbing in politics, sibling rivalry with no or the absence of morals etc etc - the world looks a unhappy place with no hope. In fact in my opinion if today there is no gandhi - it is so because he is dead the first time he rebelled against an unjust law!! the gandhi of the 19th century was possible because his opponent (the british) had some vestiges of morality and a misplaced sense of being seen doing the right thing!!

fast forward to the recent past. in india we had a person like APJ abdul kalam become the president. looking at how the present president a person with a chequered past was most uncerimoniously elected - it is all the more a wonder how mr kalam got elected. it is so because just like water find its own level - GREED(mistrust - put any negative human quality here) FINDS ITS OWN LEVEL TOO!! now when the last president was to be elected the congress wanted mr x and the bjp mr y - now both were unacceptable to the other as they had a colourfull past. so the fear and mistrust of the two parties got the only gita quoting muslim to become the president and the rest they say is history. he singlehandedly returned HOPE to the masses. the countless number of young children touched by this simple man with a message of hope and of a future of the world that is better than what we have today is the bedrock on which future political parties can claim they made a difference - but then we all know the one man who made it possible!!

on an aside one need not have to repeat the side effects of "greed" in the world of finance - just one look at the economic mess of the past couple of years should give pause to all those who think that "wall street" got it right!!

complete transcript of the iconic scene from the movie---WALL STREET - 1987

"Gekko: Well, I appreciate the opportunity you're giving me, Mr. Cromwell, as the single largest shareholder in Teldar Paper, to speak.

Well, ladies and gentlemen, we're not here to indulge in fantasy, but in political and economic reality. America, America has become a second-rate power. Its trade deficit and its fiscal deficit are at nightmare proportions. Now, in the days of the free market, when our country was a top industrial power, there was accountability to the stockholder. The Carnegies, the Mellons, the men that built this great industrial empire, made sure of it because it was their money at stake. Today, management has no stake in the company!

All together, these men sitting up here [Teldar management] own less than 3 percent of the company. And where does Mr. Cromwell put his million-dollar salary? Not in Teldar stock; he owns less than 1 percent.

You own the company. That's right -- you, the stockholder.

And you are all being royally screwed over by these, these bureaucrats, with their steak lunches, their hunting and fishing trips, their corporate jets and golden parachutes.

Cromwell: This is an outrage! You're out of line, Gekko!

Gekko: Teldar Paper, Mr. Cromwell, Teldar Paper has 33 different vice presidents, each earning over 200 thousand dollars a year. Now, I have spent the last two months analyzing what all these guys do, and I still can't figure it out. One thing I do know is that our paper company lost 110 million dollars last year, and I'll bet that half of that was spent in all the paperwork going back and forth between all these vice presidents.

The new law of evolution in corporate America seems to be survival of the unfittest. Well, in my book you either do it right or you get eliminated.

In the last seven deals that I've been involved with, there were 2.5 million stockholders who have made a pretax profit of 12 billion dollars. Thank you.

I am not a destroyer of companies. I am a liberator of them!

The point is, ladies and gentleman, that greed -- for lack of a better word -- is good.

Greed is right.

Greed works.

Greed clarifies, cuts through, and captures the essence of the evolutionary spirit.

Greed, in all of its forms -- greed for life, for money, for love, knowledge -- has marked the upward surge of mankind.

And greed -- you mark my words -- will not only save Teldar Paper, but that other malfunctioning corporation called the USA."

brother Vs brother

the battle between the ambani brothers might in the end be the sequel to the film guru and who doesnt like sequels?

it is clear that there is a lot of hate and pain between them and the way the current fight for gas allocation of the KG6 fields is playing out - it is clear who is using the muscle and who is getting battered.

now for some history. post the demise of "guru"dhirubhai, the elder brother took the younger one for granted and this obviously wasnt taken too well by the younger brother. so this led to the famous split which initially threatened corporate india (this group at that time accounted for 6% of government taxes). the terms of the split were finally brokered by their mother.

one of the companies that was transferred to anil was RNRL which has rights on a portion of the minerals to be extracted from the KG6 basin at a predetermined cost. it is this that is the bone of contention between the brothers as the elder one doesnt want to honour the agreement while the younger brother wants the same to be honoured in full.

mukesh (the elder brother) has been flexing all his political, beaureaucratic, legal and economic muscles to defer/ delay the supply of gas or simply to deny the gas altogether. what he is playing for is that anil is financially stretched (who is not in these times of excess) and is betting that if he delays the flow of gas sufficiently his brother would be forced to sell out his assets and that he can gain control over them again.

for this problem there is such an obvious solution. let us look at the arguments for not sticking to the original agreement - including those made by the lackeys in government who are in mukesh's pay.

1. min for oil - these are government assets and no private party(ies) can distribute the same as per a private agreement - Is the minister joking? for any concession there is the government share and there is a share which belongs to the developer - in this case RIL. now how RIL chooses to dispose off its share is its business. it is this share that is being fought over and not the government share.

2. min of fin - loss of revenue as the sale price of 2.3$ is way below the 4.5$ ruling today - in all long term contracts this is the risk - but just accepting the argument of the ministy they are free to assess the tax on a notional value of 4.5$ while the private rate exchanged between RIL and RNRL can remain as per the original terms of division.

the main reason for the fight is again financial - both the brothers are stretched financially, mukesh has lost heavily in his retail foray and the capex/ acquisition of anil in the past 4 years has left them both heavily leveraged. it is the super profits in the gas/ crude that they get which can save them and that too quickly. so this is one fight where the government will end up with a lot of mud for involving itself in such a cavalier manner and mukesh his credibility for fighting over a contract that was a part of the original division of assets.

one is not even talking of the normal questionable operational practices followed by the ril management in maximising their returns by exploiting every rule in the book and by utilising every accounting trick available - as they have in the past. but because they have always shared a part of this with their god - ie the shareholders one doesnt find anybody complaining!!

its a mad world out there so enjoy this free soap = brother vs brother..

bailout anyone..

Last week the private airlines in india decided to go on a strike to demand a "bailout" from the government.

well keeping in with what the developed capitalist world has been doing this was no surprise. only difference is in the capitalist world it is now the accepted norm that big business will get all the profits and bonuses and all the losses and delinquencies rest with the government. indian big business thought it was their right since they had after all funded the elections!!

sanity finally prevailed and the following reasons for the ills affecting the airline industry came out:

1. excess capacity (true capitalist tendency - where there are super profits everybody wants a piece of the action)

2. selling prices of tickets below cost - now who told them to do it?

3. high terminal charges - now these terminals are also private owned - just like these airlines they want to maximise their returns!! - so what are the airlines complaining about?

Well india has the lowest telecom tariffs with profitable companies to boot thanks to stiff competition and a decent enough regulator.

then why is the airline industry in the doldrums?

the reasons are not far to seek:

high infrastructure costs - terminal rights, pilots costs, high employee cost due to a wrongly perceived glamour quotient.

solution is simpler than the government or the private operators will ever accept:

1. have mulitple airports so that they compete for the business (at least in delhi NOIDA is an alternative) - in mumbai one can look at virar side?

2. set up enough pilot training academies so that pilots are available in plenty.

3. deglamourise the setup by mandating that only 50+people are stewards? :-)

of course nothing stops the airlines to come together to bid for future aiport projects in india or for that matter anywhere else in the world so that they can take out the guesswork of the future costs of terminal costs.

bad planning and execution points to a bailout and thats why there is a backlash waiting to happen in the US with respect to the bailouts from the long suffereing tax payer ==--

but then maybe not! for the tax payer has been the first beneficiary of the bailout scam - via the social security net for more than 8 decades!!

Long live the bailout? watch this column for more!!

note from author - oil is not considered as the author believes the same has to be additionaly taxed with a green tax - hence there is no scope for planning here by companies than to price their tickets to reflect the reality of cost.

lemmings, the sea and going green

Anything about economics and you are already in a twist. How do you start the article. No two economists agree and the same economist over different time frames would not agree with his earlier view!! Why is this? Very interesting..

Lets rewind to the 90's when the Yen made a sudden gain against the dollar and was marching relentlessly upwards. This was so because of the continuous flow of dollars to japan due to the BOP between japan and the US. The mishandling of the inflows by sucessive japanese governments in not deflating the explosive growth (like what dr yv reddy in india tried to do for which the FM saw to it that the country didnt get a well deserved extension of his tenure) saw them caught in a serious economic twist - on one side the Yen was rising very very fast and on the other threatening to blow all the asset bubbles in japan sky high. As a student of economics at that time i had predicted that the best gains that the japanese could do was to allow the Yen to rise in a measured and managed manner, use a portion of the forex reserves to recapitalise banks for the losses suffered in the asset bubble and make their homegrown MNC's shift to other countries like India or similar countries wherein the balance of their forex reserves could be used to gain political and economic benefits besides securing their investments. Additional spin off benefits is that the country they choose to shift to would have become part of their domestic consumption story as well!!

Instead of the above we now have the famous lost decade of Japan.

When a currency fluctuates 40-60% as the Yen did more than 12 years back, it does become very difficult to manage the effects of this on the local economy and mainly on asset prices. The net effect is that today after all these years the Yen is back up to a high of 87 (currently at 93 -20/7/09) and the forex reserves have accumulated to gigantic proportions which if used now would only furthur increase the relative strength of the Yen vis a vis the dollar.

It is still not late for the Japanese governement to use a sizeable portion of these funds to go through another round of deflation in their country with a target of 45-50 yen / dollar over the next decade. This should effectively end all chances of a surplus BOP with the US or any other nation for that matter and at the same time their continuous selling of these reserves to meet local social needs would also help them smoothen out the process of deflation. Radical but then these tough times need tough decisions.

Economists would argue the damage that deflation does to businesses - but we are not talking of a closed system here - Japan by virtue of the investments made abroad - lets say in INR would continue to keep its businesses alive - tax them and at the same time keep selling the dollar to manage the currency rates besides providing the liquidity within the country till such time the natural forces of economics display acceptable self perpetuating tendencies.

The above might actually help a nation like India/ China/ Brazil etc as they can affectively employ their teeming populations/ get their SEZ's functioning and create demand locally with all the extra disposable income sloshing around. The demand that the japanses make on the country accepting their investment is to show a deflation in population growth !!

Time of policy makers to put their thinking caps on!!

Personally would you vote for deflation or inflation. With the extra angle that high cost items will have lower to nil demand i think deflation is the best as we also get to save the environment - as the net result of the nay sayers arguments to deflation is that only needs will be compulsarily bought !!

so instead of being lemmings and being all at sea, i think we can also do with a dose of deflation and going green. A stronger rupee in the medium to longer term wouldnt hurt as well!!

PS: note on lemmings - they dont commit suicide by falling into the sea - they just migrate by swimming across the sea - of course as they dont know where the next land is and hence most of them die due to exhaustion.

central clearing - derivatives

following up on my post of 19th march - the basel committee recommendations on risk capital requirements are already getting diluted.

the january recommendations required a direct capital adequacy for each derivative/ cdo etc. (similar to what mr yv reddy did to deflate the real estate bubble in india). however revised guidelines issued last week has removed this more onerous requirement with the following:

a) banks will test their portfolio for predetermined stresses.

b) valuation of their portfolio will be based on their own methods. (ties in beautifully with fair value of IFRS - refer march 5th blog entry)

c) only when the banks internal assessment of one year confidence levels for the "valued" portfolio is less than 99.9% will they need to provide the CAR else no need to allocate risk capital.

this directly reopens the door for a gaussian copula and another Li to emerge and lay waste this diluted apology of an offering from the basel committee on banking supervision.

like i said earlier - the more the things change - the more they remain the same...

the next default will be by the central clearing house as all its members will be bankrupt and the various governments will now save these clearing houses - after all the banks have learnt their lesson - they are not the ones standing in line for tarp this time around.. jai ho!!

illegal v legal

the US AG is to set up a special prosecutor to look into the allegation that CIA operatives illegally tortured terrorist suspects. i am wondering then - is there a legal torture? if so can somebody provide the blow by blow procedure of that?!! no pun intended..

too big to fail

The outpouring of angst against the companies that were helped by the various bailouts over the world has a basic theme - governments are scared what a failure would do to the system.

Let us look at the indian example:

whenever there was some excess or lax oversight leading to a failure there has been some sort of government intervention. let us look at a few of them - UTI us64 scheme, global trust bank and ICICI bank.

the uti scandal was an inflextion point for crisis management as far as the government goes - the lessons learned there and later on in the global trust bank case has stood the govt in good stead later on during the icici fiasco.

lessons learnt in uti:

1. it was an oversight failure

2. thought not explicit it was implied that the said scheme was a govt backed scheme - hence your money wouldnt sink - nobody in its more than 3 decades of existance made a strong case that it wasnt the case!!

the government considering its moral obligation and also aided to a large extent by the affected population closed down the scheme - transferred the assets to a new administered scheme - with an option to the investors to get out immediately at a loss of 40%, or stay invested and hope to recover their money as the scheme does well in future.

compare the above to what the so called capitalist nations are doing with their "failed financial institutions" - keeping them alive and printing new funds so that they can continue as if nothing has changed!!

the gtb case - the bank had overextended housing and securities backed loans to their customers and after the dot com crash followed by the real estate crash - their collaterals fell in value below the value of the loans extended thus wiping out their net worth!! the govt took its own sweet time in deciding how to deal with the issue at hand before finally merging it with another bank. the interim created a state of panic as a lot of counterparties to gtb had their credit limits frozen and many businessess couldnt operate.

the icici case - more recently there were rumours that icici bank was bankrupt. this led to the first combined official denial (anybody familiar with govt functioning knows that an official denial is an offical acceptance of the denied fact!!) by the top brass of the bank, the RBI and also the FM. though technically they werent bankrupt - they had a severe liquidity issue arising out of the lehman collapse and other related counterparties which threatened their very survival. the RBI worked swiftly in the background to thrash out a compromise so that the bank may be saved.

the mechanics of the deal :

1. rbi had to finance the bank to meet its immediate obligations (political directive)

2. kamat had to go as he had outlived his "usability" (he was a major tool used by the government to "direct" financing to companies who were favourable to the ruling class alongwith idbi, ifci, lic etc etc) (ms kochar's condition to be the new head)

3. lay down parameters for the help given. (rbi's clause)

the parameter laid down by the rbi was to close down the incentive struture as it existed till then - pay employees for the loans disbursed and not for the loans collected!!

- settle all derivative deals under dispute with bank customers

- no new accretion to the loan portfolio till the funds advanced by the RBI are returned in full etc etc

as it turned out just these measures with the apparant blank cheque of the rbi worked wonders and within a span of 3 months icici was out of its mess. (of course all the cheap money policy of the rbi also helped buy time)

the handling of the icici issue was done most commendably without any panic spilling onto the streets.

the method to be adopted in the US was the one used in uti (as it was bankrupt) unlike for icici which wasnt bankrupt but temporary mismatch in cash flows almost brought down the bank to its knees.

for the US government to treat aig, gs, ml etc like icici and not like uti speaks of the lowest form of crony capitalism and sends a signal that "gamble all that you want - just make sure that "you are too big to fail"!!

SBIn - the Ye(N) drops

Amongst the many last acts that the outgoing congress government did before the last elections was the announcement of the merger of SBIn and SBI. Under the grand scheme of things this innocuous thing actually was to wash away the various acts of omission and commision that was indulged in at the behest of the politicians by the erstwhile management of the SBIn. After all who will question what was a standard procedure to cut costs when a subsidiary is merged with its parent?

Now let us look at some of the actions that prompted this move.

1. this bank was the unofficial treasurer of the UPA government aka private banker.

2. main job during election to see that cash levels for party functionaries never run dry - this is where a bank comes in handy - a bank can always move large amounts of cash without questions and that too under protection!!

3. during the past 5 years the bank helped the UPA in moving vast amounts of money in and out of the country and across the length and breadth of the country through the extensive use of LC's, factoring, credit backed lending, derivatives, other non fund based limits etc. One just has to look at the long list of companies headquartered out of Indore that have suddenly made it BIG !! (the only previous parallel was when SBSaurashtra was merged with SBI - then too a lot of local companies made it BIG{ This is the TRUE trickle down effect!!} - but then thats a different story)

This is a dangerous trend as this the first time that a banking apparatus has been widely used for election purpose. Now under the guise of a slowdown in the economy it would be interesting to see how many of these companies that made it BIG ask for restructuring of loans/ credit limit expansions etc. Also what percentage of the provisions for bad debts by SBI in the next year BS result out of the loan portfolio carried over from SBIn.

AI and JUGAAD

The most recent example of JUGAAD is what transpired in AI179 on May5th. They actually did a Local ie they carried more passengers than there were seats by seating a passenger in the extra co-pilots seat and 2 others in the jump seats meant for the staff next to the doors. This of course is afoul of security and DGCA regulations - but then lets just look at this clinically.

The other option was for offering to compensate some passenger for voluntary deboarding. Instead the logic used by the pilot was to accomodate these passengers in seats other wise valid (just not earmarked for passengers!!). This is the JUGAAD which in my opinion saw the matter resolved without any tension to any passenger. Of course if this were to become routine then it raises security issues as of course you cant have anybody in the cockpit other than the pilots!! A one off JUGAAD like this will of course lead to some rejig in the preflight checklist and maybe some serious censure of the officials concerned with the happenings on in AI179 but then frankly I dont think the technical integrity of the flight was ever in doubt as most of the news channels would like you to believe!!

Those extra seats are there and if people were sitting in those seats i dont see any technical threat - yes the issues of violating rules and security measures still remain - but then whats a little bit of Jugaad if you cant streatch the limits of the rules!!

jugaad

Fell off my chair when i was reading the latest edition of "the economist" - it had a whole article on - you guessed it = "jugaad" !!

why is it the world is now recognising the virtue of jugaad? well its simple - in these times of recession and awakened awareness of the environment jugaad is the way to go as it is cost effective and also leaves a lesser impact on the environment. read the entire article at:

http://www.economist.com/business/displaystory.cfm?story_id=13754045&CFID=58679420&CFTOKEN=44655792

Seigniorage

Increasingly governments accross the globe are coming out with commomerative issues be it currency, stamps or limited anniversary issues to mark a special occasion through the issue of special mementoes. The Seigniorage income received from this is increasingly becoming a major source of revenue for governments leading to lessening the impact of inflation through the never ending expansionary monetary policies of governments. It is estimated that over 5 Billion $'s has been earned by the US government from the issue of its "state quarter" series in the past decade. with the additional 6 quarters and 4 dimes an additional 1-2 billion is estimated to be taken out of circulation. Similarly the estimated stamps that directly reach "collectors" is close to 8% of the stamps issued worldwide and hence gives an in built cost benefit to the government run postal system as opposed to the private couriers who have to compete with them.
Governments can use this as an added tool to lessen the impact of inflation by issuing new designs every time they issue new currency so that there is a never ending Seigniorage accruing to them.

american dream redefined?

the american dream can be split between B(efore)911 and P(ost)911.
as a guy visiting this country for the first time P911 the differences are most striking as compared to my earlier B911 visits.
the all pervading "fear factor" and the paranoia of security hangs like a pall of gloom - portenders of some impending disaster. it is indeed sad that what we took for granted in the past is no more the case - for eg visit to the white house, walk up the statue of liberty, minimum fuss in airports so on and so forth.
BUT the guys in charge of security are making their personal individual efforts to make life comfortable (with rare exceptions) for the citizens and visitors alike in these trying times. the guys at immigration were more helpful, the guys at homeland security at the domestic airport were most accomodating as we were travelling with 2 kids wrt to our needs but at the same time declining to allow certain items past security (which in india we are allowed and we have had homeland security now for over 2 decades)!!
the recent downturn hasnt helped the american dream with a spate of shootings by "regular joes". in all this the administration is strained and one can only expect furthur restrictions on what we take for granted today.
at times one wonders if all the money on security and the war machine cant be better deployed ?!! maybe terror is winning slowly like a cancer in this "fear" country. dont know.
on an aside "Jack Windolf, the CEO of Bollinger Insurance, recently gave his 434 employees a surprise gift: out of his own pocket, he paid each of them $1000" - it is such acts which define the spiritual wealth of a nation - maybe the american dream is being redefined?

cdo's

" In the US, the Agriculture Committee has debated limiting the CDS market to a straightforward hedge, and eradicating the use of ‘naked swaps’ – the holding of CDS contracts by investors other than the holders of the cash bonds. Isda’s Bob Pickel explains that such a measure is simply too simplistic and could cause the demise of the credit derivatives market as we know it. We also look at the stand-off between CDS market regulators and dealers over the creation of a central counterparty clearing house..."
Finally some serious action in limiting the free for all casino that was going on for the past decade. It is an open secret that this kind of limiting has to be extended to the commodity markets as well so that only end users and producers can buy and sell. Secondly the total outstanding in the market at any point in time should not exceed the actual capacity that is available for extraction for that particular commodity. with a 100% cash margin or BG for all sale and buy deals this would guarantee that we dont see commodities as an investment - hence making sure that the best price is attained with actual demand against actual supply as against the artificial demand when liquity is good and artificial supply when the liquidity dries up.
coming back to the reported news item - would the exchange for counter party clearing be allowed to be set up? readers can form their own opinion keeping the track record of the regulators in managing the financial markets from S&L,barings, enron, et al till date..

it happens only in india?

is the following news item a portender of more denegeration (read in conjunction with what happened earlier with the failed sale of obama's senate seat!!)

"[T]he Louisiana Republican Senator David Vitter arrived Thursday evening at his United Airlines gate 20 minutes before the plane was scheduled to depart, only to find the gate had already been closed. Undeterred, Vitter opened the door, setting off a security alarm and prompting an airline worker to warn him that entering the gate was forbidden.Vitter, our spy said, gave the airline worker an earful, employing the timeworn "do-you-know-who-I-am" tirade that apparently grew quite heated.That led to some back and forth, and the worker announced to the irritable Vitter that he was going to summon security.Vitter, according to the witness, remained defiant, yelling that the employee could call the police if he wanted to and their supervisors, who, presumably, might be more impressed with his Senator's pin.But after talking a huffy big game, Vitter apparently thought better of pushing the confrontation any further. When the gate attendant left to find a security guard, Vitter turned tail and simply fled the scene. Adding insult to injury, the latest report is that the TSA is investigating the incident. If found to be in violation of TSA regulations, Vitter could face thousands of dollars in fines."

"another recent aviation incident, in which Sen. Charles E. Schumer persuaded a US Airways shuttle to depart New York early so he could make an important vote."

and to think that only in third world countries this kind of pulling rank happened? has the recession pushed america into a third world country too? SAVE america so that the teeming billions of the world can continue to aspire for living the "american dream" - for without this thirst from the teeming billions of the world there would be no demand for the dollar and hence no "dollar dreams" as well.

be afraid - be very afraid

the competitive fiscal measures of governements to blow huge holes in their budgets with scant regard to demand pull inflation just shows that this may be the end of capitalism as we know it. or rather capitalism never had a chance once the politicians got into the act.


matters arent helped with china upping the ante to embaress the US with its side remark about the credit worthiness of the US treasury notes that its holds. as supply of the paper increases china does not see itself spending what it holds fast enough before the treasury notes becomes worthless pieces of paper. that brings us to the next question?


is the world economy ready to shift back to the gold standard from the current dollar standard?


what are the implications?


first and foremost - the price of gold will got through the roof to adjust for the increased supply of notes since governements went off the standard. for eg if the US had 1 trillion $'s in supply in 1950 and it now has say 20 trillion $'s then the price of gold has to be 20 times plus a minor adjustment for demand supply economics as it is also a commodity used in various medical equipments/ computers and most recently in nano technology.


this upward revision in the price of gold will suddently make every indian/ chinese etc who have traditionaly bought gold as a hedge against inflation to benefit as their gold would now come to its true value as against the paper monsters that they currently carry which has no real value backing it other than the "perceived" currency value in relation to other countries and also the "perceived" governenance value in relation to other countries.

admin

who are these "admin" guys?

in the good old days they were civil servants who held your life in those dusty files preserved for posterity in cavernous rooms and filing cabinets.

in todays world they are computer geeks who control the passwords to sensitive data centres. the issue is who has a right to control these passwords? how are these password keepers to be police(d)?

my personal experience has been to leave the admin password to the main server with the owner of the company and get all high level changes in the network code to be done only in the owners presence or his representative with proper background logging of all the activities to enable checking by a third party before the changes are accepted and allowed into the system.

now how would this work in a public system like say a government office? here in india most government offices are under the maintainance of NIC. staff employed there are the people with access to enormous amounts of sensitive data and a lot of them have in the past left government service and joined private sector companies. this puts the entire public record keeping system at risk as there is no visible public policy on password storage and its management issued by the government of india.

the risks of not having such a policy need not be repeated as a single breach of sensitive government records might compromise the security of financial/ personal data of millions of its citizens. i dont see the president or primeminister of a nation to be involved in this but technically as the owners to the data, they are ultimately responsible for the safekeeping of the data collected for "governmental work". big brother is watching - just we dont know which "admin" where is having a peek at your personal records!!

scam yuga

hardly had the world recovered from the "break in trust/ regulation scam" (Enron, Barings, LTCM etc) that the sub-prime has hit, the next one already is under action - THE BAILOUT - where is all the money actually going to roost? i am sure the answers would be very interesting and as tax payers worldwide have a right to know - waiting for the "true leader" among men to call out the emperors new clothes.

IFRS and (un)fair value

Ever since the dialouge started in india on IFRS and the debate to converge was on, my recommendation is to allow it as an "analyst" tool and nothing more. Accounting is to follow the historical concept with asset writedown as and when the same is impacted in the opinion of the auditor/ management by a permanent event which has reduced its value.
The fair value concept allows more "ad hoc" methods to be adopted as there are multifarious methods of valuing various assets. It is heartening to know that the very advocates of "fair value" are now calling for a review of this concept as the current "credit crunch" forces banks and financial institutions to "write down" their assets as there is no liquidity for these investments and hence rather difficult to ascertain their fair value!!
The other major issue is that of ESOPS being charged to revenue - this is basically a revenue neutral transaction as far as the company is concerned and it only impacts the shareholders - so other than creating secret reserves and artificially reducing the profits in the books of companies this hasnt really helped.

who is James Otis?

"James Otis has set conditions before the Indian government in order to withdraw Gandhi's items from the auction, if the Indian government agrees either to spend more on healthcare for the poor or support educational events to promote Gandhi's principles of non-violence in 78 (the years Gandhi lived) countries across the world. He also wanted the Indian government to cut its military spending. The letter was sent to the Indian Consulate General in New York and forwarded to the MEA in India. The items that will go under the hammer include Mahatma Gandhi's metal-rimed spectacles, pocket watch, a pair of sandals, a bowl and a plate. The items have a reserve price of between $20,000 and $30,000."

The buzz for the past week has been this man James Otis - the more one hears and reads about him you have to but just wonder. The mysterious hand of "god" (fate) might just prove to be greater than the "hand" which has been with the "aam aadmi" in the upcoming elections.

James Otis for PM anybody?