The Origins of the Current Financial Crisis

Want to know all about the current financial crisis, then a new report published by the Brookings Institute is a place to start.

The report provides a good primer to understanding the root causes for the current financial meltdown.

India's Growing Culture of Intolerance

For a country which prides itself in the amazing diversity of its people and cultures, the recent trend of growing intolerance among the various sections of the society is both shocking and alarming. The recent attack on girls in a Mangalore pub by the activists of Sri Ram Sena joins a growing list of attacks against people for not conforming or agreeing with a certain parties viewpoint.

Be it the MNS attacks on North Indias, or the Gujjar agitation seeking a Scheduled Tribe status for their community, or the forced changing of the name of sweet shop from Karachi Sweets to Jai Sri Krishna sweets just because Karachi is a city in Pakistan, are but a few examples of how a small set of individuals or groups can hold a broader community hostage to further their own narrow interests or ideology.

What is even more shocking is the none of the perpetrators of these atrocities have been ever brought to justice. Granted, people are arrested or booked for allegedly disturbing communal harmony or some made up fancy word. Politicians and top law enforcement officials make statements that they will not tolerate such acts of violence and goondagiri. But the are perpetrators are usually let go on bail, everybody forgets about these acts, the court cases go pending for years. As for of justice to the aggrieved, the wait continues.

Be it Mangalore, Jaipur, Mumbai or any city in India for that matter, the story follows the same script. So the real question is how much is too much when it comes to holding other people hostage to further your own narrow interests and ideology? Have we reached a tipping point where this mass display of emotion is slowly corroding the social fabric of our country? For a country which prides in its history of non violence and peace, have we surrendered these ideals for the mob mentality?

As Amit Varma puts it sarcastically in his mob rules post "So the next time you want to protest, gather a mob and set some buses on fire. A lonely, civil voice counts for little. ". If this is true then it is a real travesty.

The Year of the Ox

The Year of the Ox could not have had a more ironic start. While the Chinese greeted the lunar new year, hoping that the coming year of the Ox will bring wealth and prosperity, the other half of the world saw announcements of more layoffs and a country on the verge of collapse.

With each passing day, the world economic situation is getting dire and dire. The first and foremost question on most people minds is are we anywhere close to the bottom, or is this just the beginning of what looks like to be a long drawn out recession affecting all parts of the world? Lets hope that the former part is true

Will Slumdog Millionaire Bring About any Changes in the Lives of the Real Slumdogs?

Slumdog Millionaire, a feel good film about a boys journey from the slums of Mumbai to the winner of the biggest game show, has been received very well across the world. For a movie which was destined for a straight to DVD release, the movies real life journey parallels the plot of the movie, "underdog beating all odds to achieve unprecedented success".

Though the movie provides an inspirational story line, it also raises some serious questions about the level of poverty and living conditions of people in real life in the slums of Mumbai. And this depiction of poverty in the movie has raised some controversy, with even Amithab Bachchan slamming the movie for portraying India as athird world developing nation.

With all due respect to the critics, criticizing a movie and its makers for portraying a side of India that is ugly and not pretty will not make it go away. Instead, it would be worthwhile if the same time is spent devising ways to inspire these people find their way out of the squalid conditions and achieve their dreams. Ultimately that is what the movie is supposed to be about: "Achieving ones dreams, no matter the odds".

Challenges for the New Administration

With the hoopla surrounding the inauguration of Barack Obama a thing of the past, it is time to focus on the challenges that the Obama Administration faces. Just thinking about them gives you a sobering feeling.

First there is the economy. The last year has seen the world economy nose dive. Wall Street as we knew of this time last year no more exists, with the sale of Bear Sterns and Merrill Lynch and the bankruptcy of Lehman Brothers. What started as a sub-prime mortgage crisis in some parts of the United States has spread across the world. With jobs been lost and homes foreclosures increasing on a daily basis, the current economic environment calls for bold, swift and proper action.

Second, there are wars that are being fought on two fronts. First there is Iraq, which was a war of choice and then there is Afghanistan, which is a war of necessity. The new administrations challenge would be peacefully end the war of choice and focus its efforts on the war of necessity. Also on the foreign policy front, the Middle East presents a formidable challenge to the new administration. With the three week Israeli offensive on Gaza drawing down, the humanitarian crisis that is unfolding is just unacceptable. The unconditional support of the previous US administration to Israel’s actions has further stoked the sentiment of anti American sentiment in this region of the world. The current conflict offers the new administration a fresh starting point to bring the relevant players to the table and start over the peace process again.

Third, there is the question of energy and how American consumption of fossil fuels is propping petro dictators and warming up the planet. The new administration can take the first step by investing in green technologies like solar, wind and other environmentally friendly technologies. This will not only help in creating new better paying jobs but also will reduce American dependence of fossil fuel, which right now comes from the most unstable region of the world.

And finally, there are a whole host of domestic challenges that need to be addressed. For starters there is health care. For a country that spends the most of any developed world on health care, but has very little to show for it in terms of better patient outcomes, the rising cost of health care needs to be addressed. Also there is the question of basic education, where recent reports have indicated Asia outperforming US in Math and Science education.

None of these challenges are going to be easy, but they are not insurmountable either. As President Obama himself admitted in his inaugural speech and I quote “Today I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time. But know this, America: They will be met.” That is a reason to Hope.

Statement of the Day

Munna Bhai a.k.a Sanjay Dutt has decided to enter politics. He has decided to contest the upcoming Lok Sabha elections from Uttar Pradesh on a Samajwadi Party ticket.

In a recent interview with the Times of India Munna Bhai in response to the question, "There’s panic in the industry about your unfinished projects?" replied, "I don’t understand why. Politics won’t affect my film career. I’ll only take on less work. This new responsibility will force me to become more quality conscious. I’ve been doing too many films and film appearances for friendship’s sake. Politics is a golden opportunity to put an end to unwanted films."

Atleast somebody in bollywood realized that they are making too many unwanted films. I hope that this enthusiasm for his new found career lasts even if he loses the election. Which makes me wonder what Munna Bhai will say if he loses the elections. Let me guess:"Films are a golden opportunity to trash politicians".

Read the complete Munna Bhai interview at Unwanted Bollywood

MLK's Only Speech in India

Last week NPR reported on a speech that Martin Luther King gave to All India Radio during his trip to India in 1959.

The full text and the audio recording can be found at the Chicago India Consulate website.

Below is an excerpt of the speech:
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It may be that, just as India had to take the lead and show the world that national independence could be achieved non-violently, so India may have to take the lead and call for universal disarmament. And if no other nation will join her immediately, India may declare itself for disarmament unilaterally. Such an act of courage would be a great demonstration of the spirit of the Mahatma, and would be the greatest stimulus to the rest of the world to do likewise. Moreover, any nation that would take such a brave step would automatically draw to itself the support of the multitudes of the earth, so that any would-be aggressor would be discouraged from risking the wrath of mankind.

May I also say that, since being in India, I am more convinced than ever before that the method of non-violent resistance is the most potent weapon available to oppressed people in their struggle for justice and human dignity. In a real sense, Mahatma Gandhi embodied in his life certain universal principles that are inherent in the moral structure of the universe, and these principles are as inescapable as the law of ____________________________________________________________________________________________________________________

I Have A Dream

Today being Martin Luther King Jr's day, I thought it appropriate to list out atleast 10 of his most memorable quotes. Even today, these quotes are as relevant today, as they were when he spoke them.

1. Ultimately a genuine leader is not a searcher for consensus, but a molder of consensus.
2. I am not interested in power for power's sake, but I'm interested in power that is moral, that is right and that is good.
3. True peace is not merely the absence of tension: it is the presence of justice.
4. Our scientific power has outrun our spiritual power. We have guided missiles and misguided men.
5. In the end, we will remember not the words of our enemies, but the silence of our friends.
6. Our lives begin to end the day we become silent about things that matter.
7. I submit to you that if a man hasn't discovered something he will die for, he isn't fit to live.
8. Nothing in all the world is more dangerous than sincere ignorance and conscientious stupidity.
9. The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy.
10. When you are right you cannot be too radical; when you are wrong, you cannot be too conservative.

But of all his memorable speeches and quotes none can beat the I Have a Dream speech delivered in front of the Lincoln Memorial.

Inflation at 89.7 sextillion percent

First of all I have to admit, I had never heard of the number sextillion. For starters this is a number which is 22 digits long. Comprehending a number which is 22 digits long is not easy. Now think about that in inflation terms, and it just boggles your mind.

So where in the world does this hyperinflation exist. If you guessed Zimbabwe, you are correct. Don't expect any prizes for getting this one right.

Now the questions is, how could a country which until a decade ago represented the symbol of political and economic stability in Africa, descend to such depths of economic chaos? Please pen your thoughts.

Read more about Zimbabwe's hyperinflation

I have also blogged during the last year on the economic crisis in Zimbabwe. You can check these posts at Zimbabwe's inflation problem

What a Waste of Taxpayers Money

For 10 days from the 16th of Jan, Karnataka's Government business will be conducted from Belguam. Thats right people, the entire legislative session for the next 10 days will convene from Belgaum. Being from Belgaum, I am proud of the fact that Belgaum gets to host the session albeit for 10 days. But shifting all of the government works, the offices of various ministers and MLA's comes at a cost. And who bares the burden for this, the poor taxpayers like you and me.

I understand that this initiative of holding legislative session in Belgaum was started sometime in Sep 2006, to show support for Belgaum and reiterate that Belgaum is part of Karnataka and not Maharastra.

But my questions to our esteemed elected officials of Karnataka are these:
1. Will holding the legislative session for 10 days in a year in Belgaum at taxpayers expense, just make the Karnataka Maharastra border dispute go away?
2. Do our esteemed elected officials know why the Karnataka Maharastra border dispute exists? If they do, what steps have they taken other then holding the legislative session to address the fundamental causes for this dispute?
3. Why should the taxpayers be responsible for the expenses associated with logistics of having a legislative session in belgaum when that money can be spent in other important initiatives?

Read more about the taxpayer sponsored junket at Belgaum readies for legislators

Think Before You Spend

What would you do you you were given Rs 500 today... It depends on who you ask.



Video made by The Centre for Communication and Development Studies Open Space initiative.

Link obtained from Churumuri

The Ponzi Scheme in every Hedge Fund

Time magazine reports on how most hedge funds may be running a Ponzi Scheme, albeit a legal one at that.
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At the heart of the difference is the distinction between realized and unrealized gains. Gains are realized when assets are liquidated to cash. For instance, if you buy a stock for $100 and it is currently trading at $200, you have made $100 in unrealized gains. If you sell it at $200, you have made $100 in realized gains. Most hedge funds do not regularly liquidate their entire portfolio, so they report unrealized gains to their investors and to the public.
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May be I should switch careers and become a money manager.

Read the complete article at Hedge Fund Ponzi Scheme

Financial Modelers Manifesto

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The Modelers' Hippocratic Oath

~ I will remember that I didn't make the world, and it doesn't satisfy my equations.

~ Though I will use models boldly to estimate value, I will not be overly impressed by mathematics.

~ I will never sacrifice reality for elegance without explaining why I have done so.

~ Nor will I give the people who use my model false comfort about its accuracy. Instead, I will make explicit its assumptions and oversights.

~ I understand that my work may have enormous effects on society and the economy, many of them beyond my comprehension.
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If only Wall Street had abided by this manifesto and not relied too much on models and equations, we would not be in the mess we are in right now.

Link obtained from India Uncut

Why Smart People Make Such Dumb Decisions?

Satyam Computers until last week was one of the titans of the Indian IT and Outsourcing industry. Founded in 1987 by founder and CEO, Ramalinga Raju, Satyam rose to global prominence with the outsourcing boom, claiming 140 of the Fortune 500 companies as its clients and accounting for $1 billion in yearly revenue.

As it turns out, most of the $1 billion in revenue was non existent and Satyam was infact the biggest corporate fraud in Indian history. This begs the question, why some of the smartest people in the world, who have worked so hard their entire life to be at the top of their careers, just throw it all away in one false swoop? What is it that makes them play with the lives of several thousand employees, as well as billions of dollars of investors money? And Ramalinga Raju is a recent addition to the long list or people which includes Bernard Madoff, Jeffery Skilling, Ken Lay, Bernie Ebbers, Wall street, Investment banking and Mortgage company CEO's for their role in the sub prime mortgage crisis etc..

All of us would admit that these people were some of the smartest people in the room until things unraveled around them. So what is it that leads these smart people to make some of the dumbest decisions in hindsight which ultimately led to their downfall. Is it just plain old greed? Or is it the feeling that I am the smartest person in the room, having achieved so much, whatever decision I make will be the right one's. Or is it pressure from investors and shareholders demanding continued growth, higher value and greater returns.

The answers may not be one of the other, but a combination of all a number of factors. What do you think? Please chime in with your thoughts.

Satyam - An Aberration or a Sign of Corporate Maleficence?

Today's admissions by Ramalinga Raju, the former CEO of Satyam Computers, to the largest corporate fraud in Indian history could not have come at a worse time for corporate India. With the world economy in a tailspin , caused by the US subprime crisis, and growth in India slowing, this crisis to one of Indian software industries titans could have devastating impact on the Indian economy.

First there is the question of jobs. With Satyam employing 53,000 people, barring any miracle, most of these people would lose their jobs. With the IT sector hit hard by the economic downturn in the United States, and the other big three IT giants (TCS, Wipro and Infosys) dealing with layoffs of their own, there is not much appetite to accommodate any of the 53,000 employees who will be laid off.

Second, there is the question of regulation, lack of oversight and independence. I find it hard to believe, no matter what Ramalinga Raju said in his letter to the board of directors and government regulators about none of the senior management and directors knowing that he was cooking the books. If Ramalinga Raju acted in this alone, then none of the BOD and senior management is fit to serve the company. But if the senior management and BOD's knew and kept the shareholders, regulators and the employees in the dark, then are as guilty as him and must face the same fate as Ramalinga Raju.

Third, there is the question of the regulators role in letting this happen. This scandal, which some are calling India's Enron, puts the focus on the whether there is enough governmental oversight and proper corporate governance in all of the publicly traded companies. If this thing can happen in what was until recently a very respected company, claiming 150 of the Fortune 500 companies as its clients, what is there to stop this from happening in any other company. Was Satyam just an aberration or is it the first domino to fall from the cupboard of corporate maleficence that may be pervasive across corporate India? Should we believe the venerable Narayana Murthy when he says that this was an isolated case and a failure of governance?

Finally, all of corporate India will be watching the authorities to see how fast they can get to the bottom of this. If there is even a hit of favouritism or corruption in how the case is handled, then the image of India as a emerging economy will suffer. If foreign and domestic investors cannot trust the authorities to do the job of safeguarding their investments and regulating a free and fair market, then investment will dry up and so will the economic engine. The boom that India has enjoyed over the last two decades will be just a blip in the radar screen.

This crisis gives India an opportunity to show the world that when it comes to free and fair markets and ethical corporate governance, India is second to none. It must show the world that no matter who the guilty person in this scandal is, they will be brought to justice. The future of India depends on it.

Interest Rate for Beginners

Want to know more about the treasury yield, federal funds rate or even mortgage rate, then Planet Money blog has an excellent post on the basics of interest rate

Finally Some News From Raj Thackeray

Raj Thackeray and his bunch of MNS cronies are back in the news after a hiatus of about a month and a half since the Mumbai terror attacks. This time they are calling for a ban on music sold by Pakistani nationals.

This is what Ameya Khopkar, head of the MNS’s Bollywood wing believes: "Since Mumbai was hit by terror attacks recently, Pakistani artists shouldn't be promoted. If shop owners don’t support us, we will deal with them in the ‘MNS way’. Indian artists are more talented than Pakistani artists. People can buy their music. He added that the ban will be lifted when the time is right."

MNS has a Bollywood wing, really!!!!. What is it supposed to do? Promote higher representation of Marathi Manus in the Hindi film industry.

This would be rather ironic for even Raj Thackeray and MNS dont you think....

More Raj Thackeray 1, 2, 3, 4, 5, 6, 7,8, 9, 10

Israel and the Gaza Offensive - Should India Emulate and Attack Pakistan?

Israel has launched an all out attack against the Hamas over what it says is the continued attack by Hamas on southern Israel. Over the last few days since this offensive started, I have heard from friends who are trying to compare Israels situation with that of India, how India needs to emulate Israel and attack Pakistan for the repeated terrorists attacks on India and the recent Mumbai blasts in particular.

Though I would like to see Pakistan brought to the books for all its atrocities, I feel that attacking Pakistan would be a wrong move on the part of India. There are a couple of reasons for that.

First of all Israel has a lot of support from the United States. AIPAC, the pro Israel lobby in America is very powerful and any politician in the US who needs to be elected to an office of any worth must have have support from this lobby. Though India has come to be recognized as a burgeoning democracy and economy by the United States, it does not enjoy the kind of support that Israel does.

Second, Israel is the solo nuclear power in the region. But India and Pakistan are both nuclear armed neighbors. Any conflict between these two has the potential to escalate into a full blown nuclear conflict.

Third, in the unlikely scenario of a war, the refugee and humanitarian crisis that would unfold would be of unprecedented proportions. I do not think neither India has the resources nor the expertise to tackle this situation.

Fourth, a war would likely make Pakistan pull all of its troops from the western border with Afghanistan, where Pakistani army is involved in a battle to defeat the Taliban.

All this does not mean that India should just forget about the Mumbai blasts and keep to itself. It is in India's interest to see that Pakistan does not slip into another terrorist state like Afghanistan. So the correct course of action on India's part is to work with the United States and the new Obama administration to apply diplomatic, economic and political pressure on Pakistan to dismantle the terror outfits on its land. A war with Pakistan at this juncture would prove both costly and counter productive from India's point of view

Credit Crunch - The Board Game

If you want to relive the credit crunch of 2008, then Credit Crunch - The Board Game is for you. The board game comes with fake money, (well I call it fake money, but in the world of Wall street Ponzi Schemes, you might be able to turn it into real money if you are willing to take the risk), financial market icons, and of course the rules to play the game (ahh what a relief, atleast somebody has rules to play by, unlike the real Wall Street).

Check it out in the center page of the Christmas edition of the Economist magazine.