When unity is not strength – Greek Fiasco

On 1^st Jan 1999, eleven European countries joined together and adopted Euro as their official currency. These eleven countries joined forces with an intention to bring stability to the region and also to develop an alternate currency to dollar. With the advent of Euro, it made trade, investment and travel easier for these European countries. Also joining together made currency of each of these countries stronger. Euro was considered to be as strong and stable as dollar or yen. In 2001, Greece became the twelfth country to adopt Euro as its currency. Decision to include Greece in the list was more of a political decision than an economic one because Greece was not as stable as other countries in the region. A clear north-south divide in Euro was prominent. On one hand there were countries like Germany, in North, which had a strong economy and which relied on exports to power its growth, saved hard and ran trade surpluses. On the other hand, Southern economies such as Greece leant too much on consumer spending, had weak public finances and relied on foreign capital to supplement their low savings. This was the coming together of two un-equals and differences were obvious. But still Euro members went ahead and included Greece within their fold. As they say, when economy is booming everything you touch becomes gold and so was the case of Euro, it moved from strength to strength and problems with Greece was neglected. Some people had predicted that such a situation would arise soon after the inclusion of Greece in the group. For Greece, membership was a boom. It allowed government to refinance debt in favourable terms and also improved the sovereign rating of the country and thus gave easy access to long term borrowings.

But history continued to haunt Greece. Always known to have fiscal trouble, Greece continued with its chronic budgetary mismanagement, resulting in public debt to increase more than 100% of GDP and fiscal deficit to increase to 12.7% of GDP. And now rating agencies have reduced the ratings of Greece to BBB- and thus downgrading the sovereign rating of the country. There have been many voices which are suggesting removing Greece from the group and still many who are insisting to keep it within the group. It will be a tough decision for Euro to decide whether to bail out or to let IMF bailout Greece from this financial mess. The treaty governing the European Union includes a “no bailout” clause, forbidding countries from assuming debt of others. But then it would set a very bad precedent for Euro if it lets one of its member default, so the logic step would to bailout Greece themselves and then enforcing steps to ensure that Greece would not resort to such loose fiscal measures in the future.

Some experts are calling this as the beginning of the end of Euro. But we all know it’s always good to get pot holes at the start of the journey so that you learn to build the road to the future and this is just the beginning of the Euro journey.

Sex, Lies and Celebrities

Of late media has found new ways of exposing celebrities. And by exposing I really mean exposing them really bad. It started with Tiger Woods, followed by N D Tiwari and few days back it was the turn of Chelsea & English skipper John Terry. But what makes these exposures really turn around our head and make us sit and waste hours in front of TV, newspapers, etc. We always have been inspired by heroes and we always live our dreams through them. These celebrities give us the joy of living through the lives we have always dreamt of. So we follow our celebrities in their moment of joy and grief. We rejoice when they achieve something special and we celebrate in their moment of reckoning. The media put them to front page and make sure they are treated like Demi-gods. But what makes us really happy is when these Demi-gods fail. It’s human tendency that it gives us more happiness when the infallible falls. When we see these celebrities getting exposed then it gives us sigh of relief that they are also mortal human being. And media don’t fail to take advantage of this and makes sure they add all spice up reports and make a good business out of it. But should we really make such a fuss about celebrities and their personal lives? There isn’t a reason that the needs & desires of a Tiger Woods or a John Terry would be any different from that of an average person on the planet. But what makes their life different is that their life is always viewed under microscope and is in complete media limelight. So every action or statement by these celebrities makes it to the drawing room of their followers and fans. So it becomes the responsibility of a celebrity to act in such a way that he/she is idolized as a role model to millions of fans. But then as we say “To err is human and so are celebrities”. So it is the duty of us, common men, to become mature enough not to take extreme views in the event of rejoice and despair & let these celebrities have their personal space as well.

Save Tigers!!!

The other day I saw one TV Commercial where in I was astonished to see that there are only 1431 tigers left in India. This prompted me to write this blog. Tiger, our national animal, is on the verge of extinction. And we all are supposed to do our bit to help save tigers. But seriously speaking, what an ordinary citizens like us can do to help save tigers? We don’t hunt nor do we can stop hunting by becoming conscious of this grave situation. Even though we are not directly or indirectly responsible of this situation, we can do our bit in conversation of tigers. What as a citizen of this country we can is to spread this awareness among each and every people of this country by means of blogs, advertisement, street plays, internet chain mails, memo to governments, etc. While we do this we can be sure that someone, who is responsible, somewhere will become aware and might take necessary steps to stop killing of tigers. As a citizen of this country, it’s our duty to make sure that we don’t let our national animal ‘Tiger’ extinct.

Shining Bihar – Is it too early to celebrate?

Last Sunday on 10^th Jan’2010, Chief Minister of Bihar Nitish Kumar was conferred with “Business Reformer of the year” award at the Economic Times awards 2009. A few days earlier Bihar registered a 11.3% growth for the period 2004-09 (next only to Gujarat with 11.5%). This award is just a feather in the cap of Nitish Kumar, who over the year has shown what good governance can do for the state. Are we too early in celebrating? People following Bihar, over the years, will agree that there is no denying fact that intellectual capability of Biharis are unmatched. This can be gauged from the number of IITians, IAS officers & IPS officers Bihar produce every year. But then why the hand which led to the development of other states and countries could not replicate the same for its own land?

There are many reasons which can be attributed to the non-development of Bihar. Some people might attribute historical reason while some might attribute geographical reasons for the non-development. But the most important reason for the backwardness of Bihar was the non-existent of “political will”. Geographically Bihar might have been ravaged by flood every year, but then one must also be aware that the land next to the Ganges is among the most fertile land in the country. The skewed landownership system introduced by the British rulers together with the caste system was a recipe for disaster. But the factor that broke the backbone of the state was the high level corruption and non-existent of “political will”. Year after year, the money for development would go into some unknown Swiss bank account, where even money was made out of fodder, where for every deal one would have to satisfy the thirst of corrupt officials, and the list goes on. With no sign of development, lack of opportunities and limited options for education, the exodus began. Exodus of the intellectual mind together with the rise of criminalization in politics over the years led to the downfall of one of the modern states of ancient times.

The state which is deep engulfed into a complex caste system, where the MY factor actually helped Lalu to come to power and where elections are still won or lost on the basis of caste, development has always been a non issue. It’s no hidden secret that courtesy Lalu’s regime, Bihar has gone 50 years backward. And it will take much more than political will to bring back the state to normal. And by much more I mean support from business houses by investing more and more in Bihar. As aptly pointed by Nitish Kumar; “I am thankful to the people, who selected us for the Business Reformer of the Year award. So, some business should also come to the State. Otherwise, what will be the meaning of this award?”

The political will in the form of Nitish Kumar together with influx of investments by large business houses will lead a long and sustainable growth, which is the need of the hour, for Bihar in coming years. One of the reasons why Bihar has to grow because the place India holds in global economy, the same is held by Bihar in Indian economy. And for India to have an inclusive growth, Bihar has to grow.

Saina vs Sania

The debate would go on whether Saina Nehwal would ever be given the same status as that of Sania Mirza in India? Undoubtedly Sania has done far more than any other female tennis player from India and she deserves all the attentions and accolades. But would that justify that she keeps on hogging all the limelight inspite of not being able to repeat the performances. The past two years have been a pretty average for her and apart from technique; it’s her fitness that is to be blamed for her debacle. She is far more off the court due to her injury than on the court. From as high as 30th rank, she has slipped below 100. And she has not made a single major mark which is worth mentioning. And during the same course of time, Saina Nehwal has gone from strength to strength. She has been performing consistently and has reached atleast quarters of every other tournament she has played. She added jewel in her crown by reaching the quarter-finals in Olympics. The icing on the cake was her recent win of a Super Series Tournament. It would have been great that she also received the same adulations as that of Sania Mirza courtsy her series of achievements. But that is not to be. For her achievements, on one hand, Sania receives full page story and on the other hand Saina has to satisfy with a para mention.
Let’s find out some of the reasons for such biased reactions to these two individuals. Some of the factors are:
1. Fan following – The popularity of Tennis is far more than that of Badminton. So the treatment meted out to players in both the games is going to be different. It’s the same Cricket vs Hockey story.
2. Glamour Quotient – Sania brings glamour quotient in to the game. It’s of no hidden secret that the popularity of Sania is next only to Maria Sharapova (in terms of glamour).
3. Tennis catches eyeball – Tennis is one sport where “the length of skirt is inversely proportional to the popularity of the player”. And add the glamour and controversy and Voila you get page 3 news.
4. Media – It’s of no hidden secret that media worldwide (esp in India) shows what is sold. And we all know what is sold in India.
I don’t foresee that in near future Saina Nehwal is going to get the accolades and adulations as she deserve until or unless one of the above points changes. And till that time sports lover like me would wonder: “Why an overrated Sania’s 1st round victory is is always given far more importance than an underrated Saina’s appearance in the final of a Super Series Tournament?”

Are we becoming beasts???

The recent Surat gangrape made me wonder... Are we increasingly turning into an insensitive, inhumane and immoral society? What else would explain the recent spurt in rape cases that is getting highlighted in this country? Undoubtedly, the reason could be that nowadays the media is getting more involved in bringing them out sensationalising them, which in a way has helped us to ask ourselves such questions.
But what are the causes for increase in rape cases in India? Some might say that it is the belief that people can get away with. Most of the time women are afraid to come out because of the backward notion that many places it is considered to be women’s fault (even if they are young children). The fear of going public is there because many times the society shuns them away and it becomes difficult to find suitable match for them. And if everything is fine then the slowness with which they get justice means that they undergo harassment by people looking at her and showing contemptuous sympathy. Animals take advantage of all these factors and go on committing one of the most heinous crimes ever known to mankind.
What should be done to make sure that these cases are brought to limelight and people gets justice? First of all I feel that a strong precedent should be sent across everyone that these things would not be taken lightly. The amount of interest shown by Maharashtra’s CM in Shiney Ahuja’s case is commendable but the same swiftness should be shown in another rape cases also as all the rape victims undergo same agonising pain. When I talk of strong precedent should be sent across I mean that the punishment should be such a way that people should think twice before committing such crimes. A stricter law in itself wouldn’t serve purpose; there is a greater need for making sure that the guilty are punished and punished fast. There has been a far larger debate on whether to use death penalty as a deterrent. But until or unless such strict measures are taken and people understand the gravity of this crime, it’s going to be very difficult for us to stop this crime. Human Rights commission people might come and speak against such laws. But where are these people when these girls are raped? And would they still oppose if their own relatives undergo such trauma?One thing that we need to keep in mind is that rape is one of the most heinous crimes that can be committed by a human being. The importance of a stricter law can be gauged from the fact that “A woman who is murdered dies once but a woman who is raped dies everyday”.

Will rate cuts stimulate demand?

Another round of rate cuts by RBI and again economist are discussing whether this will stimulate demand by the public. But will it??? Or government needs to do something more??? Let’s go the basic of this situation. 

Everybody is aware that this financial crisis began due to the bubble burst of property market, which had been growing at an exponential rate. This burst led to the bankruptcy of many banks and let to the bloodbath in the share market across the globe and resulted in credit crunch across the globe. What this has done is that it has directly affected the demand (consumption expenditure) of the public. With so little of money into the system, banks are not in a position to lend money. In order to inject more money into the system the government either goes for expansionary fiscal or expansionary monetary policy. Whereas expansionary fiscal policy involves tax cut, more transfer payments or more investment from the government side, the expansionary monetary policy involves reduction in CRR, SLR, repo rate and reverse repo rates. With these monetary policies more money is injected into the system by providing more money into the banking system. But does this mean the same money is transferred to general public in forms of loans? The answer is NO. Since the crisis happened due to bad investment and bad loans on the banks part, it takes more than rates cut to induce banks to transfer the benefit to the public. This time the banks are very sceptical in giving loans. They already have suffered the brunt of giving too much too soon in hope of better returns. So they are reluctant in transferring the money to the general public. And until or unless the amount of money injected into the system goes into the hand of public we can’t expect increase in demand. So government and RBI have to take some other steps apart from these monetary policies for inducing demand. 

Only GOD can save Pakistan now

While returning to hostel, after my Economics exam, I got the news of Terrorist attack in Pakistan. It’s not new to hear about such attacks especially in the sub-continent but this was something unheard of in the recent past. The terrorists attacked the visiting Sri-Lanka team, which was playing a series in Pakistan after other teams had backed out citing security reasons. The attack is bound to have serious repercussions as to how Pakistan will be perceived hereafter. It’s been more than a decade that India has been proposing that Pakistan be declared a terrorist state. With fundamentalists getting support from the ISI and government officials, democracy is as good as dead in Pakistan. The deadly combination of Pakistan, being a nuclear possessing state, and hardcore terrorist outfits having a major say, is a sure recipe of disaster for the world peace. The future of Pakistan looks very bleak and only GOD can save it from becoming a failed state with terrorist organizations having a major stake.

US Presidential Election Campaign: Mindless Flank gets one shot point blank

(Following article is courtesy Manish Kumar, Batch of 2010, FMS)

The US-presidential ad campaign between the rivals Barack Obama and John McCain has been one of the classic examples of aggressive flank attack strategy mostly pursued by McCain and to some extent by Obama side too. The main idea of these ads was to attack the competitor in the unexpected areas to catch them by surprise. It involved a lot of creative manipulation (mostly negative) of facts and principles to churn out limitations and the misfits of the competitor for the presidential seat. The ads developed and widely distributed during the campaign revolved around demeaning the rival candidate by projecting an undignified image unworthy for president ship. The deprecation in the campaign especially from McCain's side stooped to unprecedented low proportions and the ads started a virtual mudslinging from unforeseen angles.

"Dangerous... Not truthful... Hypocrite... Disrespectful..Not ready to lead."  were the warnings that McCain and the Republican National Committee aired about Obama."Out of touch... No maverick... Same failed policies... Sleazy ads... John McCain doesn't get it." Obama's campaign aired these warnings about McCain.

In a glaring example of flanking attack, in a particular McCain campaign ad, present in the report submitted, Obama was projected as a limelight hogging celebrity in the leagues of Paris Hilton and Britney spears questioning his integrity. So basically, his popularity which was an asset was misrepresented as a negative attribute not aligned with presidential virtues.

But in strategic marketing as in real life, a mindless excess of everything, almost invariably, tends to boomerang to one's debacle. The same holds true for flanking strategy, as was bluntly experienced by John McCain. After a certain limit , the flanking attack tends to nullify its effect by raising suspicion in the minds of the target audience about its genuineness, especially when the strategy is all focused on conjuring the weaknesses of the competitor instead of highlighting one's own selling proposition. The word was that 100% of McCain's ads were negative compared to 34% in case of Obama. The election results speak for themselves.

Sub-prime Crisis - Layman's Language

What is a sub-prime loan?

In the US, borrowers are rated either as 'prime' - indicating that they have a good credit rating based on their track record - or as 'sub-prime', meaning their track record in repaying loans has been below par. Loans given to sub-prime borrowers, something banks would normally be reluctant to do, are categorised as sub-prime loans. Typically, it is the poor and the young who form the bulk of sub-prime borrowers.

Why loans were given?

In roughly five years leading up to 2007, many banks started giving loans to sub-prime  borrowers, typically through subsidiaries. They did so because they believed that the real estate boom, which had more than doubled home prices in the US since 1997, would allow even people with dodgy credit backgrounds to repay on the loans they were taking to buy or build homes. Government also encouraged lenders to lend to sub-prime  borrowers, arguing that this would help even the poor and young to buy houses.

With stock markets booming and the system flush with liquidity, many big fund investors like hedge funds and mutual funds saw sub-prime loan portfolios as attractive investment opportunities. Hence, they bought such portfolios from the original lenders. This in turn meant the lenders had fresh funds to lend. The subprime loan market thus became a fast growing segment.

What was the interest rate on sub-prime loans?

Since the risk of default on such loans was higher, the interest rate charged on sub-prime loans was typically about two percentage points higher than the interest on prime loans. This, of course, only added to the risk of sub-prime borrowers defaulting. The repayment capacity of sub-prime borrowers was in any case doubtful. The higher interest rate additionally meant substantially higher EMIs than for prime borrowers, further raising the risk of default.

Further, lenders devised new instruments to reach out to more sub-prime borrowers. Being flush with funds they were willing to compromise on prudential norms. In one of the instruments they devised , they asked the borrowers to pay only the interest portion to begin with. The repayment of the principal portion was to start after two years.

How did this turn into a crisis?

The housing boom in the US started petering out in 2007. One major reason was that the boom had led to a massive increase in the supply of housing. Thus house prices started falling. This increased the default rate among subprime borrowers, many of whom were no longer able or willing to pay through their nose to buy a house that was declining in value.

Since in home loans in the US, the collateral is typically the home being bought, this increased the supply of houses for sale while lowering the demand, thereby lowering prices even further and setting off a vicious cycle. That this coincided with a slowdown in the US economy only made matters worse. Estimates are that US housing prices have dropped by almost 50% from their peak in 2006 in some cases. The declining value of the collateral means that lenders are left with less than the value of their loans and hence have to book losses.

How did this become a systemic crisis?

One major reason is that the original lenders had further sold their portfolios to other players in the market. There were also complex derivatives developed based on the loan portfolios, which were also sold to other players, some of whom then sold it on further and so on.

As a result, nobody is absolutely sure what the size of the losses will be when the dust ultimately settles down. Nobody is also very sure exactly who will take how much of a hit. It is also important to realise that the crisis has not affected only reckless lenders. For instance, Freddie Mac and Fannie Mae, which owned or guaranteed more than half of the roughly $12 trillion outstanding in home mortgages in the US, were widely perceived as being more prudent than most in their lending practices. However, the housing bust meant that they too had to suffer losses — $14 billion combined in the last four quarters - because of declining prices for their collateral and increased default rates.

The forced retreat of these two mortgage giants from the market, of course, only adds to every other player's woes

What has been the impact of the crisis?

Global banks and brokerages have had to write off an estimated $512 billion in sub-prime losses so far, with the largest hits taken by Citigroup ($55.1 bn) and Merrill Lynch ($52.2 bn). A little more than half of these losses, or $260 bn, have been suffered by US-based firms, $227 billion by European firms and a relatively modest $24 bn by Asian ones. Despite efforts by the US Federal Reserve to offer some financial assistance to the beleaguered financial sector, it has led to the collapse of Bear Sterns, one of the world's largest investment banks and securities trading firm. Bear Sterns was bought out by JP Morgan Chase with some help from the Fed.

The crisis has also seen Lehman Brothers - the fourth largest investment bank in the US - file for bankruptcy. Merrill Lynch has been bought out by Bank of America. Freddie Mac and Fannie Mae have effectively been nationalised to prevent them from going under.

Reports suggest that insurance major AIG (American Insurance Group) is also under severe pressure and has asked for a $40 bn bridge loan to tide over the crisis. If AIG also collapses, that would really test the entire financial sector.

How is the rest of the world affected?

Apart from the fact that banks based in other parts of the world also suffered losses from the subprime market, there are two major ways in which the effect is felt across the globe. First, the US is the biggest borrower in the world since most countries hold their foreign exchange reserves in dollars and invest them in US securities.

Thus, any crisis in the US has a direct bearing on the other countries, particularly with large reserves like Japan, China and - to a lesser extent - India. Also, since global equity markets are closely interlinked through institutional investors, any crisis affecting these investors sees a contagion effect throughout the world.