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Showing posts with label interesting readings. Show all posts
Showing posts with label interesting readings. Show all posts

Monday, June 11, 2018

Interesting Readings 11 June 2018 = Is Debt Jubilee lurking?

I came across an article titled Some ways to introduce a modern debt Jubilee at Vox. The article is in line with the recent discussion about debt. John Mauldin has highlighted this problem generally and more specifically in the last Thoughts from Frontlines. A few months back Christopher DeMaria had written about debt jubilee on Seeking Alpha article titled The American (Debt) Jubilee, And The Current Correction.

Debt Jubilee may be lurking in our future. It is not as bad as it sounds. For some kinds of debt, when prevalent in excess, needs to be written down. I have highlighted the difference between good debt and bad debt earlier - i.e. productive debt and unproductive debt.
Productive debt creates an asset of higher value than the debt itself.
A large part debt currently outstanding is unproductive debt. All consumer credit is unproductive, except educational loans or student loans. It does not create a means to pay the debt back. Thus, debt jubilee may be a proper solution to problem of unproductive debt. Productive debt in trouble can be repaid by extending more productive debt.

The alternative could be to extend and inflate it away. But will there by appetite for that?

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Friday, June 01, 2018

Interesting Readings 01-June-2018

Macro Issues 
This graphic summarizes most of the macro issues going on by Mark Rzepczynski: courtesy Barry Ritholtz  
[Twitter @ritholtz] 



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Monday, May 14, 2018

Interesting Readings May 14 2018 - Development Finance Institutions.


Deepak Nayyer talks about capabilities created in Development Financial institutions (DFIs) for longterm lending. 

These DFIs are very important in creating a capability for lending to special investments. India, till 2000, had developed the capabilities to lend to infrastructure, sector-wise capacity creation etc. We need the concentration of skills in one place. This way, special knowledge reduced the risk for lending.

The commercial banks decided to reduce the lending risks by consortium lending. That is a statistical approach to risk mitigation.

Now Deepak Nayyar wants to create a National Development Bank. That I think is a bad idea. Though there may be some merit in creating a network of professionals who can lend to industry and towards infrastructure. These professionals can be monitored using DIN-like number (Director identification number) and their investments performance tracked. These people may be employed with commercial banks but without sign-off from these persons, such loans will not be approved.

Note:
What we are creating is attribution chain. I have discussed the importance of attribution in both of my books - Subverting Capitalism and Democracy and Understanding Firms. Please use the links below to check out the books. 




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Friday, April 20, 2018

Interesting Readings 20 April 2018

India
India needs to fundamentally alter its export strategy
Ajit Ranade spells out the answer briefly. The article however highlights important gaps in Indian exports.

World
What 1985 tells us about a US China trade war
Mint searches for lesson in Regan's Japan strategy for Trump's China strategy. Interesting.

Worth reading.

Sort of explains my feeling. Long ago we shorted a group of Australian media stocks. We took positions when they were trading in $38-42 range (yeah all of them) and then they went up over next 3 months. I being a junior was a bit scared though we had doubled down of these bets. Ultimately Lehman struck and these stocks went down right to $4 approx. Yet, I still remember feeling a bit jittery during those times.

One of the most important podcast you will listen. Annie is a poker player and her views on decisions in uncertainty will definitely be helpful. I want to read her book "Thinking in bets". Poker is much like financial markets - decision making under uncertainty. You can also read For Richer, For Poorer: Confessions of a Player by Victoria Coren Mitchell for general view of Poker.

Many people seem to throw blockchain and Distributed Ledger technologies as useful in many domains. For example, in the above one, shipping is considering. While blockchain can solve their problem, that is not the most apt solution. What they need seems to be a centralised processing system with view access to all channel partners.

This is an old one but it gives sort of the evolution of Chinese leaders. 

World War Watch

F-35 the myths. This four part series answers some of the questions related to F-35. Part 1; Part 2; Part 3; Part 4. I am beginning to believe it will be better for India to rely on 5 aircraft configuration for Indian Airforce. Gripen, F-35, Tejas, Su-30, Rafale. If US can offer a manufacturing line for F-35 we should take it. But a manufacturing line for F-16 block 70 does not seem to make sense. Particularly I find F-16 short on avionics and a fuel guzzler of sorts. The main part will be to ensure all aircrafts talk to each other. That will be the biggest problem. Further, the deployment should be multi-aircraft types rather than single types. It means more collaborative training between all pilots.

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Wednesday, April 11, 2018

Interesting Readings 11-Apr-2018


Ila Patnaik believes bank fraud at PNB and ICICI Bank (possibly) are result of lack of proper supervision. I agree that supervision is inadequate. However putting the blame on RBI alone is not proper. Rightly, Ila points at all supervisors. In addition, I think one perspective is missing - that PNB and ICICI Bank (alleged) fraud are two different animals. PNB is systemic loopholes being exposed something regulator, management should have caught and has far reaching implication wrt Business process design within banks. ICICI Bank (alleged) is pure corruption. Even if it is conclusively proved that there was no fraud, the optics on this are bad. It is more responsibility of shareholders than the other. 

Shikha Sharma followed K V Kamath's model of growth without regard to Asset quality. Even Rana Kapoor belongs to this group. On the liability side their strategy is to get corporate deposits. Aggressive lending - generally large corporate (longer tenure) and consumer lending (higher risks) on asset side and corporate deposits (more fickle, higher costs) on liability side accentuates Asset Liability mismatch for these banks. Chanda Kochhar managed to set ICICI house in order after Kamath's high-paced up-scaling. But the problem persists in many new private banks. As corporate lending portfolio looks more risky the banks become more shaky.

International
Grantham is one astute market observer. Earlier this year he mentioned the likelihood of a melt-up (markets going up). The Trump histrionics have dented the probabilities but it still is at 40%. Cool!

Interesting ideas from Fred Wilson. Short video, short podcast, IPO intro-letter. 

Frauds are eating up the moral character these days.

Interesting

Ken Rogoff thinks it is not easy.


On a different note
The story of the spy. Looks like a must watch movie from Meghana Gulzar. Talvar was well made movie. I liked it.

I like Dwayne Johnson.
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Monday, April 09, 2018

Interesting Readings 09 April 2018


BANK SCAM WATCH

PNB scam: ED unearths Rs5,000 crore money trail
This will test the skill-set of ED team. Lets hope they get it done properly.

INTERNATIONAL
Also subscribe to Bronte Capital blog. The article is thanks to Barry Ritholtz.

This post was courtsey Barry Ritholtz. The author is worried about US stock markets and believes that central banks will back the markets again. I find that difficult to believe but the past decade has been unbelievable to say the least. But the post triggered some thoughts. Refer to this comment:

This massive growth has had tremendous implications for the global financial system. As the Chinese government sold more Yuan and bought U.S. dollars, they reinvested the USD back into US Treasuries and other relatively safe fixed-income vehicles. This had the effect of pushing interest rates lower, which when combined with the falling rate of inflation from the cheap Chinese goods that were entering America, sent bond prices rocketing higher. As interest rates fell, many consumers were able to refinance their mortgages (or take out equity home lines of credit), which allowed them to buy even more Chinese goods. This, in turn, caused the Chinese government to have to sell even more Yuan and again buy USD, thus creating a self-reinforcing feed back loop. To some extent, the credit excesses that led to the 2008 Great Financial Crisis were the direct result of the Chinese economic reform. China’s transformation had the effect of creating lower inflation and lower interest rates in the rest of the developed world.
Most commentators praise China for "allowing" US to consume more. I think that is wrong way to think about it. It is because of this cheap credit that we had the bubbles and problems of the past decade. Had China been gradual in its development, it would have given about 400 million developed world workers to make the adjustment. The world went along with China in that game to its own detriment. Further, it would have been worthwhile if Chinese workers would be irrevocably moved out of poverty. But that is not so. The upcoming trade wars and squeezing of Chinese supply will put many out of work and push them into poverty. China will have to make a decision to chose who to let go into poverty. To prevent this, China wants to invest in the world through BRI which they will use Chinese capacity and Chinese employment to create assets overseas. It is all fantastic.

Edward Harrison explains this in his post titled China cannot use its Treasury holdings as leverage. Here’s why.  Edward links to work by Micheal Pettis and explains some of the nuances of the present Chinese predicament. Similarly Marshall Auerback highlights some risks to China here.

But here is a cartoon from Tom Toles



OTHERS





Puffin beaks are fluorescent and we had no idea
Thanks to Tyler Cowen. Puffins are birds with colorful beaks. The beak apparently lights up under UV light. What I learnt is that birds perceive colors differently. Humans see colors that are a mix of red, blue and green light, while birds have a fourth color in the mix — a property called tetrachromatic vision. Tetrachromacy is quite common among birds reptiles etc. It provides larger visual spectrum (different types of light) though spectral resolution (clarity) is similar to humans.

Not Enough Women at Wikipedia?
There are not enough women editing the stuff on wikipedia. I don't know how to think about this. Wikipedia is a free resource, created by free contribution by everyone. I hope Wikipedia is not stopping women from contributing. That would be stupid. Is it that men contribute overwhelmingly more than women? Why so? Does it say something about pay-gap and gender equality? I wonder.
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Friday, April 06, 2018

Interesting Readings 06-Apr-2018


India
I would like to watch how NCLT decisions filter through Supreme Court.

This is another area where drastic simplification is required. If Form16 has the data why can't Income Tax pick it up directly from employers. This makes filing taxes difficult for the citizens. Then government complains why tax compliance is very low.

This is the problem when there is no coordination between producers. That is why I have proposed Smart Agriculture Management System.

Educomp was once a darling of the market. As one of the early investors (not in personal capacity), I visited their Bangalore school. When they went Asset heavy for a business model that was asset light (software platform for education), Educomp missed the game. It could have become one of the Indian unicorns. But self-interest triumphed over smarts. And now the company is playing another questionable game. Sad!

A 1.6 km rail track was stolen alongside a busy railway line in Madhya Pradesh. 60% of the rails were recovered and masterminds fled to Pakistan apparently. 


International
I wait for the day when Indian politicians go to jail for these offences. Would love it. Actually most of them will have to go. Chagan, Sharad, Ajit, Rane, Mulayam, Lalu, Sonia, Rahul, Kanimozhi, Raja, Karuna, Chidu, etc. etc. list goes on and on.

Trump is targeting $100bn over the $60 billion. China had slapped $66 billion tariffs as a response. 
I think US talks up its opponents and China talks up itself. Once we get over that, we realise this is not going to go well for China.

Greg Ip summarizes how this game will play out. Two important points:
By contrast, the U.S.’s political pain threshold is low, which other countries regularly exploit: in 2002, the European Union retaliated against U.S. steel tariffs by targeting motorcycles from Wisconsin and orange juice from Florida, both swing states in elections. The U.S. repealed the tariffs.

China has singled out products made in states represented by influential Republicans, such as whiskey, distilled in Kentucky, home of Senate Majority Leader Mitch McConnell.
India must wait and watch for this opportunity. If there is a possibility to supply US with a manufacturing base in India, it will give India some advantage. However, India must not make the mistake of overbuilding uneconomical capacities. Nelson Cunningham says just that - How Donald Trump’s trade policy will affect India.


Others
I always suspected people do not use food grade ice.

There are a lot of bots spewing out content on social media. It is important to know if you are listening to a bot. Article provides some interesting links for bot-watchers. Some intelligent perspective too. 

Elon Musk recommends this one. So must watch.


World War Watch
Indian Govt firms up plans for made-in-India Kalashnikov rifles
Interesting development. I would love to see F35 along similar lines.



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Interesting Readings 05-April-2018



This Atlantic interview is thanks to Tyler Cowen. MbS is one of the most critical actors on a volatile stage. He has, as of now, shown inclination to reform and upgrade the region. However, he has made some weird moves against Iran.

The friend of my enemy
Christophe Jaffrelot talks about India-Iran relations. With Saudi Arabia's MbS positioning (see above), India may find Saudi a better partner. This may reinforce China-Iran-Pakistan alliance. Russia is still a fence-sitter though it supports Bashar-Al-Assad just like Iran.

Others
RTE imposes a bureaucratic, grotesquely inefficient regime starving our children of good education
RTE is the most flawed act. Government regulations and Court interventions have made it even worse for students. But no one has the courage to scrap it.

Controlling Airpods volume for Android phones
Fred Wilson got this answer from the internet.

The copy is the original
An insight into the Chinese cultural mindset. Chinese do not mind copied works. Interesting.

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Wednesday, April 04, 2018

Interesting Readings 02-April-2018


John Mauldin picks Lacy Hunt's chart on velocity of money. Here it is.
This is what has been the problem all along. I explained this 2013 article on this blog titled About Money Supply and Inflation. This is the reason why unprecedented stimulus did not result in inflation. But velocity is weird variable. If it turns up then we will quickly go into high inflation.

Jared Dillian has a great newsletter. He believes we are entering a trading zone. Volatility is good for trading not for investing. Investors need to keep cash on hand for opportunities that may arise. They may have to move quickly. Interesting times. 

Here is a bit of advice from Jared Dillian's boss. Worth keeping in mind. 
There is a relationship between volatility and liquidity. When the Fed adds liquidity to the system, it suppresses volatility. When it withdraws liquidity, volatility rises.
FT ponders which company will beat 1 Trillion Dollar valuation. It points to how Scott Galoway jinxed Amazon, Morgan Stanley jinxed Microsoft. In the article FT jinxed Apple. Interesting read.

World War Watch
Various South Korean artists are in North Korea on a diplomatic mission. The tour, titled “Spring is Coming,” is billed as a gesture of goodwill and includes k-Pop artists. Red Velvet a famous K-Pop band also sang their song called "bad Boy". It went well with Kim but the Economist was worried about exactly that and its implication for diplomacy:
Red Velvet’s “Bad Boy” could be an unorthodox injunction to nuclear diplomacy: “Oh your edgy style is a bonus/ I love the boring way you talk/ let’s push and pull.”

Interesting analysis. Raja Mohan believes Kim went to China to “inform” Xi of his decision, “promise” to keep China in the loop and “seek” the Chinese leader’s blessings. This is a position of strength for Kim. Raja Mohan states that the two polar opposite outcomes of Kim-Trump accord are bad for China. If it succeeds there will be more US presence in North Korea - closer to Chinese border. If it fails drastically again there will be a war near China border. But any outcome that increases US cooperation with North Korea seems problematic for China. That means only acceptable option for China is North Korea determined to be anti-US but pro-peace and pro-denuclearisation. Hmm.....

IS with small resources is thinking up newer tricks to battle with trained armies. These new strategies are being watched carefully. Armies need to be prepared to counter-act such tactics or develop them for self-defense. Imagine what can China do. India needs to keep an eye on Arunachal and Kashmir. The future looks dangerous.

Very important read. US needs to do more to be assertive in the region. There is another aspect. US has always appeared to be lot closer to being beaten that it really is. Japan came close but fell back. The US resilience is rooted in democracy-capitalism complex. That is at its weakest. But it can be strengthened. Once done, it will unleash another wave of creativity and growth leaving many behind.

Others
Caroline Weaver explains the history of Pencil in a short 4min TED video.
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Monday, March 26, 2018

Interesting Readings 26 March 2018



International
The problem of the crisis is the story of blind men and the elephant.

Micheal Batnik links to GMO 7 year forecast and it does not make a pretty picture.

Look at this -from visual capitalist courtsey Barry Ritholtz.

Another thanks to Barry Ritholtz.

Thanks to Gulzar Natranjan. The quote goes thus:
John C. Coffee Jr., a professor at Columbia Law School who teaches classes on white-collar crime, said, “Typically you get more sympathy from the criminal justice system if you’re an attractive young woman than a brash, arrogant young male”... In comparison to Mr. Shkreli’s fraud, the Holmes allegations “are really a different order of magnitude,” Ms. Apps said.

Some reads from V Ananthanageswaran on China
Specially the Kevin Rudd speech

India Bank Fraud
Three articles from Anjan Basu on the fraud. Thanks to Gulzar Natrajan again.
Are India’s Public Sector Banks at Their Nadir?
Three Reforms That Also Set India's Public Banks on a Bad Loans Path
As the Industry Changed, India’s Public Banks Lost the Most and Won the Least

Any deterioration in a sector is result of many small mis-steps. These three articles give the details of how small interventions possibly led to present predicament.







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Friday, March 23, 2018

Interesting Readings 23 March 2018

India
Take this as a case study - all elements that reduce farmer's risks help. That is why I developed the Smart Agriculture Management System. It not only reduces risks but makes the process transparent allowing private parties to invest in agriculture support services that lower risks further. It should create a positive spiral. 

Key quote: 
We would assign a 25% probability to an early general election, clubbed together with state elections scheduled in Q42018 and H12019 (first half), including the key BJP states of Chhattisgarh, Rajasthan and Madhya Pradesh.
This is to ride on better economic data that may turn by March 2019 unless structural reforms are undertaken. It should help campaigning for BJP.

International
The science is right. The carbon conversion from plant to human is more efficient than from plant-to-animal-to-human. However, the solution is not to cut the meat consumption in half. The solution is to capture the carbon. After all if one extends that logic, ultimately you will reach a point when humans are better off not living. [That is what Terminator and other movies suggest].

Roseneft is close to Putin and CEFC the company that was taking the stake has fallen out of favour of Chinese elite. They have backtracked on projects in other countries including Czech Republic. 

World War Watch
Two sets of parties are nicely moving together setting the stage for a big war. China-Pakistan-Iran-Russia and North Korea are tagged on one side (note - only by the media). On the other side are Quad+ 2 (Britain & France).  Some player equations are yet to evolve.  Saudi has an alliance with Russia. Russia with Iran. Russia is strategic partner of India too. Europe will abstain if Russia abstains otherwise they will side with US.

Brahmos is Russia India collaboration.
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Wednesday, March 21, 2018

Interesting Readings 21 March 2019


India
The article highlights the same old problems. The solution however is better - open markets. Farmers bear too much risk in Agriculture and are not compensated adequately. For example see this. But de-risking agriculture is not easy.  Here is my paper explaining the problem and the solution.

Do We Need Banks?
Menaka Doshi pointed to this post yesterday by JR Varma. The article is important for the links in them. Amol Agarwal points to some other post by JR Varma first being Are banks too opaque? and next being Can radical blockchain technology decrease banking frauds? I am not sure I agree but both are worth reading. May need a longer post.

International
Martin Wolf examines the problems with Macroeconomics. Unfortunately, theoretical economists often ignore the empirical findings that contradict their views and thus delay the progress of economics.

DAvid Warsh talks about Benn Steil book Marshall Plan. From the article it seems it is worth a read. The Marshall Plan (economic assistance to Europe) was part of the Marshall Plan. The other part of the plan was to keep Soviets at bay. In fact, it seems the Marshall Plan was a tool to accomplish Soviet containment. India and its neighbors need this kind of Marshall Plan against China.

There is something really wrong with US healthcare costs.


World War Watch
China's stealth wars in the Himalayas
Bramha Chellaney highlights the extent of China's designs. That does not bode well for India. Even Arunachal Pradesh is at risk. India better act fast. Also, with Belt-Road through Pakistan-Occupied-Kashmir, India could face two front war - both fronts with China!

China tests driverless tanks that could be powered by artificial intelligence
That is something to watch out for on Arunachal borders.

US Pacific Command supported selling F-35 fighter jets to India.
Lockheed is pitching for production line for F16. I would take it if it comes with production line for F35 too. That would be super. F35 is quite a capable aircraft. As one pilot described it, US aircraft are like racing cars - you have to take real good care of them. Russian aircraft are more like monster trucks - they stand up to abuse fairly well. In that context India's Russian aircraft dependence suits us. But eventually we have to move to these US-style fighters. Saab's Gripen will also be similar. Also Saab is going to assist with Tejas. India will be one country with both Russian and Amercian weapons in its armory.
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Interesting Readings 20 March 2018


Lemon Tree is ranked 4th Best Company to Work for but attrition rate is 43%. Readers know that I have my gripes about the practice of HR management. I think most of it is glorified payroll processing. Real talent management has not developed at all. HR can be quite strategic asset if used properly.

Actually some of the ideas Jio is using came for Reliance Communications. RCom, before the split, was going along the exact same way only they were going to use fibre-to-home rather than mobile. Also the choice of CDMA was because it was data efficient. This is back in 2002 when iPhone had not changed the world. Mukesh Ambani is a tech geek and understand new tech very well.

Andy Mukherjee is at it! Well written. Kumar Mangalam Birla just treated India’s new bankruptcy law with utter disdain. But before you dismiss the behaviour, think of the huge favour he’s doing the legal system.

This crisis is entirely Modi's making. Modi, when he was campaigning, seemed like Narsimha Rao 2.0 - take political risks but fix the economy. Vajpayee's NDA was not ready to take political risks because of their marginal majority. However, Modi's policies are more in line with Gandhi's (Rajiv and Indira) and Manmohan Singh than either Vajpayee or Narsimha Rao. The sooner he aligns himself with the correct economic model the better.
International
Barry Ritholtz finds we haven't learnt much.


Look at the LBO-based financialization of the firm. This shows the difference between investors such as Warren Buffet and these vulture funds. In one of the meeting with investee, I happened to join with analyst from a co-investor firm. First thing this guys says to the entrepreneur "we own you guys".
They blame her but she is getting off the hook. Apparently after being charged with defrauding investors out of more than $700 million, Theranos founder and CEO agreed to a $500,000 fine, gave up her voting control of the company, reduced her equity stake significantly, and will not be able to serve as an officer or director of a public company for 10 years. 

The main culprit here is the silicon valley culture. One fellow suggested to me that entrepreneur should get financed by VCs because "they will open the doors" for him. So if his idea was important and he did not need funding no one will open the door? The once you get first round, you have to get second round at 10X the valuation and third round at 10X till you go for IPO exit where everyone gets off and common investors are left holding the bag. Read some issues raised by this episode at Worden Report.

Excellent pointer thanks to Barry Ritholtz. Look at this chart, India should focus on improving patenting of innovations already being used. Indians are quite lax about patenting.

Trade war with China was always on the cards. In fact tariffs and trade blockade is the way to keep China from damaging US interests. China was becoming increasingly aggressive with US and its allies. A US trade blockade will put the wages and employment of large population at risk. So will China suffer? I think not. Chinese leaders have shown great strategic depth. I believe they are already working on shifting their economy towards a consumption-oriented economy. However, as I said before, I think consumption driven economy is fundamentally incompatible with restrictive political system.


Indian Bank Scams
Debasis Basu asks the right questions whether RBI is powerless or not. And rightly highlights that there is finger of responsibility points to babus from Finance Ministry too. Must read.

Ajay Shah weighs in on how to manage the bank reform. I agree with him in some aspects. Here is the quote:
A comparison with the experiences of 2008 and 2013 is instructive. India was one of the worst-hit emerging markets immediately after the Lehman failure. Each crisis is different, and this one had a combination of stress in mutual funds, real estate companies, Indian borrowers in the overseas money market, ICICI Bank, etc. The key factor that led to good outcomes was the capabilities and teamwork between the Ministry of Finance, RBI and SEBI. The day to day actions mattered, but even more, the market was reassured that there was genuine capability and teamwork.

Objectively speaking, the difficulties faced in India in 2013 were smaller than the storm of 2008. The difference lay in the capabilities and teamwork. In 2013, we came across there as a jittery government coming out with one new action every day, and lacking an understanding of what we are up against. This converted a small shock into an outsized problem.
This evokes mixed feelings for me. First, Government is coordinating the various banks and their ensuring that at least there is some coordination between smaller-bank-group vs large-banks-group. It is good for efficiency. But retail credit need not be good credit. It has to be good credit first and retail credit is secondary.  

Others
 Tyler Cowen highlights an interesting paper. This applies to "sons" not daughters. It is triggering many thoughts as to why it should be so. Read the comments too. Not much discussion can be carried out without sounding racist so be careful.

Former Additional Solicitor General of India Biswajit Bhattacharya has written a good piece. But like a good lawyer fails to explain the other side. Supreme Court, despite being cognizant of this, has granted custody for many politicians. Mind you this is mostly in case of politicians accused of scams. Others like Salman Khan tended to get off easily. The CBI, government officers and corrupt politicians have extremely tight nexus. It is being sought to be broken and it is not going away without a fight.


World War Watch
Mint believes in pragmatism. But two-front war is something we need to prepare for. General Bipin Rawat is right. The points made by Mint are right too.

Excellent article by C Raja Mohan. I think, India must consider the possibility that China is playing the same game US played with Soviets and the game is economic and not related to armed intervention. Luckily, India has US on its side in this game. The Quad is necessary reality. Shinzo Abe was right and timely (probably late). India must accept this reality.

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Monday, March 19, 2018

Interesting Readings 19 March 2018


V Ananthanageswaran points to interview of former election commissioner. It highlights how the proposal for electoral bonds (a salutary proposal at the time) has morphed into something of a joke against corruption. The mechanism for political party finance remains elusive.

India is considering creating a regulatory Sandbox for fintech. I think Singapore provides a good model, proactive and with feedback loops.

David Henderson writes about his experience of Uber Driver cancelling and ponders over the economic motivations.


World War Watch

Interesting development. Was the need of the hour.

Lockheed Martin is trying to sell F16s to India. Offering is unique. But F16 still has higher operational cost than Gripen and likes. I would rather have a Gripen aircraft with same deal as F16. Modern air warfare will most likely involve big-team strategies beyond visual range. Gripen can also be modified to carry Indian missile systems.


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Friday, March 16, 2018

Interesting Readings 16 March 2018



BJP is becoming arrogant. The problem is people realise what reforms are critical. Unfortunately Modi has gone silent on reform and development. He needs to communicate and guide the national sentiment. Further, 80% of BJP is like all other political parties - goons, thugs and fringe elements. They need to be disciplined. 
BJP is also suffering from prolonged and relentless campaign by the media. Media is wearing BJP down. In the time when prime minister (the main icon of BJP) is not speaking on reform and process government is using, it has become one sided. 
The institutions too are waging a war against reforms - banks and telcos are relentless in their Aadhar marketing. To make it worse they are threatening with dire consequences causing pain - locking of bank accounts, mobile phones etc. Can the BJP not reign them in?


Suresh Prabhu's efforts are paying dividends. This is the beginning of improvement in Railways. 


A day after Patel’s plaint, finmin points to power regulator enjoys
I don't understand why they have to fight in public. Why can't the RBI and Finmin sit and do a dialogue. I mean even Kim and Trump are talking. This public spats are unwarranted. I was not sure about Jaitley as Finance Minister.

Also Mohammad Shami and his wife should shut up and the press should just ignore them. 

Trade Wars
There I have come to first use of Wakanda as an example in Economics.

World War Watch
HAL production capacity is 6 aircraft per year. The aim is to get 16 aircraft per year production rate. If this is what is priority then I believe we need super duper priority. The aim should be to create about 30 aircraft per year. For next 3 years. 
As a comparison Lockheed Martin F35 production rate is 17 aircraft per month. It is not totally comparable as there are orders of 3500 F35 pending with Lockheed. But once the Indian capacity is used up for Tejas there will be upgrading and new aircraft etc. HAL's IPO should help proceedings.



Others
Mark GB presents a case that Putin is being wrongly demonized. Russian version of Syrian conflict was more accurate than US/Western version. I am also not a fan of US interfering in elections, parties, coups and political assassinations in guise of bringing democracy. 

US has done a great service to the world in second world war. I think the post-war freedom movement was partly result of negotiation by Franklin Roosevelt with the Europeans. That was good. After the World war US entered into a cold-war era which had its issues. Part of US interference in other countries was in light of cold war Soviet financing of the political establishment in other countries. [One can see the parallels with China in this case]. But after the fall of Soviet Russia, US has interfered without reason and merely to further interest of those who lobbied for it. The first war on Iraq was justified but not the second. The mess in Afghanistan was more created by US. 
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Thursday, March 15, 2018

Interesting Readings 15 March 2018


No Banking Regulator Can Prevent All Frauds, Says RBI Governor
Urjit Patel, full speech is here. Before reading you might be tempted to count this as a cop out by RBI. However, Urjit Patel raises important issues which merit consideration in overall scheme of Banking Regulation. It is not to blame present government but to highlight the important issues. Most of the points he highlights need careful deliberations which frankly I think are beyond Arun Jaitley. (He may be a good man but mostly misled by his bureaucrats and same goes for Hasmukh Adhia).
All commercial banks in India are regulated by the RBI under the Banking Regulation (BR) Act of 1949. Additionally, all public sector banks are regulated by the Government of India (GoI) under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970; the Bank Nationalisation Act, 1980; and the State Bank of India Act, 1955. Section 51 of the amended BR Act explicitly states which portions of the BR Act apply to the PSBs, most common thread across the omissions being complete removal or emaciation of RBI powers on corporate governance at PSBs:
  • RBI cannot remove directors and management at PSBs as Section 36AA(1) of the BR Act is not applicable to the PSBs.
  • Section 36ACA(1) of the BR Act that provides for supersession of a Bank Board is also not applicable in the case of PSBs (and regional rural banks or RRBs) as they are not banking companies registered under the Companies Act.
  • Section 10B(6) of the BR Act that provides for removal of the Chairman and Managing Director (MD) of a banking company is also not applicable in the case of PSBs.2
  • RBI cannot force a merger in the case of PSBs as per Section 45 of the BR Act.
  • PSB’s banking activity does not require license from RBI under Section 21 of the BR Act; hence, RBI cannot revoke a license under Section 22(4) of the BR Act as it can in the case of private sector banks.
  • RBI cannot trigger liquidation of PSBs as per Section 39 of the BR Act.
  • Furthermore, in a remarkable exception of sorts, in some cases there is duality of Managing Director and the Chairman – they are the same – implying the MD is primarily answerable only to himself or herself.
This legislative reality has in effect led to a deep fissure in the landscape of banking regulatory terrain: a system of dual regulation, by the Finance Ministry in addition to RBI.3 I will now take a few minutes to explain why this fissure or the fault line is bound to lead to tremors such as the most recent fraud.
(...)
In contrast, the market discipline mechanism for public sector banks is appreciably weakercompared to that at private banks. There is implicitly a stronger perceived sovereign guarantee for all creditors of PSBs, and the principal shareholder – the government – has not so far been interested in fundamentally modifying the ownership structure. From an economic standpoint, this weakened market discipline should imply that the government would prefer strongerregulatory discipline of these banks, not weaker. However, as I explained above at length, and perhaps since the original idea behind bank nationalisation was complete government control over credit allocation to the economy, the situation in India is exactly the reverse: RBI’s regulatory powers over PSBs are weakerthan those over the private sector banks.
The owner of our public sector banks – the government –which has provided the IBC, the related ordinances and the bank recapitalisation package to get the churn going, might consider making further, equally important contributions by:
  • Making banking regulatory powers neutral to bank ownership and leveling the playing field between public sector and private sector banks; and,
  • Informing itself about what do with the public sector banking system going forward as part of optimising over the best use of scarce national fiscal resources.
It is an open issue whether centralised government control alone can be effective enough at designing and implementing governance of banking franchise comprising over 2/3rds of the sector’s deposits and assets. It would be better instead to restore regulatory and market discipline.
Read this in context of article below which suggests some ways how to operate publicly owned companies.

Scott Sumner talks about past article How capitalist is Singapore? (we linked to this in previous post). Read the article with an eye to Air India and Indian Government owned companies. The first line is : 
Singapore Airlines is majority owned by the Singapore government. Alitalia is privately owned. So which country's airline industry is better described as "capitalist", Singapore or Italy?
India's Clouseau Bankers Deserve a Bigger Stick
Andy Mukherjee says it well suggesting Arun Jaitley should accept Urjit Patel's suggestions. Though I do not agree with the privatisation part. They could well set out a road map saying Banks will be privatised in 8 years or so and then working them towards profitability.

Haim Bodek is a whistle-blower who exposed Direct Edge a stock exchange help High Frequency Traders. He is back with another expose of NYSE now. Both have resulted in fines of $14m. Also worth reading are articled linked in this one.

Chinese credit risks are quite severe. It is good that India is reforming its banking system. This will allow for next decade or two of growth. 

A counter-view about China. He points out that China's overall debt is not too high. He makes certain other points in favour of China too.

But the debt is not too high when using normal methods. The Chinese use outside-mechanism to create debt. It's institutions carry too much debt burden backed by the government. This debt has financed investment in factories capacity equal to global demand for many products. When trade policy turns adverse and every country protects its own manufacturing, this capacity will be a huge liability. US is rightly changing the policy and in fact is playing the conflict strategically in the economic theater. US did the same with Soviet Russia - played them economically with Star Wars program.

What should be the international reaction to Chinese debt problem?
Global central bankers should increase the risk weightage for firms dealing with Chinese financial institutions. This is the time to increase capital backing these transactions.  That is what I suggested in Subverting Capitalism & Democracy:
In  an  economic  growth  cycle,  it  seems  advisable  to  have  increasing  deposit  reserves.  As  the  pace  of  the  economy  grows, banking system should become taunt and solid. This  moves the banking system from a fractional reserve system  towards  100%  reserve  system.  Of  course,  it  would  never  reach  100%  reserve.  At  the  extreme,  reserves  may  reach  say  40%.

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