Saturday, February 5, 2011

Revolutions in the Middle East

Trends Journal is a reputed organization, that comes up with predictions or trends across the world. They rightly predicted the world economic crisis of 2008, and the ascent of Gold prices in the first decade of this century. Recently in December 2010, in their year end report, Trends Journal came up with predictions for 2011. Out there in the top predictions, was the youth of the world will unite, and there will be civil unrest across the world. It hasn't been too long since then, In January of 2011, rightly so, there was a revolution in the north African country of Tunisia and its President of 23 years was ousted in a matter of days. It all started with a self-immolation of a Tunisian youth Mohamed Bouazizi on December 17' 2010 citing unemployment and poor living conditions with no hope. What started as minor protest turned out into a huge revolution in the country and within a month, the leadership had to take an exile outside the country it had fondly ruled for more than two decades. As always as history repeats, a small incident in a part of region who no one notices, can overthrow mighty dictators and even could trigger wars. The assassination of Archduke Franz Ferdinand triggered the first major war in the modern world, namely the First World War. They often turn out to be the triggers, to long time issues faced by the people.

The major reasons for the revolutions, agreed universally across the press are
1. Rising food prices,
2. Rising unemployment,
3. Political corruption.

It is coupled with other problems, common to the middle eastern countries, lack of political change because of dictatorship, no freedom of speech or expression, lack of opportunity, and over all hopelessness. The Internet facilitated the revolution through social network sites like facebook, twitter, etc., where people came to know each other in cyber space, and realized people in the country share the same woes. It is not the technology that creates people's movement. But it just serves as a medium to bring out the aspirations of the people. The media often exaggerates the role of internet for sensation. In real-time, a successful revolution takes all people together, rich and poor, literate and illiterate who look for genuine change. If the revolution is just based on internet, it may fade in a matter of days, and wouldn't sustain the changes accomplished. Now there is a interim government in place which has promised to move out in six months, and lets hope we have a free and fair election in Tunisia, which represents the aspirations and has the confidence of Tunisians.

The Tunisian revolution took a sudden turn into other middle eastern nations., which have the same degree of the same problem. Now, there is a revolution in Egypt to oust the President of Egypt Mr. Hosni Mubarak who has been in power for 30 years now. The median age of an Egyptian is in mid 20s. This means half of the people of Egypt haven't seen a President other than Mr. Hosni Mubarak in their lifetime. Unlike Tunisia, Egypt is bigger in size and population, and is a strategic power in the region, with the Suez canal at its whim., it has trade importance. Bulk of the oil is exported to Europe through the Suez Canal. There have been street protests all over Egypt and yesterday we had a "Departure day" protest. In spite of that, Mr. Hosni Mubarak has still managed to hold-on to power still at least. He has appointed a new cabinet, a new Prime Minister, and new vice-President. The vice-President being a first of its kind in 30 years of Mubarak's presidency. This move suggests all is not well in the Egypt ruling class, and at least they acknowledge the protests are out of genuine anger. With the intensity of the protest, it looks like Mr. Mubarak, a close ally of western powers including the United States for 30 years, will be leaving or its safe to say, it is the "beginning of his end" of power in Egypt. The military is co-operating with him so far, and a lot depends on its role. We will wait it out to see how it unfolds in the next few weeks.

The revolutions in Tunisia and Egypt have created a domino effect on other middle eastern countries in Jordan,Lebanon, Yemen too. Jordan has a monarchical system of government, with the king appointing the Prime minister. The king has appointed a new Prime minister on Feb 1 2011, after initial protests. Most media have mentioned the Jordanian kingdom still has respect with the Jordanian people, and may survive this scare. But looks Yemen's ruler are not going to be that lucky. Unemployment is as high as 45% in Yemen and its President Mr.Ali Abdullah Saleh has been its ruler since 1978. Yemen continues to be a poor, impoverished, backward country in the middle east. Prior to this, Yemen has been in the news very often for bad reasons, like the frequent American drone attacks inside Yemen on suspected terrorists, and many evolving new radical splinter groups calling Yemen its home., which the western nations call it a serious and real threat. Recent attempts like the "underwear" bomber on the Detroit bound flight, had traveled to Yemen and may have been trained there. So it appears, there are inherent problems in Yemen with massive youth unemployment that people become radicalized. It is also a possibility, that religious extremist organizations can exploit the situation and rise to power in this uncertain period. The President of Yemen has went on record, saying he is not going to run for another term in office when his current term expires in 2013. This is a sign of him losing grip, and offering concessions to people. If the people manage to throw out Mr. Hosni Mubarak successfully in Egypt, then Yemen has high probability that it would take center stage of revolution next. On its western side, it could be Libya. Libya has authoritarian rule from its President Gaddafi for over 40 years, the longest serving living leader.

Almost all the governments in the middle east are authoritarian dictatorship or it is a puppet government of the western nations historically. There isn't freedom of speech or expression or an open society in this part of the world for a long time. Leaders have always not evolved from the masses but just appointed by powerfull segment of the population. Culturally all these countries are same., and go back in history for thousands of years. It is a normal reaction of the people to be inspired when people's movement in neighboring countries manage to throw over the leadership and ask for a increasing say, on who they should be ruled by. The current ruling class have no big legitimacy and they bank in on the oil wealth and have managed to survive politically, and have not earned its citizen's loyalty. The powerful rulers amaze wealth worth billions of dollars for their family, and it is just a matter of time they become targets of ordinary citizens, whose life has become more difficult than usual. The western nations, prefer a stable middle east and have helped the dictators be in power with money and weapons, for the sake of stability in the region, and hence oil supply to the growing world. Now that the western economies in financial crisis themselves, this set-up is being challenged.

What is next? It appears the domino effect is going to spread at least in "principle" to other parts of the world, not just in middle eastern countries. However the success of them isn't that clear and remains to be same. With capitalist governments being subject to scrutiny after the recent economic crisis in the world, people have become emboldened to revolt. Protest could hit Europe. We saw the protests in Greece, Ireland recently. Portugal, Spain have a debt problem, and in the days to come, we might see similar protest there too. Eastern European countries are in financial mess, and we could see massive movements there. The former soviet blocks are vulnerable. Increase in food production and labor market improvements are necessary. Youth employment must go up in any growth. Protest spreading to Pakistan is a realistic scenario, with the present government being inefficient, and unable to deliver. Violence is on the rise in recent years with sectarian clashes. The predator drone attacks in the country by US, has angered and raised anti-western feelings. The inability of the government to stop them, has made the government a target for the people. Inflation in the country is running at record levels. Recent handling of relief efforts in earth quake, floods by the government was poor.

India context:

The problems that created the unrest in middle east, namely, price rise of essential commodities, unemployment, corruption apply to India as well. If people come out and protest in the streets else where, it is a possibility it will happen in India too. Unemployment is masked with the family system intact. But the government of India is no safe either. The price rises and corruption are so rampant in the country, if a revolution is needed to stop them, then we should welcome it. It will be a revolution to refine the system and bring in significant changes to eradicate corruption in government and politics. Since its democratically elected, people have a chance to overthrow rulers every 5 years., but if the elected officials do not want to solve fundamental issues facing the people, then a revolution in place to make them do it, is not a bad option. If things don't happen voluntarily it needs to be enforced. I believe, the recent arrest of former telecom minister Mr. Raja in the 2G scam is just a congress government reaction, to let the people of India know, it is serious about corruption. Obviously the Congress government knows, the domino effect would come to India, if it doesn't react, and Mr. Raja is one easy target.

Revolutions happen through out history. It is very interesting, we often highlight the rallies in Europe as 'protests', rallies in middle east as 'revolutions'. Both have the same effect of overthrowing the current ruling class. In Europe its more "anti-capitalist" movements taking hold, and in middle east it is "anti-dictatorship" rallies. Usually the system gets refined when masses protest. At the end of a significant revolution, some of people's problem are solved, and some aren't. If the revolution leads to fundamental changes in society, then it is good. If the revolution merely changes leadership and there is no significant improvement in government policies, practices, standard of living for citizens, the revolutions merely fail like the Orange revolution in eastern Europe. In some case, they go from bad to worse. History will judge the merit of these revolutions and its after-affects on people. At least it is true that the current status quo is not good and deserve's people's movements across the world.

Saturday, January 22, 2011

Inflation Nation

Anyone who goes to his local grocery store in the corner of the street realizes that the cost of basic food and vegetables have gone up many folds in recent months. The story is similar in almost all commodities across the various segment of people. Unfortunately it affects the poor people more than the rich people. This is because the percentage of money allocated for food is higher in the lower income group than others. Any price rise will affect the BPL (Below Poverty Line) and lower middle class segment of the population directly. Since the majority of Indians fall in this category its not a pleasant environment. Vegetables are part of regular Indian meal and they are consumed in abundance compared to other western nations. Onions and tomatoes are basic ingredients in any Indian food preparation. When the price of these items go from Rs. 20 a kilogram to Rs. 80, the ordinary people have the reason to be upset. It affects their monthly budget. Prices rises are significantly gone up for dhaal, oil, sugar and you name it. Even construction material cost have gone up making land, housing cost go through the roof over years now. Bottom line, the price rise is across board through out the country. We have the economist Prime Minister in Dr. Manmohan Singh, and its wondering what does he think conceptually on this. The recent press conferences from him merely reflects his political face rather than his economic thoughts.

The government as usual has come out against the rising pricing prices with more words, than actions, and has blamed it on the term "inflation". Inflation according to the government is the reason for price rises. Contrary to what the government says, inflation is NOT price rises. Price rise is the 'consequence' of Inflation. The Inflation itself is a concept of lose monetary policy (that is originally proposed by the government). The government completely hides this big elephant below the mat and propagates its version of story across the country. And in many ways succeeded. Inflation can be summed up as : too much money chasing too little commodities. People posses the money and are willing to pay more for the commodity that is in scarcity. lets take the example of onion price in reason days. The government is conveying a notion that the price of onions have shot up, because the of "more rain" in Maharashtra and Gujarat, the bigger producers of onions. This may be part of the reason, but not the entire problem. Politician always are comfortable to blame it on the seasonality factors. It suits them to hide the truth, and the listener for some reason buys that argument. If that was entirely true, it should always be true that people in a remote north Indian state of , Assam or Nagaland consumed a significant percentage of onions grown in Maharashtra or Gujarat. This is not the case. Bulk of the perishable items can only be locally grown and consumed in countries like India, where we lack huge storage facilities.
It would make sense to believe, the supply for the local community has come down because of loss in production or artificial demand creation facilitated by middle men and hoarders.
When the government managed to blame it on the rains for onions, what is the explanation it can give to the rise of price of cement, for example. It is just a chemical that is artificially produced. Its prices have gone up still. So the reasons for price rises are not what the ministers say in press interviews, the problem is bigger than what it is.

There are two kinds of inflation. Anticipated steady inflation and unanticipated inflation. The later is more lethal than the former. When people expect inflation to occur steadily over time, people are prepared for it. They make financial decisions based on that. The concept of leasing home dwelling is a good example. A family walks into a home, it pays the landlord a substantial amount, say 10-20% of the value of the house. They reside in the house for a predetermined period of time, say 5 years. After the lease expires the landlord gives back the same exact money. The assumption in this trade was the revenue generated on the initial principal equates to the rent on the property in the period. This is a classic case, where there are marginal inflation and no boom boom inflation. Both the owner and tenant benefit in the transaction. However these days, these deals are no longer common. It is because of unanticipated inflation prevalent in the recent decade. This crushes out the savers. Anybody who has money in the bank lose the value of money they hold. They do not anticipate the loss they make on risk free saving. It is just a wipe out and eaten out by inflation. Fixed income group of people lose their livelihood in the process, for example retires. The interest rates prevalent in the market and the ones published by RBI (Reserver Bank of India) do not do ample justice to these people.

For today's Indian problem of Inflation, the RBI does have a major role. It is merely a tool in the hands of the government. Usually the RBI publish and maintain interest rates on the market. As of now, the interest rate in India is around 6%. What it means is a person who has money in the bank, say Rs. 100/- gets a annual interest of 6%. So he ends up with Rs.106/- end of the year. It is the interest acquired on the principal. No risks, no hassle savings. The problem with that is - the real inflation is more than that. It is in double digits, with food inflation at 16%. So what it basically means is, the commodities he bought of Rs.100/- a year before is now worth Rs. 116/-. So basically the money has lost value in spite of the interest. The saver actually lost money by having it idle. Ideally interest rates must be higher than the inflation to encourage savings. Mathematically a 7% annual rise, doubles the value in 10 years. Savings are very important for the growth of the society. Savings create capital and create wealth and in turn create jobs. India really needs a high interest, low inflation society for a long term growth. In Brazil today, the interest rate is more than 11%. The Brazialian real has appreciated 35% against the US dollar in the last year alone. India should learn from Brazil.

The important thing that really really worries me is the RBI 'policy on inflation' where they "expect" inflation at 4-6% and consider that acceptable. Meaning they want a price rise of 5% a year on every Indian Citizen. How many of them make a pay rise of 5% a year at their work. Why can't we have it at less than 1 or 2 percent, like in most developed countries and in likes of China, Brazil. Economic principles are same across any nation of any size and richness.

When i mentioned the lose monetary policy followed by the government, it means low interest rates, and more importantly a lot and lot of printing artificial money, or fiat currency - rupees. The RBI prints money and it prints a tonne of it. This is the fundamental problem contributing to Inflation in India. It is just been 5 years, we have moved from abundant Rs.500 rupee bill to Rs. 1000 rupee bills. Until 5 years before the Rs. 1000 bill wasn't common. Now its everywhere. This is bad, and its going to cost the country dear. It is just a matter of time, they come up with Rs. 2000 or even Rs. 5000 rupee bills. This is the real problem. So now we know, why too much money chases too few goods. Countries create money out of thin air, and prosperity cannot be achieved through this. It generates a artificial period of growth, and eventually inflation will catch up, and will lead to ruins. The value of currency must go high and not low. These economist you see on TV say, the money losing value is a good thing because it encourages export to other countries. It is a void argument. It makes the exporters become poorer. The society becomes rich only on production and savings., and not by export based on cheap currency parity. If the government of India increase the interest rates significantly and STOP money printing, encourage production, the inflation will ease. The Prime minister Dr.Manmohan Singh, one of eminent economist the country has seen, realizes this? Isn't this basic economics. The counter argument, the RBI may make is to show the forex reservers accumulated by India that accounts to over $300 billions. Technically India can print as much money as the foreign reserve it holds. Unfortunately the foreign reserve itself is a fiat currency. Someone should ask Mr. Subba Rao, the RBI governor, how much Forex reserves does the Chinese have (they have 3 trillion), and why is the chinese yuan lot stronger than the Indian rupee vis-a-vis the US Dollar. (~6 yuan = 1USD).

For centuries, food production has been India's life blood. I am in all favor of food and farm subsidies in India. Agriculture is the primary occupation in the country and is monsoon dependent. The government must subsidize it and PDS (public distribution system) has to be made more efficient. This will reduce the inflation pressure on the BPL and middle class population. At the same time, i am against any other form of subsidizes like color tv sets, marriage funds, free housing, and other junk schemes these politicians come up at the time of elections. These are complete waste of money and affect the regular market structure. For example the cost of constructions materials have gone up after the Tamil Nadu government's "thoguppu veedugal" scheme, where the government gives free money to people to build homes. the government has no role to play in these things. It causes more problems than it solves. The other one is by the same government to pay insurance premiums to big health insurance companies for poor people to access doctors and hospitals when they get sick. This is a completely bogus scheme that is just a attention catcher than really benefit to people. If the government wants to give good health care to poor, it must refine the heath ministry and provide efficient and modern health care through the government hospitals that are already in place and are functioning inefficiently. That would give longer life for the poor.

The RBI and government have made India, an inflation nation. The government has to come up with policy that will encourage production and savings. Self-sufficiency in food can only be attained by that. Rationing everything is not going to solve the issue. It provides temporary relief but does not solve the problem. We need to move to an environment where prices remain stable, food production increases year after year. Printing money and pretending India is growing at a good rate, with such a huge inflation is very harmful. No growth is better than bad growth.

Thursday, January 13, 2011

Indian Judiciary : It is a big joke

One of the prominent failures of post Independent India, is its Justice delivery system. Even after 63 years of independence, the system never refined itself. Most of the time, justice is delayed, diluted, delusional and hence denied.

The country now faces a serious challenge in refining its slow judiciary process sooner or its going to regret on the consequences of it. The Justice delivery system is painfully slow, and for lack of better word, its incompetant. Justice delayed IS justice denied. Last week we had two important happenings, that managed to make it to the main page. One of which is the accusation that former Supreme Court Chief Justice K.G Balakrishnan's son-in-law, accumulating huge wealth disproportionate to known sources of income in Kerala., and other being the 40+ year old Rupam Pathak stabbing and killing the sitting BJP MLA Raj Kishore Keshari in broad day light in Bihar, in front of a huge gathering of people in his home constituency. To put it simpler, the former is the problem and the later is the 'consequence' of the problem. Let the Indian penal code define, who is punishable and who is not. I am pretty positive, nothing is going to come up significantly in either case. But everyone has to admit, the whole system is ripped of and needs drastic changes. The Chief Justice in Supreme court is a unique distinction and is the top post a Judge can ever make it to. He would know the law than anybody else, I would assume. How could someone close to the person who managed to be Chief Justice of India, be accused of unlawful activity. Did the CJ know about it. what is his role in this. what credibility does he have. who appointed him to be CJ and why. Looks as usual as it always happens in India, dishonest people go to the top of the beurocracy. K.G Balakrishnan may be proved innocent and he may have not a role in this. I am not trying to pre-judge him prior to active investigation being made.. It is not just about K.G.Balakrishnan being good or bad, but it is just a case that firmly suggests, not everything is good, with people who are supposed to fix the country's problem. In the Indian legal system, the judges are considered unquestionable, and their honestly and credibility not debatable. This is absolutely crazy. It may have been true at some point in the past, but not anymore. The country has to wake up to reality, and pin credibility into the judicial system. The whole system of working needs to be reworked upon, and made efficient and transparent.

Judiciary is a big joke in India. Remember the last person who was punished for crime ? Either he was so notorious to be left out in the open, or he did'nt have the money for his bail. Most people who are not financially viable often get caught in the mess. If you have the money power, you can get away with almost anything including multiple murders. This is a sorry state of the Indian justice delivery system now. The system fails to deliver justice, and the result of that is people take law into their own hands and punish each other. There is a tacit acceptance to this action in society. This will lead to uncivilized society. The case of Rupam Pathak is a classic case of it. There was a FIR filed against the local MLA by Rupam sometime back over sexual allegations. It appears, the case made no head-way forward. Preliminary reports indicate Rupam pathak was frustrated with no action being taken against the MLA and decided to stab the MLA herself as an act of revenge. In my opinion, violence cannot be a part of life. No one violent has a place amidst the society. They must be arrested and isolated from society. The trial may bring the truth out, and we will discuss then who is right and who is wrong. But the frustration with regular legal process is very active in minds of people who wait for justice in the Indian courts. This cannot be denied.

There are a tonne of legal disputes in Indian courts today, that will take generations to solve. what is the expectation for the person who is dependant on those verdicts. When a trial happens over long periods of time, people change stands, witness become hostile, the evidence no longer is fresh, people involved in trial lose motivation. Just dragging a case for years and years is judicial cheating. The whole justice system is flawed in the process when it does that. Land disputes and property disputes, needs to be solved as soon as possible, so that people can get on with life. So that they can make an investment on them, and bring in employment and create wealth. We have people going to the court with the intention of just to extend the problem for long. The ordinary people feel left out. The dishonest segment of the population benefit from the process. The lawyers and judges make money in this flawed process. In spite of huge backlogs of work, the judges go for summer vacations, just like school students, often leading to inefficient man-hours of operation. People launder in jails for years, because the judge hasn't had time to "get to the case". Murder cases that have solid evidence on the initial period lose steam over time, and the witness turn hostile, because often they are subjected to pressure. The Shankaraman murder case in Kancheepuram in which the Kanchi mutt was accused of being involved is an example. Almost all the witness have turned hostile and the proceedings have gone no where. The Judicial system neither helps the innocent or witness, but plays as a good tool for persons who are aggressively dishonest, and exploit the sytem to their advantage.

When the legal system doesn't delivery just like it is happening in India right now., it always leads to social unrest and revolution. It is high time the central government recognize this problem and enact laws and overhaul the system. The following are items that the people need in that.

1. Find resources to clear backlog of cases all over India. Ensure speedy disposal.

2. Atleast new legal cases, needs speedy verdicts., say vital cases like murder, rape, financial frauds are attended to and verdict executed in 4 years.

3. Protect witnesses.

4. Punishment, if found guilty.

5. Hold Judges accountable and punishable, if found involved in mal-practices.

6. Simplify the justice delivery system, and make it RELEVANT in society.

The whole appeal process is ridiculous. This has to be simplified and needs a time sensitive requirement in it. Punishment MUST be delievered if found guilty for all. Rich or poor, younger or older, man or woman, if found guilty in the eyes of the law, punishment must be executed without delays. Every court case should lead to a "logical" conclusion. Only strict punishments are going to help refine society. There are multiple clemency petition pending in the table of the President and Prime Minister. They must be attended to, and punishments enforced now. Only this will invoke confidence in people to go to courts seeking Justice.

The other face of the same problem is the multiple commissions that the government set-up after every tragedy. Those commissions take years to reach a conclusion and often go no where. At the end of the process, the people realize from the report that its just a FYI on what happened, but isn't serious about providing punishment to guilty. Indian politicians take honor in being named for bad reasons in those commissions. Any commission that runs for more than a year, is a complete waste of tax payer's money. Take the famed example of Bhopal Gas tragedy investigation/verdicts. It was a tragedy where thousands of people suffocated to death, and probably died thinking the world was coming to an end. The Indian court took the case, and delivered a verdict, a piece-meal compensation after almost 25 years of the tragedy. The case really deserves more attention than that. An the end of the day, the verdict sounded like a automobile accident case in some highway in India. What was the court doing with this case for decades? 25 years is really long time in anybody's watch except for the clocks in Indian courts. what many things happened in this 25 years, We had multiple governments, Olympics, football/cricket world cups, regime changes all over the world, wars, etc.... and the court was sitting on this investigation during that time. A delayed verdict like that is an insult to the people of India who have lived through those tragedy in the cold December of 1984. What is the intention of the verdict? It was just reduced to a formality. It is humanly unjust to treat it like that. What explanation does the court have for the thousands of people, who are living now but are physically impaired because of the gas leak. Somebody must be pinned responsible for it., don't you think. Not everything happened by itself. If the incident had happened in rich western countries, things would have been much different.

India has a lot to learn from other western countries, how the rule of law is enforced, maintained and safe-guarded. We have to admit, things are far better in advanced countries. The Indian society is a tolerant, obedient society by history. The family values are still very much intact. In spite of the vast diversity, there is a feeling of nationalism, patriotism, respect and moral values. So it is just a matter of enforcing law and winning back the confidence of the people.

For most of Independant india, the Congress government has ruled the country. So the Congress party is responsible for this judicial mess, relatively. It must have been fixed long before as it has become monster today. The people will wake up and we will have a law-less society in the near future, if the govenment does not act now. Manmohan Singh is credited with bringing back India to global stage economically in the 90s as the finance minister. Can he deliver again this time by refining the Indian Judiciary as a Prime Minister.

Sunday, January 2, 2011

New year 2011 : looking forward

The 2011 is here. And i believe its going to be a very interesting year as it is promising to be in all aspects of the society. In february we are going to have the cricket world cup jointly hosted by India, Sri lanka and Bangladesh. It is most likely Sachin Tendulkar's last ODI world cup. Can he win it for India. The long innings of Sachin as a best batsman the world has seen, and the records he created, most of them unimaginable till recently really deserves one. Australia had a good decade and looks it may not be able to repeat its performance this time. A lot depends on Ponting, if they have to pull it off one more time. As a Indian, i want India to win the world cup, and at the same time want the best team to win. Lets see how this works out. South Africa and England have been good recently, and they can pull it off. Can they pull it off in sub-continent pitches, is the dilemma. Sri Lanka has its young guns firing in Mathews, Pereira, Malinga. Can they repeat the 1996 experience? Who will be the Sanath this time ? Lets see. Bottom line, It is going to be competetive cricket. A good tournament is on the cards. The security in India is going to come under focus again. There could be possible scare tactics in the build up to the biggie, especially since Pakistan is left out as a host which is very unfortunate. It has to be seen, how the Indian government is going to deal with it. Everything looked fine, until the recent Varanasi bombing, which killed a child, and left dozens injured. There home ministry has to really have it under control. It is going to be a an uphil task for the security establishment. Any incident that is significant, can force countries like England, Australia and New Zealand to re-consider venues. They were already succesful in eliminating Pakistan venues from the tournament citing security reasons. The shooting incident against the visiting Sri lankan team was the final nail in the coffin for international matches in Pakistan soil. It is going to be years, before cricket matches return to its venues. Pakistan has had a bad year on and off the field too, with most people seeing their cricketers corrupt and with attitude issues. Its high time, they come in with a bang, and lets see their reverse swings and the fighting script when the coutry is not in best times.

Congress government has a string of state elections due. What in West Bengal. Can Buddha come up with a miracle, given the fact its trusted leftinent Jyoti Baasu is no more to help them out. It will be the first election without Baasu around in its 30+ year of successful election victories. Will the People of Bengal trust Mamtha Banerjee. Can left extend its record. I wont be surprised, if the Left manages to pull it off 'one more time' particulary if it could divide its opposition. Remember they told, the left is in bad shape in the 2006 assembly elections., but it managed a confortable win. The other question for Congress(I in Tamil nadu, what is going to happen with its alliance in DMK, which is going to have a tough election ahead. Will the congress stay with it? Will the freebies work? After the 2G spectrum scandal, DMK is viewed more corrupt. Can it do a image make over before May elections? Will the congress go with Jayalalitha this time around. Remember the famous "tea party" that Atalji and Advanji will never forget. Now that Sonia Gandhi's Italian origin is no longer an issue, things could change very fast than you think. Any alliance can happen. Current trends indicate, most likely the DMK will be voted out of power particulary because of ultra-inflation. The Congress is most likely to under perform until it get the price rise of essential commodities under control. The PM Manmohan Singh has told, the Government will go the extra mile to recede inflation. Lets see what happens. The interest rates are going to go up atleast two basis point in 2011. The supply side has to be taken care as well., now that we had a good monsoon.

Out of everything else, the world economy is probably one thing that stands out in 2011 expections list. Everyone has a opinion on them. In my opinion, it is going to be a very very interesting year. European union is being tested. The countries that came together under one banner in currency and trade, looks to be degrading because of political independancy of member nations. Can they stand to gether? The biggest challenge is what happens if Portugal and Spain look out for a bail-out from EU? This is a OMG moment for European union. Can the Austerity measures in Britain reap gains over time. Will its people accept those measure. We already have seen student protest getting out of hand in London. Is it going to spread to other demonstrations in the EU member nations. We are definetely going to see this evolve through out this year. Will the Chinese step into helping EU with its debit problems. If so, who is going to buy US debts? China can use this oppurtunity to diverse its investment away from US treasury bills. Is it a good investment for China in the long run, probably yes. The Markets around the world managed to reap some gain in 2010. According to suveys conducted by renowned journalist, it is going to be better year than 2011. But the Alarmist think the other way. The value of gold has gone up 27%. Where is it headed ? If the Alarmist are right, they it could make 30% more this year on gold. The value of oil is going to be interesting, as China and India grow rapidly in spite of Western economies boosting price. If the western economies dont come out of slow down, it is going to be hard on people. A $148/Barrel crude is payable during good times, but is terribly bad at the time of a down turn. The US economy has come out of coma, but still with 9.8% unemployment is nowhere near the normal. The way he is being playing this season, Tom Brady can win the Super Bowl, one more time for the Patriots.. atleast looks like, but Americans have something more to worry this year, that is how does the economy play. It is going to be closely watched, by markets around the world. Can it make a come back this year ? Will the QE2 be complete, most likely yes. Will there be QE3 in 2011, most likely yes. There are monetary benefits for the FED to do more QEs.

Wikileaks had made a significant mark on news reporting this last year. The publishment of leaked cables, has provided a new platform for news-savy people, who think they discover and expose new materials, that are not published by huge corporate medias. Wikileaks is probably going to come up with more articles of such sorts, and is capable of "displacing" world opinion on not only leaders and beaurocrats but also the people. what comes out of wikileaks is probably going to be more relevant here after than anytime before. The freezing of its funds, its founder Julian Assange's arrest and alienation is going to slow down Wikileaks, but whether the pressure can be sustained remains to be seen. All wikileaks would aspire for is 2-3 significant exposures in the year to have it credibility going.

One of my good friend, asked me, what would you like to happen this new year that is going to make me happy.... As a Indian, and cricket lover, no wonder i told him, an India win in world cup final 2011, at least for Sachin sake.

Friday, December 24, 2010

Manmohan Singh's second innings

Over the past one and half years, the Manmohan Singh government's second innings has more negatively, than its first full innings. Even though it no longer has the left party questioning its wisdom in trying to apply more liberalised economic policies., and with comfortable majority in numbers, obviously the people of India expect more from its well qualified prime minister in Independant India. Mr. Singh has become a PM that history is going to treat significantly. Not a cameo display like what Deva Gowda or I.K.Gujral who were relatively were night watchmans in the Indian political system in the late 90s. Mr. Singh could possibly become the longest serving PM in independant India outside the Gandhi family. A lot is at stake now than ever for Mr.Singh. Things seems to go normal for the Congress Government until recently. The primary enemy being Inflation and the scams. It all started with the delay in Common Wealth Games venue preparation. None of the infrastructure was in place in time, inviting adverse comments from foreign media especially the BBCNEWS, one of the most respected media in the world. It is true there was a sense of irresponsibility on the Common Wealth Games committee members, and as usual the implementations delay. It just turned out to be one classic tale of how in India, things get done only in the last minute. It turned out to be a typical example of a polician who cannot deliver. Of course, i am referring to Suresh Kalmadi. What followed in the last week of September, and first week of October turned out to be what a Indian policitian CAN achieve. Now i am referring to Ms. Sheila Dixit. Finally in spite of all chaos we really did manage to pull of a successful CW games. The opening ceremony from the school children is worth a mention, and promises that India is in good hands in future. Except for the snake stories, which may have happened anywhere as well, the CWG was a satisfactory and pleasant experience for the atheletes. There was no major complaints in spite of the bad run-up days to the games. India managed to finish second in the over all medal tally. The security was tight, no surprises, and things went well as the govt hoped. Now that the games are over, still the questions remain. why did it cost more than the stipulated budget. Why didnt the atheletes village get ready in time? why was the run-up to the event lack faces. why did it involve the PM of the nation to step-in to put things in order. what happen to the money spent? why did the system fail. The government has the obligation to explain this to the people. They deserve to know why the CWG became a embarrasement rather than a event of pride. Bottom line who is corrupt, why arent they held accountable. Mr. Suresh Kalmadi needs to answer a bunch of the questions being the chairman of the organising committee. Mr. Suresh Kalmadi has been the chairman of the Olympic Committee of India ever since i could remember, and not much has happened for India in the Olympics. His track record is unimpressable. He is incompetant and its time to leave. Punish him, if found guilty. Oh.. in the slow India judiciary, he will definetely get away for sure. The CWG episode really ignited the smoke in 2G spectrum tender into a big fire. The accusation that the 2G spectrum was given to corporates for a throw away price in 2008 was always in the political discussion. The Radia tapes and the kargilgate scam where Maharashtra CM Mr. Ashok Chavan had to resign put ammunition to opposition guns, and they did come up with full swing on 2G scam. This is a right step from the Indian opposition, particularly the BJP and AIADMK and managed to get rd of Mr. Raja from the union ministry. However it took disruptions of parlimentary proceedings to make the congress act. Now Mr. Raja is out and an enquiry has began. As usual, the days will make the 2G spectrum have some fun in the mainstream media and it will vanish as anyother corruption scandal in India. It just makes some character character assasination of some political leaders has began, this time, it a minister. No one will ever be punished for the loss of the exchequer. once again, thanks to the slow pace of the Indian Judiciary. The worst possible scenario for Mr. Raja is he loses his political future. There are reasons for Mr.Raja to believe, being a union minister is probably his best shot in Delhi politics., which he has already achieved.

Multiple scams, price rise is what the Manmohan Singth has on hand to solve. The Congress government cannot risk these issues at the time of state elections next year. The Congress government's integrity is at stake.The government should come out with guns blazing to put an end to price rise, and act its house is corruption free. The recent spike in Onion prices, is one more symtom of the same problem, and the PM has to promise personally to the people of India to bring down the prices in 3 weeks. If you want to know, how important is the price of Onion and whats its cost to the political party in India? Ask anyone in BJP. In 1998 under the NDA banner, it lost vital elections because of the price of Onions. Everyone aware of the Indian polical system knows its cost. I visited India for this year recently for diwali, and found real inflation in almost all sectors. Prices have gone high everywhere. Usually, the rich and middle class get away from it with more pay checks, Its always the small guy like BPL families, pensioners get affected directly. A Nation with high inflation is bad than a nation with good growth. Growth cannot come at the cost of inflation, and the PM must know this than anyone else, being an economist. Value of house prices have shot up abnormally, while the rents still are nominal. All it says, is there is a clear real-estate bubble in India right now. It is not as big as a housing mess in what is happening in the western economies but it is still above normal levels. The Government must step-in and control the money supply. No growth is better than bad growth.

Congress has a lot at stake. The PM is most likely having his final tenure as PM, and he cannot afford to make a mistake. The idea that he is Mr.Clean in Indian politics holds true still, and its up to him to maintain that. Congress has to enact new laws to punish corrupt people. We need stricter laws sooner rather than later. Prices must be brought down, at the expense of growth. India saves 35% of their income. Price rise punishers savers. Congress should not miss an oppurtunity to fix corruption and price rise now or it may regret. Since there are no winnable opposition party in near future, that can provide alternate government in Delhi, it can buy time for now, but not for it cannot afford the anger of the Indian electorate.

Sunday, May 31, 2009

India Elects '2009

The marathon Indian election has finally come to an end. It was done in five phases, and over a month and half. Now the electorate has finally delivered. May 16' 2009 was another one anscious day for every citizen in India, that will decide who is going to rule the country for another 5 year term. The opinion polls and exit polls were banned, which i feel was the right thing to do, and the suspense was there till the end, as no one knew the trend. Even though popular television channels came up with opinion polls after the final phase of polling on may13, the results was always when its out, its not true until its true. Previous polls were way of the mark before and there was no reason why it would be any different this time. The pollsters failed again, i should say. In a huge country as diversified as India, it wouldn’t be honest to ask someone judge the trend and come up with right numbers, when there is no wave across the country. There were some violence in the initial two phases, mostly in central India because of Maoist groups. Overall the election was peaceful with minimum incidence. The election commission of India has proved, one more time. The opinion polls, from New Delhi based television channels, predicted advantage to the Congress party, but didn’t predicts the numbers right. In other words, they predicted the trend and didn’t predict the numbers. It wouldn’t be fair to ask them predict numbers. That is mainly attributed to the fact that India still lives in masses, and talks only in Ballots. The round-the-clock news channels reflect the mood of Urban India rather than rural India. As Jawaharlal Nehru said 60 years before, that India lives in its villages, is still true. In the late 90s, the former chief minister of Madhya Pradesh, Digvijay singh had a five-year term and was running for re-election. The polls suggested a verdict against him. He was asked by a reporter after voting his ballot in the elections on what he thought about the election, now that the opinion polls has suggested that his government may lose. He replied, "Hum ko vote dena valaa, mike mae bath nahin kartha" (people who vote for us, do not talk in mikes). when the results came, he was proved right and won a decisive second term in office. The ordinary Indian electorate has once again kept the results to him till the end, and has emerged victories. The congress party with their allies had cruised towards victory, just falling short of majority. The Congress by itself managed to get 206 seats, which is the highest number of seats by a single party after its own performance in 1991, post Rajiv Gandhi assassination election. The opposition really failed to create space for themselves in the number game, and the results are decisive against the incumbent congress government. There was no anti-incumbency among the mood of the people. Congress emerged victorious in Andhra Pradesh, Uttar Pradesh, Kerala, Rajasthan, Maharashtra, and with its allies in West Bengal, Tamil Nadu. This election will be remembered for ever, because of the surprising victory for Congress in Uttar Pradesh. No one expected that including the Congress party. They allies just left the congress in the cold, before the elections. The major UP allies like Samajwadi party was willing to give only a few seats as part of its pre-poll agreement, and the Congress decided to go it alone. It was Rahul Gandhi's decision to go it alone. It was a bold decision, which turned out to be a good one. Congress vote share in UP, has been steadily coming down for over two decades now. UP sends the highest number of MPs to the parliament, and the Congress or the BJP cannot afford to slide in this crucial state. The regional members here, had split through the main vote bank of the national parties in Congress and BJP. The Congress has won back the hearts and minds of the people in this crucial state. Congress has once again became a leading political force in UP. In future elections, the regional parties like SP, BSP has to now depend on Congress for any central elections. However Congress party's favorability in the state election needs to be seen. Unless the state management is cleaned up with renewed with performing leaders, and avoiding political infighting within the party, it has minimum chances of regaining its supremacy. SP and BSP have really taken a shock from the results. Their unconditional support to the congress government at center, says that they have no where else to go. The anti-incumbency factor in the state of Kerala ensured a sweep for congress in the state. YSR has ensured, Congress is re-elected in the state of Andhra Pradesh, a phenomenal performance both in state and central results. YST deserves lot of credit for his performance. The Chiranjeevi factor ensuring the vote against the congress is split. YSR is the clear winner. Tamil Nadu has been a real interesting state, particularly after the UPA members walking out of alliance and forging ties with opposition AIADMK, and more importantly the Sri Lankan issue. The opposition alliance was huge, and the majority perception was the ruling alliance would be reduced to just a hand full of seats. On one point, even a clean sweep by the opposition was predicted. But when the results came out, the whole theory was proved wrong. The DMK along with the congress and smaller allies has won all but 11 seats including the union territory of puducherry. Just like Chiranjeevi in Andhra Pradesh, it was Vijayakanth's DMDK that split the anti-DMK/congress vote. If the DMDK wasn’t a factor, then the results would have been the other way around. DMDK would be a significant force, when assembly elections are due in 2011, and their stand to be an alternative to DMK/AIADMK would definitely resonate in the minds of voters. Biggest winner: Congress party is undoubtedly the biggest winner in the election. It managed to win the crucial minority vote across the nation. The minority votes moved to the Congress at the expense of regional players like Laloo's RJD, Mulayam's SP. Y.S. Rajasekar reddy is a winner for the congress, as he romped in the highest number of MPs for the congress from Andhra. Navin Patnaik in Orissa surprised the Indian electorate by almost sweeping the state and central for himself. His election as chief minister for the third time is an important indication of how the ordinary electorate is getting more and more mature as democracy evolves. Bihar's Nitish kumar almost sweeped the state Bihar with its allies in BJP. His governance was acceptable by the people of Bihar. Rahul Gandhi's decision to go alone in UP and Bihar has made him project as a wise leader who wants the build the party on its own strength and not dependant on alliance strength. He is expected to continue his good work. His image in the party and in the minds of the people has risen significantly. Sonia Gandhi in her own style still controls the party and is in transition mode for yound Rahul to take over. BUT the clear winner of ALL has been the Prime Minister Manmohan Singh. People of India trust him, and his performance has been acceptable. His hard work and his dedication in work has gone well with the electorate. His honesty still remains impeccable. This is a verdict for him. Biggest Losers: Even though the main opposition BJP is perceived to be the biggest loser; i think there are others who lost more. The third front with the left parties just managed to get 20+ seats. Their tally got reduced from 60. Their formula for third front didn’t work. The alliance partners were found untrustworthy. Failure to promote a universal face for Prime Minister cost them. Every constituent has its own PM candidate. The third front was a misadventure. Laloo's RJD was a complete failure. As Laloo himself admitted, it was mistake not to align with the Congress. RJD reduced to just 4 seats, even the chief losing one of the two he cautiously contested. Nitish Kumar has simple outplayed the opposition by his governance. Laloo's comeback is a real question. He needs to go to his grass roots, and his rail bhavan life has come to an end. LK Advani is a loser. PM Manmohan Singh said during the campaign, the Advani is not a Prime ministerial material. It seemed to be true amongst the Indian electorate. His hindutva charisma and his track record as a divisive force failed to resonate in the minds of the electorate as a PM candidate. His polical life and his dream to be the PM has finally come to an end. Five years from now, he would be more than 86 and BJP projecting him again as PM is unlikely, particularly after this election results. Gujarat chief minister was projected to be PM candidate in the middle of the election and it didnt go well across the country. The 2002 Gujarat riots continue to haunt him, and his popularity will not improve among the moderate India, who form the majority of the electorate. It was a vote for stable government. It was a vote against the smaller parties, who were considered road-blocks to the Nations development. The recent bomb blasts across the country and eventual campaign by BJP accusing the congress of being soft on terror doesn’t seem to have had favor with the voters. The voters has given the Congress, the benefit of doubt, and now expect such acts don't repeat. The victory for congress in all those blast cities, like Delhi, Mumbai,Jaipur, Hyderabad is a classic example that people think congress can handle those issues better than a saffron BJP. Minorities did not want the communally polarizing personality like Advani to become prime minister, and that consolidated the Congress votes across the nation. The left was considered out of touch with reality with their economic policies. Their influence on the UPA government's decisions in the past five years was considered not helpful by majority electorate. Their defeat in their bastion like West Bengal, Kerala is pretty much reflects that. Time is running out for them and they have to come up with something extra ordinary to retain WB in 2011 assembly elections. Overall the people of India have won. The democracy has won. Huge challenges lie ahead for the new UPA government. With the verdict, the expectations from the UPA government have gone high. With a global recession around, things are not going to be easy for Manmohan Singh and his team. How they tackle the economic issues and at the same time provide good governance with development remains to be seen.

Wednesday, February 11, 2009

Banks Of America

Banks Of America
Today was a special day for the heads of major Banks in the US as they had to march to the capital hill to answer the law makers, on questions regarding the
financial crisis they are widely believed to have created. All the major bank heads, including citibank and Bank Of America were grilled by members of the
congress on their past practices and future plans. Future plans would be their plans on how to make more money from the tax payers money they just borrowed
as part of the TARP (Troubled Asset Recovery Program) funds. Couple of days before, this time across the Atlantic in the UK, the Bristish Bank majors were
grilled in the House of Commons. The meeting became famous after all the bosses mentioned the word "sorry". Recently the Pope had to ask for "sorry" too, may
be that is why the Banking bosses too felt asking for "sorry" could probably be divine. They would be alright, as long as the government doesnt ask for the
money they took in previous years in compensation packages, when their institutions were going down in value and making bad acquisitions.
Banks in the western world were always considered to be more customer friendly and are well known for generous loans and business practices. These were signs
of economic progress and nation building. The credit history of individuals were monitored closely, and the credit worthyness of the borrowers were more
often done correctly. The technology was always there to help them do this. They invested huge amount of money in information technology, and revolutionised
the way banking worked. if you had seen any Banks in south asian countries, which are mostly developing countries, the physical structure would be a shaddy,
dim place. its mostly government owned and operated in the lesser scale of attractiveness. On the other hand, the banks in the west were operated as
corporate entities and had huge structures, investments on their offices, massive investment in advertising. Its a altogether a different kind of entity.
Charlotte, North Carolina remains the biggest city for bankers in the US. Both Bank of America and wachovia have their head quarters in charlette and a
casual drive in the city would give a glimse of how big they are, and how much they own. They own not only huge skyscrappers, but also football grounds. They
are really really huge than any corporations in the world.
As the saying goes, when things are good they are really good and when things are bad it may be really be worse. American banks in the last decade gave loans
to potential house buyers. As the interest rate was kept low artificially by then treasury chairman Alan Greenspan, there was an artificial boom in the
housing industry. After the tech bubble burst in the 2000/2001 period, the Government wanted to boost the economy. It was the housing that the government
started encouraging, in the name of increasing the home ownership across the country. The housing boom in the past 4-5 years has been in effect to get over
the hangover caused by the tech bust. As the banks started lending to boost housing, the lending standards came down as the years rolled on. Fannie Mae and
Freddie mac is a government sponsored entities (GSE) that was partly owned by government and the private investor to facilate funding for banks. They are the
intermediaries between the banks that do the lending and the private investors who would like to fund it. The Banks make a profit for the investors on the
mortgage lent. So basically the bank increased lending with the help of these institutions. More and more they lent, there were more and more investors
willing to fund the bank hoping for higher returns. GSE companies sold these mortgages to investors as Mortgage backed securities. These are securities
created by the system to fund the mortgage industry in the US. These securities were sold all over the world in multiple forms. They were in turn sold over
and over again across the world. Investors mostly where soverign wealth funds and banks in other countries which were sitting on top of lot of money
depositted by their customers in their respective countries. The House prices in the US started climbing to historical levels across the country. Mortgage
were available in plenty and ordinary people pounced on the boom, hoping to make some easy money. The bubble started to grow and grow until it burst. During
the boom period Banks relaxed their lending standards so much that they began giving mortgages to risky borrowers. The money lent to risky borrowers are
usually referred to as NINJA (No Income No Job or Assets) loans. This was caused because of increasing competition among lenders to grab the market and the
value of properties which kept on raising. There became a general view that the real estate market would not come down. Much of the buyers were tempted by
AMR (Adjustable Mortgage Rates) by lending companies. Here, you pay a low interest for the initial period and the repayment rate increases after a period of
time, drastically. This would come with a very low or no downpayment and the ordinary customer was ready to take the risk. After all he doesnt loose much, as
he thinks he is going to make a big sale out of it, and would eventually cash it after the value of the property rises in value. There are also allegations
that the people who worked for lending firms, sold AMR lending to buyers, without explaining the risks they might face in future when things dont work well.
This went for quite a while and the housing bubble burst with the subprime borrowers defaulting to pay. what started as a subprime crisis moved slowly to the
wider mortgage industry, and as of now there is a full blown housing crisis. The value of homes are going down. There are more houses in the market than
people willing to buy. The gradual increase in unemployment has checked the house affordability of people and foreclosure has become common. People who
bought houses during the peak of the boom, have come to realize that their houses are no longer worth the money they bought it for. To avoid further loss on
their income, they simple go for foreclosure or just walk away, defaulting on loans. Lots of AMRs are up for reneawal as the years roll on, and the crisis
could get only worse.
In the whole mess, banks were caught naked. The loans started defaulting, and the mortgage backed securities, which once was considered a safe haven was just
running for cover. Except the name there was absolutely nothing "secure" about that. Huge capital in hedge funds and money market securities started
collapsing at the weight of the subprime crisis at the start, followed by the mortgage industry in general. GEC companies started to loose values as their
exposure to bad loans surfaced in the market. Fannie and Freddie fell from their peak of $40 to meare penny stocks. A huge sum of money was just lost by
these GSE. The government has to finally step in to save these firms to avoid further damage as they owned or guaranteed half of total US housing. The demise
of fannie and freddie stocks made inroads to the real economy. With Bear Steans collapsing in the March of 2008, the market assumed it could be a one-off
case. JP morgan bought it for a throw away price. When everything was seemed to have controlled the next big upset came in the form of Lehmann brother
collapsing fully on September 15 2008, after the market came to know of its enormous exposure to mortgage securities and their shares plunged. Merryl Lynch
was acquired by Bank Of America the same day. It was a sad day for those corporate giants who had ruled the corporate world for decades. When they came down,
it was just like the titanic, the legacy wasnt going to save them.
Until September, the Banks were considered relatively doing ok, but the stock holders started to lose confidence in the banks and went in for huge sell offs.
Banking stocks took a huge beating in the last quarter of 2008. Bigger names such as Washington Mutual (well known as WaMu) and Wachovia had to lose market
value so fast, that the government had to step in to save them. WaMu was bought by JP Morgan and Wachovia went to Wells Fargo, after a bitter competition by
rival Citibank. The largest US Bank lost the battle for buying Wachovia to Wells Fargo only to later realize that they wouldnt survive either. Being the
biggest US bank in the world, the government stepped in to save it one more time. Next the Citibank was Bank Of America, which was considered relatively
safe. But there was always skepticism in the Market, since their deal with Countrywide. Any one who would have watched television in the US in the last few
years would know, what country wide is. They were the largest mortgage lenders... remember the guy in the AD saying, 'No one can give you what countrywide
can give, because we are the largest mortgage lending company in the country". The deal was always in a sea-saw, and Bank Of America had threatened to walk
away from the deal many times. Bank Of America bought countrywide after countrywide started failing and was unable to re-pay the bank's loan. Most loans
given through countrywide were bought from Bank Of America. Before they could digest the countrywide deal, they were forced to buy Merry Lynch by the
government in september immediately after Lehmann Brother collapsed. The Government guranteed some of Merryl's loses and bank of America was basically forced
to be patriotic. Struggling with two huge deals, Bank Of America soon realized the Merrly Lynch deal was so toxic, and it had more loses than it was
initially thought. It fired John Thain, who made that deal and has also threatened to walk away from deal. But the Government has backed it to avoid market
So, as of now, most big banks are not doing well and are in emergency units, only to be taken care by government. these Huge Banks and its executives were
supposed to be the masters of universe months before, and the tide has changed now. There are about 10,500 FDIC insured banks in the US. Almost ninety
percent of the deposits are with the top few banks. John Thain has made his money and walked away in spite of spending 1.2 million on his office, when the
company was in dire loses. The loses made by people like him is now in the hands of the government as there are no takers. The whole banking system has
collapsed in the western world as a result of this. The boses of these firms have almost nothing to defend. The people's representative are asking questions,
as why did you give loans to subprime borrowers, and immediately following up with another question, why are you not lending the TARP money to borrowers now.
Its a poor state of affairs.
Historically, banks were not supposed to be for profits. Just think for a minute that there were no banks in the world. People have to carry money in their
pockets or have it in their home. This was risky as it might get stolen or they may be lose it. So banks were created so that, people could keep their
belonging, money - safe and get it as and when its needed. This is how the initial banking system should have started. Over the years innovations came in and
as the human civilisation started maturing it was used for other purposes as well. Now the banks in the west has reached a point where "making more money"
has become the primary responsibility than to "preserve" customers money. Too much innovation in the money market has brought about negative climate to the
financial system. Usually when the government owns a entity and its being privatised, private people rush to buy. it might be a loss making entity, but still
the private ownership wants to buy it with the hope that it can run it for profit as the whole infrastructure already exists and all it had to do is to do
good management. On the contrary, the banks of americas are up for sale and no private buyers are willing to part their money on it... which is left out :
only the government (poor guy) steps in to buy it. its a low end of greed in private sectors, and lack of responsibility on those people who managed it. who
is to blame for this? The government, i would say. it should have regulated at the right time. Bubbles will burst and even the mighty banks are no exception. As Peter Schiff out it, When a
teacher leaves a bag of chocolates in the class for a sometime and is back to see all the chocolates are eaten by the students.. who do you blame... can you
blame the kids for eating them? Of course the teacher who left it there.