Dec 3, 2011

Euro : The Curious Case of Profligate family member

Someone asked me a few days back about whats happening over the Eurozone crisis. It took a while for me to explain. However, i've been thinking about the correct way to explain it in a simpler language. Here it goes

Imagine a big joint family ( i.e, European Union), whose members are practicing different professions . Each has their own pet concerns, but supports each others in times of need .Suppose a profligate member of the family starts spending beyond his means. To meet his expenses, he starts approaching money lenders or banks. The lenders, because of the fact that he's from a reputed family initially starts lending to him at lower interest rates or without guarantees. This puts additional fillip to the spending person and his income expenditure gap widens. Gradually, lenders tend to doubt his capacity for repayment and reduces loans to the all members of the family. This creates difficulties even for the well performing members of the family . The knee-jerk reaction is to try to bail out the spendthrift. But even after bailing out couple of times, if he goes back to this overspending mode, what will you do ? You have two choices 1) kick him out of the family (2) make him follow an austere path somehow.

This is precisely the question that European Union is facing now. And the exacerbating fact is that the profligate member is no longer a fringe nation like Iceland. They are major economies like Italy. Few years back in my introductory MacroEconomics course at IIMK, professor Nandakumar explained the pitfalls of getting into a monetary union without making a fiscal & political union. Such a union is inherently unstable . Europe could have never achieved a political or fiscal union as cultures are totally different from one side of continent to other and they require different kinds of political policies. Maastricht treaty which established the concept of Euro was fundamentally flawed in that angle. It was an attempt to put up a strong front which would combine the bests of different factors of production , or rather efficiencies prevalent in different parts of Europe . It was a political stroke without working out necessary economic fundamentals. Given the quagmire that Europe is in now, the costs of pulling out of Euro is far higher for even the strong economies like France & Germany. Hence, I think in the short run, these powerhouses will force the rogue member states like Greece & Italy to follow good fiscal discipline. But in the long run, the associated loss of freedom ( both economic and political ) will be too much for these nations to bear. A decade down the lane, i won't be surprised if Euro nations are just the well performing economies of Germany, Netherlands, France etc.

Aug 22, 2011

Why Inefficiency Is Better ?

Seventy Eight years ago, two nations (lets say A & B) were distressed with inflation , corruption & unemployment. A person in country A ( a hero, already by then by his clean background ), blessed with extra-ordinary oratory & crowd pulling skills  , proposed an 'Enabling Act' .  It was supposed to be the 'Law to remedy the distress of people', which gave him sweeping powers..  He didn't have the necessary majority to pass the bill in parliament. By a carefully crafted campaign of mass public hysteria, he appeared to have the backing of masses,especially middle class. Parliament was burned on one day. Shortly after that, the Enabling Act came into place. The immediate economic impact was enormous. The corruption level was minimized, economy was galvanized, the nation dramatically pulled itself out of the great depression .. and much more...Masses hailed him as the hero who replaced a non-functioning system (Parliament) and brought efficiency in all spheres..  But the price this particular nation had to pay for this 'Enabling Act' was big..   This particular 'Enabling Act' became the basis of the greatest tragedy that was to fall on human race in the last century..

The president of nation B implemented a set of policies advocated by eminent advisors. The resistance to these policies / laws was large. People in country B initially loathed the president. It took a very long time for the country to get prosperous. But finally it emerged as the economic superpower of world

- The Nation A was Germany . Nation B was USA . President of nation B was Franklin D Roosevelt.
They key difference between Germany & USA was that USA respected systems which put checks and balances in place by accepting inefficiencies

You cannot draw parallels everywhere. But the above story illustrates why we should always prefer systems with inefficiencies over draconian power systems. Because the functioning of an authority vested with unbridled power is solely dependent on who is at the head.

The story also illustrates on why majority opinion / referendums should not be the basis for law formulation. Democracy is not entire-population-based decision making. It is about electing representatives who would form laws in the best interest of society. For if, majority based views were always reflected in laws, we would have crazy laws everywhere. To put it simple, the 'will' of people cannot always be enforced as a law.

The success of nation depends on the institutional strengths , checks & balances & the culture. It is a delicate balance. Nobody, even those of highest moral eminence should be allowed to subvert that. Agitations & lawmaking should be directed towards strengthening the institutional balance, rather than making them all-powerful

Aug 3, 2011

The Legitimacy of Referendums

One of the most mis-informed notions about democracy is the term 'participatory' . Much of the literature that you would see on politics / democratic society uses this term to say that citizens / electorate should have a say in every decision that Government takes. And, to this basis, many Governments / media / someone else often calls for referendums to decide on a crucial decision.

The Lokpal referendums happening in India is a classic example..The main problem with this referendum process is that often, the electorate is mis-informed / does not think about the real implications while exercising their votes. For eg:, If you do a referendum in India on whether income tax should be abolished or not, you are quite likely to get a 95% + vote on the affirmative side..
Similarly, if someone floats a referendum on whether India should attack Pakistan, the answer is likely to be on the affirmative side more often... But the point is that, such decisions have quite a lot of other implications.

The idea that collective wisdom of a large crowd is superior  , is in-fact preposterous to a parliamentary democracy.. A certain manifestation of the wish of people has resulted in the elected Government. But extending this logic of collective thinking beyond a certain manageable & legitimate group has far reaching consequences & in-fact detrimental to the smooth functioning of Government.

As fundamentally I'm opposed to Lokpal, I havn't really read through the latest versions really well. Regardless of the merits / demerits of the version that Government has proposed, its totally illogical & incorrect to do referendums in the process of formulation of laws. If that was the principle, India being a federal system would have had laws supporting honor killings , child marriages & many other ridiculous stuff in different parts of the country

The law formulation is best left to the law makers even if they do it inefficiently. Because, the institutional decay of democracy that will come into place through referendums is much more harmful.
Fundamentally, not all decisions of a democratic government can be taken in a participatory manner.. And anyone who has been in a representative position for a decent amount of time would vouch for that.

PS:- For people who would like to read further on these,  is a good book

Jul 22, 2011

Google Plus - Wrongly Designed Social Network ?

Whisky & Buttermilk are individually great.. But most sane people won't make a cocktail mixing two.. And you won't drink buttermilk by pouring it in a whisky glass...  And I think this Google plus is like a platform where they have attempted to bring two different social needs together.

Fundamentally, facebook is about connecting to people whom you know.. Engaging in conversations where you expect people whom you know to reply..  On the other hand, twitter is aspirational to the core. You tend to follow celebrities, politicians, sports-persons etc..  What google plus has attempted to do is to bring these two fundamentally different social needs together... In a way, your public circle in google plus is equivalent to your twitter network.. And the other circles that you make are more or less your facebook networks.

The tweets that you make are likely to be much different in nature from your facebook status message updates.. And vice versa as well..   However, when you try to do both of that on a single platform like Google plus, no matter how segregated or maintained your circles are, there is a strong disconnect between what user intends & what the platform delivers..  Think what will happen if someone makes a social network combining facebook & linkedin ..  Conceptually, your linkedin contacts could yet be another circle, but as an end-user, if you go to a platform where your professional news/ updates comes mixed up with your facebook updates, i think the experience is lost..

The fundamental mistake that google has done is to equate every social need that one has, into this concept called circles.. While, mathematically or conceptually this may work very well, there are elements of these social needs that one cannot really mix & match.. Imagine, will you get into a restaurant without knowing whether it'll provide Indian / Chinese / Arabian food ?

While opening facebook page, one has a certain expectation about the content that he/she may see.. Same with twitter / linked in..  And that core expectation that the end-user has, is fundamental to the success of a social network.. I would say, Google plus has failed in setting / defining /segregating that expectation

Jul 16, 2011

Terror , Government & Media

"If history repeats itself, and the unexpected always happens, how incapable must Man be of learning from experience."   - George Bernard Shaw

So, again it happened.. One more round of blasts in Mumbai..  As I'm abroad now, I'm somewhat away from the 24 hour sensational / breaking news culture of Indian news channels.

Yes, the Government should put in better counter terror mechanisms in place, better intelligence or whatsoever.. But I don't think they can eliminate this scourge altogether.. If some stupid wants to blast some area, there is very little that a Government can do about it..  even a well funded & efficient organization like Mossad has not been able to eliminate terror completely..   Eliminating these, if at all possible, is a political & societal solution rather than a military or intelligence one.

And I think I buy some of the comments made by police officers quoted in media.. You may prevent a lot of these ..But one fault , entire world blames you.

Jun 18, 2011

The Apple Reign In Kuwait

There's a joke that's going round here in Kuwait ( Yep.. I'm in Middle East again for a 2 month consulting assignment ).. Whoever who sits with their heads up in a discussion room / gathering is a Nokia phone holder.. whoever who sits by looking down is an iPhone owner..because they will be fiddling around with the gadget in a perpetual manner :) .. I'm surprised at the level of popularity that this device has achieved over here.. iPhone & iPad are said to be perpetually running out of stock.. I checked couple of stores.. they keep only the latest version ( which is often exorbitantly priced ).. For eg: There is a huge price difference between iPad 2 with just wifi support & iPad 2 with wifi & 3G support.. And all the shops have only this wifi + 3G option available.. Smart sales strategy

Unlike the Western markets, the 'App-Culture' has not quite caught up here. But no matter, people keep playing on with this device for whatever reason.. And people like me who still sport a Nokia phone are like anachronisms in this part of world :)

Conversation overheard at an electronics shop
- A customer to a salesman ( pointing to an iPad ) - " I don't know how to use it..But I'll buy it if you teach me  to use it" (in broken English )
 Sigh!!! People have too much money here

Jun 3, 2011

Shouldn't Ramdev be Force-Fed ?

For a news-hungry media deprived of anything new in the post-IPL season, Baba Ramdev is set to give some good entertainment. All of us are fed up with corruption stories to varying extents. Whether it is the enormity of crores in the 2G scam or black money laundering, we have to agree with the fact that this needs to be curbed. However, Ramdev's demands are far fetched to be addressed even in a totalitarian regime, forget a liberal democracy like ours. These include pulling out 500/- & 1000/- notes, capital punishment for the corrupt & so on..

More than Ramdev's histrionics, the troublesome aspect is the authoritarian attitude creeping into ordinary people and the overdrive of emotions crowding any iota of logical thinking. The idea that an individual who has made his mark in Yoga can reform a parliamentary democracy with his absurd ideas is as preposterous as thinking Sachin Tendulkar can elevate Indian football to World Cup soccer level  because he's God of Cricket.

There is this term - 'Politiea' that was coined by Aristotle, Cicero & Plato in their works in different senses. Politiea is basically mixing up both Oligarchy & Democracy. i.e, restricting the right to vote to a set of people who would in the ideal sense, use their right to vote to elect the best possible rulers. Democracy / Universal franchise is derived out of that assuming that everyone would use their right to vote in the best possible way. A democracy in which people base their decisions on plain emotions or are swayed by unrealistic promises would lead to anarchy.. And if this Ramdev show is allowed to go on for a while, I fear that will happen in India..  To the best interest of the nation, I believe this guy should be force-fed and told to do what he knows best - Yoga

For a more insightful article on this, read

Apr 22, 2011

The Karma Of Life & B-School Prospects

   Of late I’ve been asked by some people who are waiting B-School admits / have got B-School admits on what to do once they begin the course. It is true, that unless you talk to people & find out what are the things that you should expect in a B-School, you might be in for a rude shock.The following are a set of things ( extremely personal opinion, I should say) that may help a new B-School entrant in his / her 2 year stint at the institute

1)  A lot of you may have come into B-School harbouring thoughts of a radical career change into investment banking / consulting from your monotonous IT jobs. I wouldn’t say that it is impossible. But keep in mind that a lot of things that you are keen to achieve are constrained by your life so far ( read, your gender, what you have in your ‘CV’   -  things you cannot change ). So, don’t get upset if you don’t get a McKinsey / GoldMan Sacchs shortlist in summers :)

2) B-School is not always a place where meritocracy rules. Don’t expect the exams / valuation to be always fair / expect rewards proportionate to your efforts. Infact , you would be better off if you realize now itself that life is not a fair game  

3) People ask me this - Does my CG matter ? Yes it does.. However I won’t advise leaving everything else in pursuit of CGPA. B-School is a place where you should experiment a bit. If you are a fan of photography, create/join a photography club. If you fancy yourselves talking to media persons, join your college’s media cell. If you want to try out managing a large set of vociferous student, try getting into SAC/Council..  And lot of stuff like that. Don’t do any of the above for just a thing called “CV Point” (Which, you’ll become familiar in a while). Do those things to develop yourselves as a person, stretch yourselves, strive for perfection..

            B-School is perhaps the place where you’ll find yourself in the company of peers with very high intellectual capacity..You would rarely meet people of such intellectual rigor (whether they use it rightfully or not is another question) in your workplace.. Use that environment, develop yourself. It is not that final placement’s CTC figure that you should take out of there. It is a refined & well developed personality. That should be your goal :)

Apr 13, 2011

Lokpal & Civil Society - Aren't we creating a monster ?

Unparalleled concentration of power in any pillar of the society is a recipe for disaster, be it executive, judiciary or parliament. That is one of the basic philosophies upon which Indian constitution is built. To be fair enough, all these three pillars have reigned in themselves when one of them was trying to enlarge their power. However, I would admit that this system of checks and balances have not forced each other into an efficient system. And that deficiency is the root cause of these civil society movements which we’ve witnessed in recent times. Even so, the systemic inefficiency cannot be a justification for creating another pillar of constitution vested with unbridled authority

I don’t intend to repeat all the arguments again. If you have not read those, it is a must that you read through these links




And, those of you who support Lokpal on the basis of Scandinavian model should first understand what their system is

My opposition to the Lokpal bill is summarized in this question

Q. If, I as a civil servant / politician in power, am convicted by Lokpal, do I have the privilege to challenge that verdict in a court of law?

a. If the answer is ‘Yes’, then how different is LokPal from a subordinate/sessions/vigilance courts?

b. If the answer is ‘No’, you are creating a monster which is not accountable to anyone

The idea that self appointed guardians of civil society can be the magic wand wielding angels to cure us of corruption is preposterous, if not Utopian. And, there can never be one agreement in the selection of such committees. Already discordant voices have come up in plenty – Republican Party of India needs Dalit representation in the panel, Mallika Sarabhai wants women representation, BJP wants opposition representation and so on.

To me, the biggest losers in this circus are BJP & Left Front. They have allowed a coterie of people to exploit the political spectrum that rightfully belonged to the opposition. In a sense, this brings forth the fact that the consumerist society has become largely apolitical or non-believers in democratic processes, which is a dangerous thing to happen. Political parties across the spectrum should introspect & address that as a priority

The entire political spectrum is now agreeing at least passively to Hazare because of their fear of losing out of support from the middle class. I’d say that some version of Lokpal will come into picture, but the high profile legal background based panel that UPA has set up ( Sibal , Chidambaram, Mukherjee , Salman Khurshid ) will ensure that it’ll be a toothless tiger - and rightfully it should be so because no one, including those of highest moral eminence should be allowed to hijack the process of parliamentary democracy.

Mar 29, 2011

Kerala Lotteries & Financial Derivatives

I recently came across an article which explains a new ( and I should say, ingenuous ) way of operating lotteries in Kerala.. For non-Keralites, lottery industry is something thats very sensitive politically in Kerala, especially considering the impending state elections in April..

The method goes like this

1) There is a reference lottery - Bhutan/Sikkim . Suppose they sell a lottery ticket in which ticket number has 10 digits
2) The Kerala lottery operator will float a shadow lottery to this, bearing a ticket with 3 digit ticket number & lets say, two/ alphabets ( the alphabet part is just to have a unique ticket number )
3) The winners will be identified on the basis of last 3 digits of the winning reference lottery ( Bhutan/Sikkim )
4) Of-course, the ticket cost & prizes are vastly different for the shadow lottery ( They have factored in the law of probabilities :) )

The interesting thing about this is that it is almost equivalent ( except the winning part ) to taking positions in financial derivative markets. For eg: if you are in US securities market, you can take a hedge / bet with respect to the value of an asset which you actually don't own.. You can bet for / against a sub-prime mortgage /bond  which you actually don't own.

Legally, two obvious problems with this is that you are evading taxes and using the brand of someone else surreptitiously.. My question here is more from an economic angle. Is it beneficial for an end-investor to put his money in a shadow lottery or main lottery ?  I don't intend to do a pay-off calculation here as I don't have the exact winning amounts / schemes.. But given a chance, I would any day put my money in shadow lottery as probability of winning here is higher. Maybe the winning amounts are smaller, but for a normal lottery investor, anything thats over and above the ticket cost is psychologically attractive..

Coming to think of it, I see this as a market force which has come up to exploit the inefficiencies in the traditional lottery system :) .. And, you cannot avoid this 'shadow business' as fundamentally it is very attractive to the end-investor , be it lottery industry / financial markets

Mar 25, 2011

Google Profiles - Preview of Facebook Killer ?

 If you have upgraded to the new version of Google profiles, you wouldn't have missed the uncanny resemblance it has with facebook ..My profile is at The Buzz feed is sort of a stream update that you have on your facebook home page, the picasa links to your photo album... If you have configured maps, you would see a location snapshot as well.. And if google puts some intelligent thoughts into the data volume in the underlying gmail account, it can easily bring in a friends / connections network to that profile page as well.. Though, this is still far from where facebook stands in today's social web, i think finally google is getting into the social space in a correct way.. There won't be any big launches or anything like that... They may slowly start adding more & more services / features to that profile page..And in one year or so, I won't be surprised if that profile page becomes central to our social page communications :)

( PS :- If that happens, I guess I'll have to roll back the new facebook comments system that I painstakingly configured in my blog :)  )

Mar 7, 2011

Facebook Comments on Blogger

( Test post - Will be edited as I experiment with this feature )
- Finally working well except for the width :)

Feb 23, 2011

Seeking Alpha of Financial Literature

 There is a big problem with many writers in Finance / Economics.. Most of them are stuck with one philosophy & keep on repeating that in every book that they dole out..  Few months back i picked up "The Big Short" by Michael Lewis.. I have to say that till now I havnt been able to complete it because in one way or other most of the ideas / stories that he describe are present in one way or other in his earlier book - "Liar's Poker" ..  Individually these books aren't bad.. However, collectively these two are repetitive..

   Another prominent writer who falls into this category in George Soros who keeps on harping about his concept of reflexivity in every book that he writes.. Same case with Tim Hartford ... Buying Logic of Life turned out to be a waste after reading Undercover Economist

   Infact, I'd bet these writers are diluting their brand value by doling out similar ones .. Even though I liked Taleb's both books  - Fooled By Randomness & The Black Swan , I won't probably buy anything that he writes again for the same reason.

Feb 16, 2011

Dear Nokia Share-Holders

Dear Nokia Share Holders,

Over the last few days, you would have read & re-read the so-called open-letters (letter 1, letter 2, & the revolting letter -3 ) many times.. If you were an institutional investor, you would have made handsome profits by shorting your dear 'NOK' if you knew what was coming. If you were a retail long term investor you would have been puzzled with the enduring hold/sell question seeing the wild market fluctuations that were coming minutes after each of those letters.

One cannot collectively put blame on all share-holders for the mis-management happening. If your holding is/was small, you would have had absolutely no chance in influencing the decision to pick someone  - who has literally no big background in smart phone business - into the most important position in your dear 'NOK' . However, I cannot selectively address the audience. Hence I've to hold you responsible.

What your CEO has done is to make your dear 'NOK', a factory for making pure-plain-dumb-hardware. I would urge you to double check on any holdings that he has in his erst-while company - MSFT . If there is any winner in the deal spelled out here,it is  MSFT. Regardless of the merits & demerits of Windows Mobile OS, what Steve Balmer has got is a back-door access to your mass customer-base for selling ads , apps & content.  If your CEO was least concerned with your dear 'NOK' , he would have done atleast one among this  in the proposed deal

 * Should have eked out an exclusivity agreement with MSFT
 * Should have preserved the OVI Store & Maps instead of integrating it with MSFT Market Place
 * Should have eked out a revenue sharing agreement for the e-commerce & search revenue coming out of the phones
 * Should have atleast had one solid point in this deal which would result in cash-flows coming to your dear 'NOK'

   In the absence of any of the points described above in the deal, what your CEO has done is tantamount to selling your dear 'NOK' to MSFT . I believe it is too late to bring in another CEO into this exciting space where innovations like these are happening.

Hence  I would suggest three options to you

* Force your dear CEO to sell your dear 'NOK' to MSFT. Appoint competent iBankers for this deal. I would say, you will definitely get better value for your shares out of this deal even after paying the hefty iBanking M&A fees

* Liquidate ! Sell at the next most appropriate moment during a decent market rally

* Resign to your fate. "Remember Red, Hope is a good thing to have"


- A Nokia ExpressMusic ( 5800 ) owner looking for an alternate phone as my cash-flows improve :)

Jan 28, 2011

Human Endurance vs Physical barriers - How far it can go ?

I happened to read this   recently..
It got me thinking deep.. I used to follow athletics closely about a decade back.. Of late, nothing much has happened in terms of breaking the world records..  And really how far it can go.. Just take Long jump & High Jump  .. Mike Powel's long jump record has been there from 1991 ( In between, i guess Ivan Pedroso broke it, but that was probably annulled ) .. Javier Sotomayor's record has stood there from 1993..

As the article claims, unless someone invents a better Fosberry flop technique, high jump may stay for some time.. But, no matter whatever technique is being used, aren't there practical limits which human beings cannot simply scale.. ? For eg: , can we ever think of someone running 100m race in some 8.5 seconds ? ( Given the fact that the current record is 9.58 by Usain Bolt ) . Won't that be a sort of physical barrier ?