Tuesday, June 30, 2009

Political influence in judiciary

In a dramatic disclosure, Justice Reghupathi of Madras High Court told the open court that a Union Minister spoke to him and wanted bail relief for the accused in a CBI case. Political interference in judiciary has become so common that this incident is not taken seriously by many. Societal cynicism is so rampant that this will be forgotten within days.
One is tempted to ask is it the first time that the judge is sought to be influenced. If so, we can genuinely be proud of our system. I assume this is not the first time in which case why is he opening out now? Principles of good governance would require the judge to disclose the minister's name. Such disclosure is however very unlikely.
In the most unlikely event that the minister's name is disclosed, the honourable minister will certainly deny everything and if pressure mounts, he will claim that someone is deliberately misusing his name. Despite our cynicism, this is an issue that deserves to be probed by the Supreme Court suo moto.

Saturday, June 27, 2009

Saranagati and Thirukkural

Saranagati is an article of faith among worshippers of Vishnu. It refers to complete and unconditional surrender to the Almighty which alone will see us through ups and downs of life and will enable us to reach His abode and be there for ever. Saranagati signifies surrender of man's ego and worship of the Almighty's holy feet.

Sage Thiruvalluvar in seven couplets out of the first ten in his magnum opus 'Thirukkural' talks about the desideratum of total surrender to Him and in particular obeisance to His holy feet.
Couplets 2,3,4,7,8,9 and 10 are unequivocal in their stress on complete surrender at His holy feet.

2) What is the purpose of education if we do not pray at the feet of the all-knowing Almighty?
3) He who contemplates on the Holy feet of the Almighty will be immortal in the holiest place.
4) He who surrenders to the holy feet of the Almighty who is sans deire and hate will have no suffering ever.
7) He alone will be rid of agony who surrenders at the holy feet of the peerless Almighty.
8) Except those who have surrendered at the holy feet of the Almighty , others cannot triumph over the trials and tribulations of material world.
9) Faculties of those who have not surrendered to the holy feet of the Almighty who personifies goodness and purity are as good as non-existing.
10) Only those who have surrendered to the holy feet of the Almighty will cross the ocean of births and deaths ('samsara').

Thursday, June 25, 2009

Reforms in Education

Kapil Sibal's eagerness to reform the educational system deserves welcome. At the same time, he must be cautious not to undo time-tested tools. Students have got used to Board examinations after 10th standard and after plus two. It is true and unfortunate that some students allow the Board pressure to overwhelm them. Such students are few and far between. This certainly is no reason for scrapping the Board exam after 10th. The minister may concentrate on making education more interesting and creativity-provoking.

Tuesday, June 23, 2009

Growth of Banks

It is unfortunate but true that growth sometimes becomes the only strategic focus of an organisation. Is there something like the optimal size for a commercial bank? Intuitively one may say that the optimal size will be a function of internal constraints / facilitators and external factors. Reducing this to a regression analysis will be a theoretician's delight.In our country, debate about optimal size has been waxing and waning. For example. in early 1970s, private banks tended to avoid the deposit threshold of Rs.50 crore fearing that crossing that limit would attract nationalisation. (e.g.the then Vysya Bank Ltd.)Banking reforms post-Narasimham committee reports emboldened bank managers to feel "the bigger,the merrier". The Basel norms which are implemented more rigidly in India have changed the mindset of risk managers in banks. They are now confident that tier-1 and tier-2 capitals are both steroid and antibiotic promoting growth and preventing contagion.Unfortunately, they are also a diuretic creating unforeseen liquidity problems. A few years back, Mr.P.Chidambaram tried to encourage the "merge and grow" culture hoping that growth per se will take care of many banking ills.

Monday, June 22, 2009

Credit rating agencies

This posting is triggered by the article on "Lessons from the financial crises" by Arun Duggal in ET today. In order to regulate credit rating agencies, he argues that they must be made to hold 10% of the paper they rate till their maturity.

The problem with this suggestion is that this will require huge infusion of capital by credit raters. An essentially non-fund based business will become a fund-based activity.

Instead, in order to make them more accountable, in case more than say 5% of issues rated as investment-grade end up in default within a year, the agencies must be disgorged of fees received from such issuers.

Wednesday, June 17, 2009

China's investment bids

It is well known that China has huge investible funds (foreign currency) on account of its humongous trade surplus. Traditionally these funds have been invested in US treasury bonds. In a bid to diversify investments and thereby reduce risk, China has been seeking to invest in foreign companies. China has also been trying to use this opportunity to get a stranglehold on commodities. Timing is perfect. Economic crisis has accentuated the capital needs of the corporate world. Stock market crisis has ensured that equity is going abegging. Why shouldn't China make hay while the sun shines?

However, China is only getting rebuffed in a few places. Sometime back its attempt to buy the American oil company Unocal through the Chinese state-owned oil company CNOOC was frustrated by political interests in the Mecca of Capitalism. China's largest aluminium company, Chinalco (state-owned, needless to say) proposed to buy $19.5 bn stake in Rio Tinto, Australia-based world's second largest mining company valued for its copper and iron-ore mines. Sinophobic Australia has negatived this Chinese bid.

In a way, world has turned a full circle. Xenophobic China has become friendlier but other parts of the world are fearful of China's investments. Prosperity brings its own problems. Prosperous China cannot afford to alienate the world however much rest of the world may try to shun China's overseas investments.
In the late 20th century, capitalism is said to have saved China. Now China is trying to rescue capitalism. Can it succeed?
Many companies in the metal sector all over the world are in the process of hedging their raw material requirements through acquisition of mines or stakes in mining companies. For example, Hindalco is purchasing a coal mine in Queensland, Australia at a cost of $80 mn. Such moves make strategic sense in view of cheap prices of mines now. China by virtue of its large forex resources is aiming at big bets. Resistance to big players is a part of international game. Repeated rebuffs will irritate China. China's response now or later will be unpredictable.

Tuesday, June 16, 2009

Debunking of Hawthorne effect

For many decades, management schools have been exposing the students to a study whose findings have been assumed to be as clear as daylight. Productivity studies undertaken in the Hawthorne plant of a telephone-parts factory were supposed to have "conclusively proved" that the very act of being experimented upon modifies the behaviour of the subjects. That is, if a child knows that its parent is watching it studying, the child is likely to study better or atleast differently.

The finding is apparently intuitively logical and is perhaps true in most situations. Now two economists in the University of Chicago have unearthed that the Hawthorne study was not done rigorously enough to invest its finding with credibility. This is a serious blow to management thinkers. That some "finding" can survive in the management lore for more than 80 years with a near-unanimous support only to be doubted later on is as intriguing as it is comic.

Parliament and the academics

Elizabeth Warren is the head of the US Congressional panel that monitors the end-use of the funds allotted by the US Treasury to various institutions to combat recession. She is neither a Senator nor a House Representative. She is a Harvard Law Professor. She specialises in bankruptcy law and has authored a well known book "The Two-Income Trap: Why Middle-Class Parents Are Going Broke". The American administrative system generously makes use of academicians to benefit the legislature. Other members of the panel are of course legislators. Having an academic in such panels is helpful in many ways. Knowledge inputs will doubtless be more. Political bias may be less. Lateral thinking will be facilitated. People's trust in the legislature will be strenghthened.

Should not the Indian Parliament adopt a similar system? If professors who have no axes to grind are involved in such committees, it will have a synergistic effect that will help legislators to improve their own functioning and academics to operationalise their knowledge. It will promote transparency and will benefit the nation immensely.

Sunday, June 14, 2009

Economic Survey

Presentation of Budget by the central government is an eagerly awaited event every year. Economic Survey is presented to the parliament only a few days prior to presentation of the Budget. Why should it be so? Will it not be worthwhile if the Economic Survey is tabled atleast a fortnight in advance so that there will be a meaningful national debate which can also be a last minute vital input to the Budget? A related question is should the survey be as bulky as it is? The survey contains such a deluge of data that any purposeful debate in the parliament is ruled out in limine.

Saturday, June 13, 2009

The seven rules of Wall Street

"The Seven Rules of Wall Street : Crash-tested investment strategies that beat the Market" is a readable thin book written by Sam Stovall and published in January 2009. The author is the Chief Investment Strategist at Standard and Poor's Equity Research. The stated rules are:
1) Let your winners ride, cut your losers short.
2) As goes January, so goes the year.
3) Sell in May, and then walk away.
4) Buy Straw Hats in winter and Overcoats in summer.
5) Don't fight the Fed.
6) Don't get mad--get even.
7) There is always a bull market someplace.

There are many one-liners about Wall Street. Most of them are words of wisdom, but not always true. The following are some more crisp statements:

Don't fight the tape.
If you are going to panic, panic early.
A stock and a company are not always the same thing. (A stock sometimes represents the company and sometimes represents what the company is not; wisdom lies in knowing what is when.)
A bull market is born amid pessimism, grows up under scepticism, matures with optimism and crashes with euphoria.

Is recession receding?

Even in the best of times, it is tricky to know the state of the economy. (I am not talking about economic prediction which makes astrological forecast more reliable by comparison.) Now many economists have started saying that recession is softening and that it is a matter of time (years?) before we see the light at the end of the tunnel. However, emerging signals are contradicting one another and depending on one's positive or negative outlook, one can cite the convenient signals.

There is now a developing fear that various economic stimuli already implemented may result in inflation. This fear is empirically justified because economic cycles are inexorable. It is too early to arrive at a commonly accepted name for the ongoing recesssion. "The Great Recession" is ofcourse doing the rounds.

Assuming that the recession is after all coming to an end, how come that the crisis is briefer than what was feared? Is it because the central banks of various countries acted in concert whether in terms of interest rate reduction or quantitative easing? Could it be that governments responded much sooner than they did in the wake of the Great Depression? Both could have played a role. It is fair to say that globalisation also made it possible for different economic authorities to plunge into complementary efforts to ease the recession.

It will be interesting to know what we have learnt from this global economic crisis. But one thing is abundantly clear. Among economists, opinions are divided not only regarding predictions but also about the past. Absence of agreement on what led to the crisis and what solved the crisis will fertilise future discussions.

Obituary on General Motors

General Motors, an 101 year old company has opted for Chapter 11 bankruptcy. "My years with General Motors" by Alfred P.Sloan would make one believe that General Motors is for ever. What went wrong with the company?

It is true that there is worldwide recession and demand for automobiles is on a southward journey. Japanese companies Toyota et al are tough competitors. But there is no need to blame external environment.

GM had become too bloated. Committees ruled the roost in the company making it very bureaucratic. Agreements with worker-unions were very liberal and suicidal. Cost per GM vehicle exceeded cost of comparable vehicle produced by competitors atleast by $1400 on account of pension and healthcare outflow alone. Lesson: If management is too benevolent to any stakeholder, it could be ruinous to the company.

Sunday, June 07, 2009

Constructive Activism

Social activism has generally received cynical coverage in the media on account of its negative, and sometimes even nihilistic, approach. Activism in most cases has been in condemnation of a project and very rarely in support of something worthy. In this context, it is refreshing that a new group called carrotmob has emerged in San Francisco the members (known as slacktivists who cannot spare too much money or time) of which actively support malls which contribute to environment-friendly measures. These members make their purchases from such malls only. May such groups multiply in every sphere of life !

Friday, June 05, 2009

Peace in Sri Lanka

Here is an interesting excerpt from The Economist dt.30th May:
"On May 25th the UN Human Rights Council convened a special session on Sri Lanka following a request submitted by Germany on behalf of 17 mostly European countries. Its members proceeded to vote down a proposed resolution decrying the Sri Lankan government's disregard for civilian life. But another draft resolution tabled by the Sri Lankan government itself, praising its own commitment to human rights, was passed by a vote of 29 to 16. Its motley crew of supporters included China, Cuba, India, Russia, Pakistan and Egypt."
It is good that the violence in Sri Lanka has come to an end. The Sri Lankan government was forced to adopt tough measures to counter the villainy of LTTE. But it is a travesty of truth to say that the government was committed to human rights. Commitment of China, Russia and Pakistan to human rights is well known ! India's support to the resolution is intriguing. India perhaps was trying to prevent further beachheads to China in Sri Lanka. But China is too shrewd a diplomatic player to be secondguessed by bumbling India.

Thursday, June 04, 2009

Obama's olive branch

President Obama's flawless articulation was again in evidence in Cairo yesterday. He made a compelling plea against violence and voiced a strong case against clash of civilisations.

He probably believes that uttering falsehood is acceptable if it would help mend relationship. How else can one explain his statement that America and Islam share common principles of justice, progress, tolerance and the dignity of all human beings?

Monday, June 01, 2009

Air France catastrophe

The disappearance of AF447 (A330-200) on its way from Brazil to France is a tragedy of epic proportions. It raises many questions about safety of air travel.
This is not the first air crash, but its circumstances are scary. It is not even known where exactly the crash has occured. Reasons for the crash are so far in the speculative sphere only. Air France suspects but is not sure that weather conditions including a possible lightning did the aircraft in. Could it be an act of terrorism? Of course, no terrorist organisation has so far owned up. But, one cannot be too sure. It is too early to know whether the black box can be retrieved. An enquiry will doubtless be conducted. However, with so little known as to what has happened, one is sceptical about outcome of any enquiry.
Do we learn anything from this catastrophe, as air travellers or airlines? Absolute guarantee of safety in air travel is out of question. Various airlines keep parroting that air travel is among the least risky as a travel mode. That something like this disaster can happen with prospects of recovering fuselage wreckage, black box and bodies of passengers being bleak, is too chilling to comprehend.

Mathematics and New York University

Srinivasa S.R.Varadan is a Chennai-born probability theorist associated with the New York University from 1963. He was awarded the Abel Prize (Nobel Prize equivalent in Mathematics) in the year 2007. Earlier, Peter D.Lax of NYU was awarded the same prize in 2005. Quite improbably, the 2009 prize also goes to a NYU Professor, Dr.Gromov.

Dr.Varadan is known for his fundamental contributions to probability theory and in particular for creating a unified theory of Large Deviations. This has applications in a wide array of subjects including physics, biology, economics, computer science and statistics. Large Deviations deals with the probability of rare events.

Dr.Lax (incidentally a mathematician like him is far from lax !) says,"Our fields are rather separate, but whenever I have a question about probability, I go to Varadan." Lax is credited with groundbreaking contributions to the theory and application of partial differential equations and to the computation of their solutions. Dr.Gromov specialises in something more enigmatic. His forte is Riemannian geometry, symplectic geometry, string theory and group theory.

A combined theory of Large Deviations and Black Swans may explain the global economic crisis, in retrospect.