Author: SK

Project Thirty, Hippies and Capitalism

After getting out of Goldman Sachs (phew, now that I’m out, I can “out” myself. Was majorly stifling working for a company that stressed so much on “reputation” and stuff) two months back, I’ve put myself on a fourteen month long scholarship which I’ve titled as “Project Thirty”. As the title suggests, this scholarship will last till the day I turn thirty, which is in a little more than a year. There is no fixed amount of scholarship, but the funds are to be drawn out of the considerable savings I made having been a fat cat banker for a little over two years.

During the period of the scholarship, I’m forbidden to take up full-time employment. I am, however, permitted to pursue other money-making opportunities (as long as they don’t end up in my taking up a full time job). I’m setting myself up as a freelance quant consultant (right now the biggest pain point is it’s tough to explain to people what exactly I can do for them), and if things go well, that should provide some good supplementary income. However, the intention of this break is not to just take a shot at entrepreneurship, or explore non-linear opportunities for making money. It is fundamentally to do all those things that I’ve always wanted to do but never got down to doing during the first ninety percent of my twenties.

The Eureka moment happened some three-four months back, when I was reading some article on the internet about life expectancy. It was around the same time that I read the famous Steve Jobs speech, and I started thinking about what I’ve achieved in life so far. IIT, check. IIM, check. Brand name employers, check. Beautiful and intelligent wife, check. Some sort of local fame, check. I would be lying if I were to complain that I haven’t had a good life. However, several gaps remain. Found my calling in life, no. Stuck around in a steady job for an extended period of time, no. Made lots of money, not really. Traveled the world, not really. Wrote a book, no. Played for a band, no. And so it goes on.

It was around that time that I realized that it is not so bad to have regrets in life when you are twenty nine (which I’ll be next week). Thirty is still not too old, and you are still reasonably fit, and able to do all those things you’ve already wanted to do. What is not okay is to have regrets in life when you are fifty, or sixty. There is only so much of life ahead of you to make amends, and it could already be too late to do some of those things that you’ve always wanted to do but never gotten down to doing.

Project Thirty is the result a culmination of a lot of things. These thoughts. The fact that I’ve never really been happy in any of the high-paying high-pressure jobs I’ve been through. Stress. That though I’ve been married for a year now (today’s my anniversary), we still don’t plan to “start a family” for a while which gives leeway in terms of finances. That I haven’t yet really “found myself” and need to make an effort to do so.

So far, though, two months on, it has had mixed results. On the minus side (let’s quickly put that away) there’s been a lot of NED. I think I end up wasting too much time doing nothing (ok I’m not sure I should call that a “waste” but still I don’t feel good at the end of it). Then, a lot of writing which I want to get published in the mainstream media is lying on the hard disk of my desktop, as I haven’t really mustered the confidence to reach out to editors and send these out. I’ve identified one client for my quant consulting shop, but again haven’t been confident enough to approach them.

On the plus side, though, I have got a lot of writing done. I have started learning to play the violin again, this time in Western Classical style, and so far I’ve been really enjoying it. I’m associated with a public policy think tank and am doing some work for it. I gave (what I think is  ) a rather well-received speech on auto rickshaw economics. For the first time in my life I set a quiz which didn’t receive much flak. Watched cricket and football. Traveled a bit (a week in Turkey). And overall I’ve had a lot of peace of mind.

So what are the hippies and capitalism doing in the title of this post? Essentially given my current situation I don’ get why hippies are anti-capitalist. Because capitalism is precisely the reason I’m able to afford a sort of “hippie life” (using Aadisht’s definition) currently. Had I been living in a communist country, under the “from each according to his abilities” paradigm, I wouldn’t have been allowed to take this time off!

Ranji Trophy and the Ultimatum Game

The Ultimatum Game is a commonly used research tool in behavioural economics. It is a “game” played between two players (say A and B) where A is given a sum of money which he has to split among himself and B. If B “accepts” the split,  both of them get the money as per A’s proposal. If, however, B rejects it,  both A and B get nothing.

This setup has been useful for behavioural economists to prove that people are not always necessarily rational. If everyone were to be rational, B would accept the split as long as he was given any amount greater than zero. However, real-life experiments have shown that B players frequently reject the deal when they think the split is “unfair”.

A version of this is being played out in this year’s Ranji Trophy thanks to some strange rules regarding points split in drawn games. A win fetches five points while a loss fetches none. In case of a drawn game, if the first innings of both sides has been completed, the team that has scored higher in the first innings gets three points, while the other team gets one. The rules, however, get interesting if not even one innings for each side has been completed. If the match has been rain affected and overs have been lost, both sides get two points each. Otherwise, both sides get zero points each!

I don’t know about the rationale of this strange points system, but I guess it is there to act as a deterrent against teams preparing featherbeds, batting for most of the four days and not even trying to win the match. In general, I haven’t been a fan at all of the Ranji Trophy’s points scoring system, and think it’s quite irrational and so refuse to comment on this rule. What I will comment about, however, is about the “ultimatum” opportunity this throws up.

In the first round of matches, Saurashtra batted first against Orissa and piled up a mammoth 545 in a little under two days. The magnitude of the score and the time left in the match meant that Orissa had been shut out of the game, and the best they could’ve done was to overtake Saurashtra on first innings score and get themselves three points. However, they batted slowly and steadily, with Natraj Behera scoring a patient double century, and with a few minutes to go in the game, they were still over 50 runs adrift of Saurashtra’s score, with three wickets in hand.

At that time, they had the chance to declare their innings, still some runs adrift of Saurashtra’s score, and collect one point, and handing over three points to Saurashtra. They, however, chose to bat on and block the game, and both teams finally ended up with zero points. It maybe because they also see Saurashtra as a competitor for “relegation”, but I thought this was irrational. Why would they deny themselves one point – if only to deny Saurashtra three points? It’s all puzzling.

Going forward, though, I hope the Ranji Trophy rules are changed to make each game a zero sum game (literally). Or else they could adopt the soccer scoring of 3 points for a win and 1 for a draw (something I’ve long advocated), first innings lead be damned!

Wedding Notes

I just got back from a friend’s wedding. Lots of pertinent observations.

  • Today’s groom and I share three social networks. We went to two schools together and he went to a third after I had graduated from there. So I had expected to meet a lot of old friends/acquaintances. To my surprise, fifteen minutes after I had got to the wedding hall, I hadn’t “met” anyone. Finally ended up meeting just two people that I’d known.
  • The queue system in receptions is much abused. It is demoralizing to get to a wedding and see that you’ve to go through such a long process before you meet the couple. As the groom (or bride for that matter), it’s even worse. You’re tired after a full day of activity and a long line of people waiting to meet you isn’t too inspiring. However, sometimes the queue turns out to be a lifesaver. It was the first time in a very long time that I’d gone alone to attend a wedding. On earlier such occasions I’d just be looking around like a fool for familiar faces. Today, though, there was no such dilemma. I headed straight to the queue!
  • People who didn’t immediately join the queue had a special treat. Waiters were going around the hall offering soft drinks and starters to those that were seated. I looked to see if they served those in line also. They didn’t. I managed to sample those starters, though, when I went to meet some friends after I’d wished the couple.
  • This wedding was at a fairly new wedding hall (less than ten years old for sure), and these modern halls are built in quite a streamlined manner, I must say. From the reception stage, there’s always a path that quickly leads you to the dining hall. And then from the dining hall, there is a path that leads straight outside, where paan and coconuts will be waiting for you, which you can collect on your way out. This is a much better system than in some of the older wedding halls, like the one where I got married. There, the path from the dining hall led back to the main hall, and so at times there was a traffic jam, with large numbers of people moving both to and from the dining hall.
  • There’s something classy about wedding halls where chairs have been draped with white sheets and fat ribbons tied across the backs of the chairs. There’s also something classy about round tables with chairs set up in the dining hall, where you can settle down with the food you’ve picked up at the buffet. There weren’t too many of those but the set up allowed for plenty of standing room, also.
  • The buffet itself was well designed. It had been separated out into several clearly marked sections. You had to collect your plate from a central location (I almost typed “central server”!! ) and go to the counter whose food you wanted. This prevented long lines and bottlenecks. It was a pleasant food experience.
  • There were some five different kinds of sweets. Given that it’s hard to estimate demand for each, I wonder how they would’ve tackled the wastage.
  • When you meet old friends, after a while the conversation invariably degenerates to “so, who did you meet of late? what’s he/she doing?” and you end up going through your class roll call and try figure out who’s doing what.
  • I’ve said this before but I’m not at all a fan of live music at weddings. Keep it too soft (never happens) and the artistes get pissed off. Keep it too loud (always the case) and you need to shout to be heard. Some weddings take it a step forward – they pipe the music from the main hall where it’s being played live into the dining hall, killing conversation there too. There are piracy issues there but I still like what we did at our wedding, when we played a carefully curated set of trance numbers. I don’t know how well it was received, though, and how loud it was (we couldn’t hear anything on stage).
  • Some “features” that used to be luxuries at wedding receptions ten-fifteen years ago are necessities now. Chaat, soup, paan, ice cream, that table in the centre with huge carved vegetables and salads ..

Metro Notes

One of the advantages of being jobless is that though you’re poor in terms of money, you’re rich in time. So you have all the time you want to do things that give you random kicks, such as riding the new Bangalore metro on the second day of operation. The reason I chose to go today was that I had to anyway go to the MG Road area on some work, but also that the second day is a good time to see things early, while not getting caught in a mad rush.  My decision to go today was reinforced by a report in today’s paper that while there was much clamouring to get on to the first train yesterday, the second train was half-empty.

The supposedly showpiece MG Road station is not yet complete. You still can’t get to the station from the Plaza theater side, which is the “logical” side to get in if you’ve come to MG Road for shopping or generally hanging out, or even if your office is there. You need to cross over to the parade ground side at the Cauvery signal and then make your way through some narrow barricades before you get to the entrance. You get frisked at the entrance (this might end up being a bottleneck) after which you get to buy tickets. There was a queue of about 10 people when I got there.

There is still scope for the ticket staff to become more efficient, and for people to learn to carry exact change (especially given that you have tickets for Rs. 12, Rs. 14, etc). However, I would imagine that in the long term, most people would end up using a travel card, so the pressure on the counters may actually decrease. One disappointing thing was that they didn’t sell return tickets. I would have to stand in queue again at Indiranagar.

You have escalators only for going up, and you have to take the stairs when you exit the station. I don’t know if this is a method to cut costs or lead-time, but it would be a letdown if you had to take the stairs down each time, especially since the stairs were a major bottleneck in exiting the station when I disembarked from MG Road on the return journey. Another bottleneck while exiting at MG Road was the turnstiles. On your way in, the ticket booths are the bottlenecks so the turnstiles are free. Not so on the way out. However, I don’t see much scope for putting more turnstiles there so I don’t know how the metro will cope with increased demand.

The train is quite small (3 bogies long) but I’m told it’ll be increased to 6 soon. Maybe the train wasn’t as full as expected but I found the temperature in the train too cold on the way to Indiranagar (it was ok on the return journey when the train was full).  The indiranagar station was incredibly convenient and not crowded at all. Entry, exit, ticket purchase and turnstiles were all extremely smooth, and the view from the station platform is stunning, especially towards the ulsoor side. Speaking of views from trains, the metro has now given scope for a new set of hoardings for the city. These hoardings can be put up at the “metro level” along the metro line. I’d be surprised if no businessman were to take this opportunity.

The train itself doesn’t move too fast, especially since there are so many curves on the route. On the straight MG Road stretch, however, the train moves well at a faster rate. The announcements on the train still need some work. The grammar of the Kannada announcements is atrocious, and the funniest bit is when they try and explain “mind the gap” in Kannada and Hindi. The hindi announcements also carry a very strong Kannadiga accent.

There are some other measures that the metro corporation has taken in order to get people acquainted with the metro. There is usually an officer standing at the turnstiles who tells you how you should swipe (on entry) or deposit (on exit) your token. Then, there are security guards at the platform itself who make sure passengers are standing back when the trains arrive, and that they are not blocking the doors when it’s closing.

The journey from MG Road to Indiranagar was extremely quick and painless. I believe that the metro has already demonstrated its ability in making the city smaller, and I can now only hope that the full stretch of the metro (including the underground stretch at Majestic) gets completed fast. I can’t wait for the day when I take a short walk to the Jayanagar metro station and do two quick journeys to reach MG Road or Indirangar easily, safely and painlessly.

Travel agents and investment bankers

The more I think about it, the more I’m convinced that travel agents perform a very similar role to investment bankers. In the olden days, not everyone had access to financial markets. In order to buy or sell stocks, one had to go through a brokerage company, who would be paid a hefty commission for his services. The markets weren’t that liquid, and they were definitely not transparent, so the brokers would make a killing on the spread. With the passage of time, advent of electronic trading and transparency in the markets brokers aren’t able to make the same spreads that they used to. Customers know the exact market price for the instruments they are trading, and this results in brokers not able to make too much out of these trades.

It is a similar case with travel agents. Vacation markets (flights, hotels, etc.) are nowhere as liquid as financial markets, and will never be. Sometimes, when you are booking holidays to a strange place, you know little about it, and hence commission a travel agent to find you a place to stay there. Given that you know little about that place, the agent can charge you hefty commissions, and make a nice spread. Of course, nowadays such opportunities are diminishing for agents, as you have websites such as Agoda which allow you to book hotels directly. Now, at one place you can compare the prices of different hotels, and have better information compared to what the agents traditionally offer you. The spread is on the downswing, I must think.

Then, don’t you think package tours are very similar to structured products? Structured products are nothing but a package of several risks packaged together. By acting as a counterparty on a structured product, a bank (even now ) can afford to charge fairly hefty fees. Structured products are illiquid,  and there is no publicly available “market price”, so it is easy for banks to make themselves good spreads on such products. However, all it takes to defeat this is an intelligent customer. All the customer needs to do is to try and understand the risks himself, and start “unbundling” them. Once he unbundles the risks, he can now trade each of them independently, on more liquid markets, and get a much better price than what bankers will offer him. The catch here is that he’ll need to put in that effort in unbundling.

It’s the same with package tours. Given the bundles, it is easy for the agents to make higher spreads. However, if you as a customer simply unbundle the package (hotels, transport, food, etc.), you can find out the price of each (available on sites like agoda and elsewhere) and find out for yourself the spread that the agent is making. And then you compare the agent’s premium with the “cost” of making all the bookings yourself and make an informed choice.

Apart from communication, among the greatest boons of the internet has to do with dismantling middleman monopolies. It is incredible how much use a little information can be of!

The Personality Cult

So all business newspapers report that LK Advani had issued a “warning” to Yeddyurappa a while back that he was getting too corrupt. Nevertheless, several BJP “party workers” in Karnataka have been coming out in defence of Yeddy, saying he’s innocent and that he’s still their leader. Some of them have refused to accept the leadership of DV Sadananda Gowda. And some of the leaders themselves are quite silent on the issue, preferring to say that the “law will take its own course”.

This points to a larger problem that is afflicting Indian politics nowadays which is the “personality cult”. First of all, we have several parties (too many to name here) where the only ideology is “absolute loyalty to a certain party leader”. Even in parties that don’t fall under this definition (the BJP for instance), we seem to have several “local leaders” who carry significant weight, and local units of parties that are more loyal to their leaders than to the parties. In fact, if you were to objectively look at it, as a voter there seems to be no escape at all from this cult.

This has several disturbing consequences. One stems from the belief that “loyalty should be rewarded”. Given the loyalty that so many of our “leaders” get from “party workers” it is not surprising that the “leaders”, upon assuming power, accord to these workers plum rent-seeking posts, which will keep them happy. This can result in positive feedback – once a leader has shown that he  will “reward” loyalists, more people clamour to get close to him, and they too must get rewarded. And so it goes.

Another fallout of this personality cult is a dramatic increase in security, with not inconsiderable cost to the public. Given t he power that some of our “leaders” wield, the payoffs of bumping off an opposing leader are quite strong, both in terms of electoral politics and otherwise. Parties which have been built on “personal loyalty” as an “ideology”, upon losing their leaders, will suddenly have no “natural centre” and will tend to fragment. Hence, it is in the interest of all politicians to provide themselves “security”, which comes at the cost of the general public (cue traffic jams whenever there is “VIP movement” in some city, or the fact that our generally under-staffed police force has to spend so much of its effort in “VIP security” rather than other more important policing duties).

Then, we seem to be moving to a situation where parties are bereft of ideologies, and are simply collections of random leaders (who have lots of “followers”) thrown together. I’ll probably address this in detail in another post, but if you come to think of it there is very little to choose between different political parties now in terms of ideology. Yes, the BJP might have the nominal ideology of building a Ram Temple, but take that out and there is little to separate it from the Congress. The regional parties are even worse. The only difference you could probably see there is in terms of the dominant caste or lobby backing each party.

Again, it needs to be pointed out that multipolar politics in India is very young – it’s existed for little more than twenty years. Still, the future of Indian politics is worrisome, and I don’t know how we’ll get out of the rut we’re in.

The Global Financial Crisis Revisited

When we talk about the global financial crisis, one question that pops up in lots of people’s heads is about where the money went. Since every trade involves two parties, it is argued that every loser has a corresponding winner, and that most commentary about the global financial crisis (of 2008) doesn’t talk about these winners. Everyone knows about the havoc that the crisis caused when prices went down (rather suddenly). The havoc that the crisis caused when prices initially went up (rather slowly) is less well documented.

The reason winners don’t get too much footage is that firstly, they are widely distributed, and secondly they spent away all their money. Think about a stock or a CDO or a bond being a like a parcel that you play by passing the parcel. The only thing is that every time you receive the parcel, you make a payment, and then pass on the parcel after receiving a higher payment. Finally, when the whistle blows, one person has the parcel in his hand, and it explodes in his face, ruining him. We know enough about people like this. A large number of banks lost a lot of money holding parcels when the whistle blew. Some went bust, while others had to be bailed out by governments. We know enough of this story so I don’t need to repeat here.

What is interesting is about the winners. Every person who held the parcel for a small amount of time was a winner, albeit a small winner. There were several such winners, each of whom “won” a small amount of money, and spent it (remember that the asset bubble in the early noughties was responsible for increasing consumption among common people). This spending increased demand for various goods and services produced in several countries. This increasing demand led to greater investment in the production facilities of these goods and services. Apart from that, they also increased expectations of growth in demand of these goods.

The damage the crisis did on the way up was to skew expectations of growth in different sectors, thus skewing investment (both in terms of financial and human capital). The spending caused by “small wins” for consumers put in place unreasonable expectations, and by the time it was known that this increased demand came as a result of an asset bubble, a lot of capital had been committed. And this would create imbalances in the “real economy”.

Yes, the asset bubble of the last decade did produce winners. The winners begat more winners (people whose goods and services were bought). However the skewed expectations that the wins created were to cause damage in the longer term. Unfortunately, I don’t see this story being told adequately, when the financial crisis is being talked about. After all, the losers are more spectacular.

Sadananda Gowda’s Set-up in South Bangalore

Ever since D V Sadananda Gowda became chief minister of Karnataka not so long ago, we residents of KR Road have been subjected to the holdup of the KR Road-SouthEnd Road signal several times a day. The convoy for which traffic is held up is huge, leading us to believe that it can’t belong to anyone but the chief minister. However, the chief minister’s house is in Milk Colony near Malleswaram, so what is he doing in South Bangalore? We wonder if a chinna veetu exists!

The Second Hand Goods Market

Every time we clean up our house, which is quite frequent I must say, there is a bunch of stuff that we want to throw or give away. Being rational beings, each time we look to maximize the returns we get out of whatever we don’t need, and hence go around looking for people who will buy them. The problem here, though, is that the second hand market doesn’t really exist, and even if it does it’s so illiquid that it’s not worth the effort to locate them and sell our goods there.

For example, for a long time we’ve been wanting to get rid of our dining table. The question is how do we dispose of it in order to maximize returns. I don’t know of any shops that buy used furniture, and there are search costs involved there. And then there is the cost of actually transporting the dining table (you realize it can’t be done by my car, right?) to the location of sale. And then haggling over the price. Given that it’s not made of particularly good wood (we know where to sell stuff made out of “good wood”) I don’t even know if what get by selling even covers the cost of selling it!

Worse, we got a bunch of new electric appliances (microwave, mixie, gas stove) as wedding gifts. The “normal” way of getting rid of old mixies or gas stoves is to give it “in exchange” so that we get a small discount for the new appliance we’re buying. When we get appliances as a gift, though, this avenue is lost. The old mixie and stove (and a couple of ancient table fans) decorated our attics and bred rats until we sold all of them for a grand total of five hundred rupees while buying a new saucepan! (I’d located that store and carried the stuff there with such great difficulty that I was willing to sell at any price).

Now there’s this ancient vacuum cleaner and old RO water filter out for disposal (the latter was disposed due to exorbitant maintenance costs). There’s a good chance that we’ll dispose of them by just dumping them on the road somewhere. Seriously. The selling costs are way too high. I know that in New York there’s this whole “industry”, where people leave old furniture and appliances on the roads in the middle of the night, and some other people take them away and salvage whatever profit they can get.

I thought of a business plan that gets unnecessary appliances and furniture from people (for a nominal fee; and by paying transport costs) and then sells it on to people who are actually willing to buy these things. The problem is that a lot of people actually dispose stuff as part of “exchange offers” so I don’t know how much volume this new business can get. But if someone manages to pull it off, I promise to donate all my useless stuff to them. Else, you’ll soon start finding unnecessary furniture and appliances scattered along KR Road in Bangalore.