Author: SK

sub prime and football

Culprits leading to the sub-prime crisis
1. Mortgage firms, for doling out mortgages to anyone and everyone. Just to “meet targets”. Without realizing that they are giving loans and not doles.

2. Credit rating agencies – for randomly giving high ratings to mortgage-based CDOs, without really bothering to find out what was underlying. The structures were complex, I agree, and there were some Nth order derivatives. Still, the job of the rating agencies was to get down to the bottom of it and figure out what lies beneath and rate that. Spectacular failure. They were instrumental in spreading the risk around the industry, and increasing the absolute volume of risk.

The effects of the sub-prime crisis have spread well beyond the financial industry, even into sport. FC Liverpool got LBOd about a year back. Two American businessmen, George Gillet and Tom Hicks, bought over the club about a year back. The bridge loan that they had taken to fund the deal is about to expire and they are yet to tie up long-term funding.

The SWF from Dubai, DIC, is ready to step in and buy out the club from these two American jokers. Their CEO Sameer Ansari is a Liverpool fan which means that they should take better care of the club than these Americans who are purely financial investors. And now they are saying they are holding on “for a good price”.

And Baada sends me this. Apparently Hicks says he’ll invest the money he makes from Liverpool to strengthen Texas Rangers.

If Liverpool FC were in Calcutta, you’d’ve had millions protesting to limit FDI in football clubs!

And coming back, it seems to be a bad time for LBOs. Even Tata had some trouble tying up the long term finances for the Corus acquisition. I read that good old SBI had to step in in the last minute to make up the deficit.

And given that my current employer got LBOd a while back, I have reason to fear.

Macroeconomics bleg

Ok this is one of those things i’m not too good at. So I request you to comment on my reasoning.

1. They say that exports should be balanced by imports. That exporting is useless unless you use the FX to import stuff. Now, how does China manage to hold its exchange rate despite the massive current account surpluses that it has? It imports little apart from oil, and exports practically everything. So how does that hit it?

I think what is effectively happening is that China is importing inflation. The inflation that should’ve actually occurred in the US and similar places gets deferred due to cheap chinese goods, and due to the skewed exchange rates, hits in China. I’ve read a couple of reports that inflation is starting to pinch China, and that they are resorting to price controls over there. Sooner rather than later, that might force them ot revalue the RMB, restoring the world order, and adding inflation to the downturn in the US economy.

2. I had got convinced by one article by Ajay Shah in the business standard, and was happy that the RBI had allowed the rupee to appreciate in order to control inflation back home. Now, I read somewhere that since India’s current account is in deficit, the rupee shouldnt’ be allowed to appreciate. That the current account alone should determine exchange rates, and not the capital account – which is in a way reversible flow. I’m wondering if there’s any good way in which we sterilize all the capital account imbalance, hoping that one day when this mad influx of capital ends, it’ll all even out.

So what do we do to take care of this situation? For starters, we need to have effective ways of reducing incoming capital. The control measures we have are half-baked (limiting borrowings, participatory notes, etc.). Maybe I should allow myself to get swayed by Ajay Shah again, and say that we need to cut rates. Even if we account for a fair price of oil, I don’t think inflation is too much, so we could afford to cut rates. And that will in some way balance flows.

3. A V Rajwade, in his article in the business standard last monday, argued that another major source of short term capital inflow is in terms of credit given to importers! Interesting stuff

I know I’ve rambled for most parts. Still fairly confused about this. Anyways let me know your views on this.?

The Udupi Swamis

It’s ridiculous that the swamis of the mutts in Udupi are fighting in public like this. They are generally well-respected figures and thousands come to fall at their feet (note: wtihout touching them) every year. In this context, it’s important for these swamis to set an example for their followers.

Instead they go about fighting over some succession issues! Ok these issues are everywhere, but the swamis being the models they should be, would do well to keep things within themselves and present an honorable face to the public.

I’m not sure if these chaps will continue to get the respect of people after all this naatak.

PS: For those without background info, the Puttige swami, who has taken control of the mutt (by rotation) today, had gone abroad a few years back. So the other swamis think he’s “impure” and so doesn’t deserve to head the mutt. And they’ve been fighting. There have been fasts and counter-fasts. They have gone to court. The swamis of the protesting mutts have even boycotted the handover ceremony (which happened overnight yesterday). Kind of behaviour more suited to politicians than to “spiritual gurus”.

These IT guys..

I’m chatting with a friend from school who now works for an IT behemoth.

It’s extremely funny to see him use the words “abroad” and “onsite” interchangeably.

So he is asking me stuff like “where do you want to settle down in the long term? Bangalore or onsite?”

Another thing with these IT guys is that “onsite” is a huge prestige issue. And you’re a loser if you haven’t been there. Last April i was slated to attend a conference abroad but had to cancel at the last minute due to personal reasons. And ever since, whenever one of my cousins (who is an IT guy) sees me he doesn’t let go without asking me what happened to the foreign trip (he knows the circumstances under which I canceled it). And then proceeds to pat my back saying “don’t worry your chance will come sometime”.

Bah!

Improving umpiring

Just Outsource the front foot no ball

Takes a lot of pressure away from the umpire. Right now he has to keep looking down till the bowler bowls and then suddenly jerk his neck up and decide on lbws and caught behinds and bat pads. This jerk of the neck causes considerable strain, and can also present the umpire with a not-so-good angle and the probability of error goes up.

One reason us people in front of the TV get more LBWs right than the umpire is that we are not looking down at the popping crease waiting for no balls. Another thing is that there have been a number of cases where the front foot no ball hasn’t been given (notably in the barbados test in 1997, old trafford in 2001 when saqlain consistently overstepped, and last week when jaffer got out to lee) and outsourcing the no ball decision, either to the third umpire or to a computer would help immensely.

We can have special cameras installed in the ground which only provide a view of the popping crease at both ends. And while the ball is being delivered it’s the job of the third umpire to decide on front foot no balls. He anyways has? no work to do unless he is referred by the on field umpires.

That said and done, we need to develop technology for this soon enough. I suspect some variation of the cyclops used in tennis might come in useful here.

Anyways, I’m reminded of this quiz question in the Shaastra Main Quiz in 2002, where the question was about the inventor of cyclops sitting in his home and watching saqlain destroy England bowling no balls and wondering whether his invention would be useful.

Water privatization in Kundapur

A couple of years back, in a blog post (part of which also went into a project report), I’d talked about water privatization. I had said that it is a good thing even if it pushes up costs, because it now offers people the option to get piped water supply. The analysis went something like:

1. People who don’t currently have connections will now get connected. And once they are on the network, they have an option to get clean piped water.
2. For people who already have connections, their monthly costs will shoot up. Maybe double. However, given that the average water bill amount is quite low, and is an extremely small proportion of monthly expenditure. So small that even a 100% increase won’t have much of an impact.

It’s time to revisit that case, given that Kundapur, a coastal town in Karnataka has decided to privatize it’s water supply. To summarize, so far, this town was dependent on ground water. Now, they are getting water from the river Varahi. Residents have to pay Rs. 4000 for the connection (half of that refundable), and the monthly bill will come within Rs. 100, they’ve said.

There are two points to note here. Firstly, this is the first time that Kundapur is getting piped water supply. The second is that there is a huge up-front cost.

When I had talked about privatization giving the option of water supply to everyone, I had said that the costs should be structured such that the fixed charge is low or non-existent, and only usage is charged. This way, I had said, there won’t be any adverse impact on the poor (who are outside the system in the first place).

In this context, a financial restructuring of the Kundapur plan might be necessary. The TMC and the water supply firm will have to work out a scheme where they heavily subsidize the up front fee (to say about Rs. 500) in exchange for a higher per-unit charge for water. That kind of a structure would have several benefits.

Firstly, it would be far more inclusive and more people would be brought into the safe water plan. More people would be able to buy the option to get safe drinking water. Secondly, a higher variable charge will also result in more judicious consumption, which is critical for a limited resource such as fresh water. Thirdly, due to the changed payment structure, the heavy users of water (more likely to be the rich and upper middle classes) will end up cross-subsidizing the low volume users (usually the poor). Thus, the adverse impact on the poor can be brought down, and the people who wil have to pay more would be those who won’t mind paying a bit extra.

Of course, there is still a long way to go. The private partner who will handle the operation and maintenance is yet to be selected. There are also bound to be a large number of protests against the privatization itself. The TMC needs to get past that. Also, it seems to be the first time when such an exercise is being conducted in the country. So, other hurdles also can’t be ruled out.

Nevertheless, this outsourcing of operation and maintenance of water supply is a welcome concept, and if implemented and priced in the right way, might become a model to emulate in the rest of the country.

Cross posted at the Indian Economy Blog

Sugarcane Markets

Ah, no. Don’t get psyched by the title. This is not about agriculture, and will not be cross-posted on the Indian Economy Blog. This is more to do with the festival today. Sankranthi.

The basic activity during the festival is that you visit some N houses and give them a stick of sugarcane each (along with “side dishes” such as bananas, occasionally oranges, ellu (til i think it’s called; mixed with small cut pieces of coconut, jaggery, groundnuts, etc.) and figures made out of sugar). And you get back a stick of sugarcane in return (along with similar accompaniments).

Anyways, the point I’m trying to make is that there is very little chance that the sugarcane you buy will end up in your house. Unless of course you buy some “extra stuff” for yourself. And the market encourages recycling. Each piece of sugarcane usually changes hands at least four-five times. Thus, there is a very good chance that you don’t know at all the person who originally purchased the piece of sugarcane you are going to eat.

Another result of the high churn is that it’s difficult for people to keep track of the sugarcane pieces (they don’t have DHL stickers, do they?). There’s no way anyone can remember who gave them the sugarcane that they are now eating. And so there isn’t much of a reputational risk also, in giving poor sugarcane. The only thing is the size of the sugarcane stick. Since the “quality” on that measure can be measured easily. in one glance, as long as you don’t give too short a stick (you’ll definitely be classified as cheap then), you’re ok.

Ok, so, given that the nature of the market is such, what is the incentive to buy good quality sugarcane? What is the incentive to pay more to get better sugarcane? After all after you’ve given someone a piece of sugarcane it’s unlikely she checks for the quality of what you’ve given and then picks the stick to return to you based on that. So why should you even bother about buying good sugarcane?

The other day I’d been to the market, and most of the sugarcane on display seemed to be mediocre. And now, thinking about it, I’m not surprised. Unless you are highly ethical (and the proportion of such people is small, and falling) you’ll just buy whatever you can get cheapest. Simple. And the demand for good sugarcane is so low that the market itself doesn’t exist there, and so everyone is forced to buy mediocre sugarcane. Doesn’t this remind you in some way of the Tragedy of the Commons?

Our festivals should be better designed, I say!

Help me with some piracy

I realize that after graduating from IIMB I don’t have access to a convenient LAN from which I can download the latest hindi film music which someone else has managed to procure.

In the process i seem to be missing out on loads of recent music. Can someone suggest to me some site from which I can download stuff? And preferably something that I’d be able to access from my office, given that i have severe download restrictions in my home connection.

Thanks in advance.

Tomatina in India

Almost every other year, there is a bumper crop of tomato in Kolar district, leading to prices of tomato falling under Rs. 2, leading to heavy losses amongst farmers. It’s not uncommon for farmers to throw sackloads of tomatoes on to the highway rather than selling at such throwaway prices.

I hereby suggest that in such times of a glut in the tomato crop, someone should come ahead and organize a local version of Tomatina. It will be a whole lot of entertainment to our people, and on the other hand result in a one time demand surge for tomatoes, leading to stiffening of prices, and helping out the farmer. And valuable tomatoes which would otherwise end up under the wheels of trucks would be used to plaster someone’s face instead!

Some people might think it’s morally wrong to waste food like this, but I think it’s so much better than letting tomatoes waste under wheels!