business – Page 28 – Pertinent Observations

Work

Work is not just something you do for money. Yes, what you do working from seven (in the morning) to eleven in the night counts as work. But that is not the only thing that counts as work.

Broadly defined, work is anything that you need to do at a particular given time. It doesn’t need to necessarily be unpleasant. It doesn’t need to reward you financially or otherwise. It is just something that needs to be done. It is a responsibility. It is something that you have taken ownership of. And by definition, it is unpleasant.

For example, if I have promised my mother that I’ll go out an buy vegetables this evening, that is work. If I have promised a friend that I’ll meet her for tea this evening between six and seven, that is ALSO work. Because now you know what you are going to do between six and seven in the evening today, and you can’t do anything else at that time. That part of your schedule is effectively fixed, and everything else needs to work around that.

The importance of uncertainty in life, I think, is grossly underestimated. When uncertainty is in the hands of others, it is uncertainty for you. It is inherently unpleasant. Suppose you have committted that you will do something “immediately after someone does something else”, then absolute jai. You not only have “work” to do, you are also uncertain as to when you’ll have to do that work. You will need to block a large part of your time for that, and that is inherently NED-causing.

On the other hand, when the uncertainty is in your hands, it results in “flexibility”. Suddenly, when you have a set of things to do that only need to be “collectively done” before a certain time, and the time window in question is large enough, it is not so much of work anymore. Some of the tasks maybe unpleasant, but given that you now have the choice of WHEN to do it, it is so much more pleasant.

A few takeaways from this theory:

Occasionally, when I crib to people that life has become boring and predictable, their immediate response is to ask me to take up a new hobby. Typically this is something where I’ll need to interact wit h other people – such as music classes, or dramatics, or whatever. And when you take up something where you need to coordinate with others, it becomes work.
If you make a mental decision to play cricket between six and seven in the evening every day, soon it’ll become work, irrespective of how exciting it might be. Because it gets entrenched into your (already tight) schedule. If you have the option of playing cricket every evening between six and seven, then it is fine, since it doesn’t impose a schedule
The more important thing is about work at work. All management gurus you talk to talk about team dynamics, and team play, and coordination, and focus. What they dont’ realize is that all these increases the quantum of work at work. When the interaction between team members is large, and frequent, then you have several, and frequent, “deliverables”. Which creates more “work” on top of the work that you need to do.
On the other hand, if it is a loosely held team, that interacts infrequently, and which is structured such that each person has a clearly defined piece of work and inputs and outputs, then each member of the team has so much more flexibility. It is so much less “work”.
Coming to focus, when people say you need to show focus and you need to concentrate on the one thing that you are doing, they are once again increasing your “work”. Since you need to focus on that one thing, you have zero flexibility. And that is again more “work”. A better situation is where you are balancing several things at the same time, and that gives you so much more flexibility. And when you have several things on your plate, you can put structured procrastination.
So the important thing to remember while designing a team project is to keep things flexible, and reduce frequency of interaction. Give uncerrtainty into the hands of the workers; I’m sure they’ll enjoy it. The amount of work that is there to be done cannot be reduced, but the amount of “work” that needs to be done can, and should be.

Uncertainty, flexibility, option value are all things that are in general underestimated. People assume that we live in a deterministic world. They assume that everyone else needs to do things in a deterministic fashion. And this assumption has a serious negative impact on all our lives. Yes, you might recall that the ongoing financial crisis has been caused to to understimation of uncertainty. That is just the tip of the iceberg.

On Large and Small Books

During my last binge at Landmark, I saw a book which I thought I’d like. It was priced at some six hundred rupees – a full fifty percent premium over what I’m usually willing to pay for a book – and was quite thick. My first thought was “ok on a pages-per-rupee basis, this seems to be doing quite well so I should buy it”. Then I had second thoughts.

The question is – should you look at the size of a book as an advantage or as a disadvantage? I think the normal viewpoint (as reflected by my instinct) treats pages as assets. There might be historical backing for this. When books were read for timepass, the amount of value (the time that could be passed) that could be gleaned from the book would be proportional to the number of pages in the book. If the language was difficult to read, then even better – for now it allows one to pass even more time reading the book.

However, when one comes to “funda books”, this argument fails spectacularly. When you read funda books, you don’t read to pass time. You read books in order to get fundaes. And once this happens, volume becomes not a benefit but a cost. When you are reading a book for the fundaes, then you are effectively paying two costs – one is the rupee cost of the book and the other is the time COST. The time that you spend reading the book now becomes a cost. And when time is a cost, then more pages need not be a benefit.

Unfortunately, when you are at the bookstore trying to make a decision about whether to buy a book, there is no way you can figure out how much of fundaes the book is likely to offer. It would have helped if you have read some reviews, which will allow you to make an informed decision. If you haven’t, then hard luck. Now, if you have no clue about that book that you have in your hand, and you need to make a decision on whether to buy it, then I won’t blame you for making your decision based on the thickness.

The unfortunate consequence of this is useless padding up of books. Authors and publishers know that a large section of the readers are likely to judge books based on their size. And they make things voluminous. They take 40 pages to tell stories that could’ve been written in 4. They end up saying the same thing time and again, just to increase the number of pages. And overall, end up boring the reader and lowering the net value added by their book.

So you have ideas which could have been communicated in a few blog posts developing into a book – after all, no one wouuld be willing to pay the same amount of money for a 20 page book as they would for a 200 page book right? even if it were to offer comparable amount of fundaes?

I don’t really know if there is a simple solution to this problem. Solving this would involve effecting a major shift in consumer behaviour. It is unlikely that blogging and online publication would become profitable, else we might have expected the disruption to come from there. Still, you can never say. All we can do is to wait and hope. And read reviews before choosing books.

PS: online purchase of books (via Amazon, etc.) might help mitigate this problem a little since you don’t really feel a book when you decide to buy it, and you have reviews available instantly. Nevertheless, I’m sure most buyers would be subsconsciously using the “number of pages” field while making their purchase decision.

PS2: I should make my blog posts less verbose

Interior Design

Recently it has been reported that former ML MD John Thain spent some 1.2 million dollars in decorating his office. And people say that this is very conservative by normal CEO standards. Normal people (like me) might wonder why one needs to spend so much on one’s office. Even if you were to list out what needs to go into an office, and then go on to buy the best possible item in each category, this kind of money seems obscene.

So if you are still wondering why people end up spending so much on their offices, you will need to get in touch with someone from the profession called interior design. It’s quite fascinating. The way these people think is extremely instructive, and actually it would make sense for an investment bank CEO to learn this from the designer and then use such ideas to trade. They way these people imagine stuff, they comparisons that they make, the associations that they draw, are incredible. Actually, I think interior designers might be good people to partner on a quiz team.

So it cannot be any random painting that needs to go on the walls. The painting needs to have a theme, and this theme needs to fit in with the general theme of the company. And interior designers being interior designers, will develop their own idea of the company’s theme. And then use this to design the office. So coming back, the painting needs to conform to the ideals of the company. Next, the painter who painted this painting needs to conform to the ideals of the company. Put these two together and the painting will cost a bomb. Doesn’t matter, they need to get everything right. And perfect. And in order

Interior designers also seem to be proficient in stuff such as vaastu, feng shui, numerology, and all such. So each and every desk in the office needs to be oriented in the right way. It’s ok if the employee doesn’t have space to stretch his legs. Doesn’t matter if the position of one particular desk means they can’t play gulli cricket in office. It has to be that way.

It is excellent that interior designers do their jobs so diligently. The way they think, their attention to detail, the way they see the big picture, is all extremely good. In fact, interior design is probably one profession where, to succeed, you need to be both a stud and a fighter. So kudos to the entire community. However, there is a small issue.

The biggest problem with interior design is that it’s all so subtle. Ok, the colour of this wall matches the theme colour of the company. But who would notice? Ok, the painter who painted this exquisite painting just outside the CEO’s door might belong to the same moon nakshatra as the CEO. Excellent attention to detail. But does anyone notice it? it is quite a pity. These designers spend so much time and clients’ money in bringing out the perfect design, but most of their excellent thinking, and work, goes unnoticed.

There is this story about Michelangelo painting the Sistine Chapel. He was painting an extremely dark corner, which was out of eyesight of most visitors, or maybe all visitors to the Chapel. Someone goes up to him and asks why he is taking so much trouble in painting this particular nook when no one will notice it. He replies that he is doing it because God is watching. Extremely commendable. And I suppose interior designers also work on the same principle. However, I’m not sure if Michelangelo billed any additional amount to the Chapel for painting this unseen corner.

The other day, I was talking to my uncle about the design of his drawing room in his Gurgaon house. He mentioned to me that soon after he bought the place, he had called an interior designer to help him design the drawing room. The lady broadly told him about her plans for the house, which my uncle seemed to appreciate, and they sat down to discuss fees. The deal was that the interior designer would instruct my uncle about where he needs to get each and every piece of his furniture from. She would determine the design, the designer and the shops. And my uncle would have to do exactly as she said. And here is the clincher: the interior designer’s fee would be 2% of my uncle’s total expenses on his drawing room.

I don’t think incentives can be more misaligned than this. You get paid to help your client spend his/her money, and the more money you make your client spend, the more money you make. So it is always in your best interest to make sure that the client spends as much as possible. The only limitation might be the client’s budget, but your incentives make sure that you will stretch it to its limit. In case of professional CEO’s, they don’t really have limits, and it is their shareholders that pay. Which is why you get situations like Thain’s expense of $1.2mm on his office room being considered low by industry standards.

It intrigues me as to how interior design fee structures have settled down this way. And the only thing I can think of is that most people are spending someone else’s money. Their shareholders’ money, in most cases. If I were to engage an interior designer some day, I would try and structure her fees differently. I would tell her (numbers here are indicative only) “I’m willing to spend Rs. 10 lakh, and I will pay you a minimum of 20,000 rupees. For every lakh less than 10 lakh that I end up spending, I will give you Rs. 10,000 more.” Or maybe not. I may just negotiate a fixed fee.

A new paradigm for selling advertising slots

There are fundamentally two kinds of videos – videos for which willing to pay to see, and videos which you are paid to see. It is intuitive that advertisements fall in the latter model – for watching an advertisement, you are being “paid” a certain sum of virtual money which gets encashed when you watch the program along with with the advertisement appears.

You might also notice that despite all the hue and cry about copyrights and people getting videos pulled off youtube, it is unlikely to find a case where an advertisement has been pulled off youtube. An advertiser will only be too happy to have more people watching the advertisement, and by pulling it off youtube, the advertisor will be shooting himself in the foot.

When you are watching TV, and a painful ad comes along, you are likely to switch channels. Or get up and take a break. And turn your eyeball to the screen only when all the advertisements for that particular session are over. So, in effect, by showing a bad advertisement, a channel is reducing the number of eyeballs for the other advertisement in the same session (a session is defined as a consecutive set of advertisements, uninterrupted by the main program. it can run from approximately thirty seconds to five minutes)

On the other hand, a good, popular and well-made advertisement is unlikely to make the viewer switch channels, or get up. It is more likely to generate higher eyeballs for the other advertisements in the session – without any additional effort by the other advertisements in the slot. And thus pushes up the value added for all advertisers in that particular slot.

So the idea is simple – advertising slot providers (i.e. TV channels, etc.) should incentivise advertisers to make better advertisements. Or use the better advertisements more. And the simplest incentive you can give is monetary. So offer a discount for the better and more popular ads. So far, the model has been to make viewers view ads that come along with a programme. The new paradigm is to make viewers view ads because they are placed next to ads that viewers want to see.

I’m sure that once this kind of pricing gets implemented, it will be more profitable both for the TV Channel and for the viewers. TV Channels will be able to sell the “network value” of placing ads on their medium, and use that to more than compensate for the lost revenue in terms of discount. Viewers will like it because the bad ads will be gone, and they will be saved the trouble of switching channels each time there is an ad break.

There remains the small matter of implementation. We need a way for rating advertisements. Online/SMS polling will be no good as they can be rigged. Neither will youtube help. We will need to find a better way to gauge how much people in general find ads. If there is some way in which TRPs for ads can be measured, that would be helpful, too. I’ll think about this problem, and maybe publish a solution to it in due course. I urge you also to think about this kind model, and let me know if you can come up with any bright ideas.

One option would be for the channel to pick what it calls a “winner advertisement” and fix the various slots in which it is going to be played. Maybe the winner might be given the choice of picking which slots it wants to go in. Then, the channel can make the placement of these winner ads public to the other advertisers and encourage them to bid for the surrounding slots. This bidding can help gauge the popularity of the initial winner ad, and then the channel should share some part of the proceeds of the auction with the winner advertiser. And when the premium that other advertisers are willing to pay in order to get a slot close to the winner drops, the channel will know that it is not a winner anymore and replace it.

So what I have described here is some sort of effective peer-review process for advertisements. Different channels can choose different strategies for the order in which to let channels pick their slots, about what kind of auctions to hold, etc. The most important thing about this peer-review process is that here people are voting with their chequebooks – and when people do that, they are very likely to know what they are doing.

So think about this. I think it is a good idea, and it seems like one of those things that if one channel implements it, it will become some sort of an industry-wide standard. And if you are not doing this because you think you don’t have quantitatively inclines people, the fired investment bankers are still around.

Fighterization

The story begins with this slightly old blog-post written by Ritesh Banglani, a guest faculty at IIMB. Banglani writes:

In the first class of my course at IIM, I asked students a simple question: What is strategy?. The most interesting response came from a rather cynical student: “Start with common sense, then add some jargon. What you get is strategy”.

I didn’t say so at the time, but that is precisely what strategy is not. If anything, strategy is uncommon sense – making choices that may not appear intuitive at the time.

The cynical student in question mentioned this during a conversation earlier today, and I thought the discussion that followed merited a blog post. I thank the cynical student for his contribution to this thought.

Innovation happens when someone gets an insight, which, by definition, is a stud process. The person innovating, naturally, is a stud. For a few years after the innovation, the idea is still in development, and it is still very tough for other people to do what the pioneer stud has done. The first wave of people to do what the pioneer has done will also naturally be studs.

However, after the idea has been established, the market for it grows. The pool of studs that are then involved in the idea won’t be able to service the entire market. Also, being studs, they are prone to get bored easily with whatever they are doing, and will want to move on. The increased size of the market as well as the gaps left by the leaving studs will attract fighters to this idea.

Now, fighters are not natural when it comes to generating insight. However, they are excellent at following processes. And once an idea has been developed beyond the initial stage, it makes itself amenable to processes. And thus, a set of processes get established. Soon enough, thanks to the processes, the fighters are able to do a much better job of implementing this idea as compared to the pioneering studs, and studs get driven out of the industry.

This generalized process that I have just described applies to all fields, or “domains” if you would like to call it that. Let us now leave the generalization and come to one specific profession – strategy consulting. Strategy consulting started off as an insight-driven process, a stud process. Industrialists would go to consultants in order to get insights, and out of the box ideas, in order to take forward their business. Soon, the business became profitable, and the consultants, like any good capitalists wanted to expand.

There was one problem, however – talent. It wasn’t easy for them to attract similarly insightful wannabe consultants to work for them. Similarly insightful people would either not want to work in strategy consulting, or they would start their own consulting shops. Thus, there was a need to bring in the fighters into the mix.

It was to facilitate the entry of the fighters that the various consulting models and frameworks came into being. A large set of processes were drafted, and all that the fighter consultants had to do was to identify the appropriate processes for the situation and then implement them along with the client. Insight and out-of-the-box thinking were thrown out of the window. Hourly billing became the industry standard.

Strategy consulting has come a full circle now. It has been “fighterized”. Clients nowadays don’t expect insight. They expect processes. They expect to be led down the “correct” path, and they want to make sure they don’t make obvious mistakes. And thus, the “strategy” that the consulting firms offer are mostly common sense which has been appropriately packaged. And this has percolated down to business schools. And so the cynical student’s cynicism is valid.

The Aftermath

Baada collaborated on the research leading up to his post. I hereby acknowledge his contribution and condemn his laziness for not blogging it himself.

One of the major problems of the financial crisis that has been happening for about two years now is that investment bankers, as a profession, stand discredited. Before this, they used to claim to be on the top of the intellectual ladder. And now, thanks to a handful (more than a handful; but still a small proportion) of phenomenally stupid investment bankers, the entire community stands discredited. Not just that, they have left the community of quants, of people who can be good at structuring, of finance people, of statisticians, all discredited. You say “all you need to do is to get a few ibankers into these jobs” and you’ll have people come at you like a pack of hounds, waving Mint and saying “look at the damage these buggers have caused, and you think they can solve this problem”.

So Baada and I were talking about cricket the other day. About how thanks to the demands of television, flat pitches are being prepared everywhere. Which is leading to tame and boring draws. Which has led to domestic cricket being effectively reduced to a one-innings game. Which has led to massive fourth innings run chases. Which has led to bowlers break down once every couple of seasons. And so forth.

The argument put forth in favour of flat pitches is that in order to maximise television revenues, you need the game to last five days. Excellent argument, and Baada and I agreed to it. But the friggin’ point is that if you have a boring game, no one is going to watch it. If you have a game that is most likely to end up as a draw, it will have no audience. Advertisers would be paying through their nose for near-zilch viewership.

In the medium term, things should even out. Advertisers will realize that due to the boring nature of Test cricket, no one will watch it anyway, and will back away. Ad rates will fall. And TV rights bids will fall consequently. And the boards will understand their folly and take steps to make cricket interetsing again. (there is also the danger that boards will use this to say that no one watches Test cricket anymore and scraps it altogether). However, advertisers should not be so passive and wait for things to even out.

Given a large number of statistics, playing conditions, day of week seasonality and all such stuff, it shouldn’t be hard for the smart advertiser to figure out which are going to be his most profitable slots. And bid specifically for those. If one smart advertiser does that, then that advertiser stands to gain against other advertisers who will end up paying more money for less profitable slots. And so all advertisers will become smart. Now, the channels will stop seeing uniform demand patterns for their various advertising slots. They will now need to acquire smartness in order to combat the smart advertisers. This way, smartness will prevail in the system.

I’m sure that once something like this happens, natural balance will get restored. It will take much less time for TV channels to realize that three-day Tests on bowling pitches can get them greater revenues compared to runfests played over five days. And they won’t take much time to communicate the same to the boards who will then restore Test cricket back to glory.

The problem with a lot of advertising people is that they see themselves as “creative people” because of which they assume they don’t need to know and use maths. And they don’t do the smart calculations I described earlier. As for the brand managers, it is likely that a lot of them decided to pursue marketing because they either didn’t like quant or found themselves weak at quant. Apart from a few simple excel models, they too are likely to shun the kind of smartness required here.

So where are the white knights who can save the version of the gentleman’s game played in whites? Not currently in the ad agencies. Most likely not in the marketing departments. They are all out there. A few months ago, they were employed. Earning very good salaries, and grand bonuses. Earning amounts of money unaffordable to most advertising and marketing companies. Thanks to the financial meltdown, they are available now. Looking for a fresh challenge.

This is the best time for you to infuse quant to your business. You won’t get the kind of quant supply in the market that you are seeing now. Even if the financial industry doesn’t recover (in any case it will never go back to 2007 levels), supply side factors should ensure lower supply. Do that little experiment now. Acknowledge that numbers can do a lot of good for your business. Understand what structuring is all about, and estimate the kind of impact a good structurer can have on your revenues. Make that little bit effort and I’m sure you’ll get convinced. Go make that offer. An offer these ex-ibankers can’t refuse in the current circumstances at least.

PS: When I refer to investment banking, I also include the “outside-the-wall” side of the business (called “markets”; “sales and trading”; “securities” and various other names). In fact, I mostly talk about the outside-the-wall business, not having had any exposure inside the wall.

Of Pepsi and Perk

Can be best described by looking at the “objects” that defined our bets at different points in time. Most of those phases seem to have faded away, but I clearly remember two of them – the Pepsi phase and the Perk phase.

The Pepsi era started with their “nothing official about it” campaign during the 1996 World Cup. It was a brilliant campaign, and had all of us 13yearolds hooked. This became our excuse for any little crimes we would commit (like i would hit someone and say “nothing official about it”). I’m not sure if we used it as an excuse for larger crimes, but I suppose we would’ve used it quite regularly as an apology.

Pepsi seemed to have done a good job of identifying itself with this slogan, as soon Pepsi too became our “weapon of choice” when it came to settling bets, and suchlike. This was the period of time when a tiny bottle of Pepsi had just become affordable by saving up on pocket money, and it was put to good use. The unofficial inter-class cricket tournament became “the pepsi cup” – the losing team was supposed to sponsor a bottle of pepsi for each member of the winning team. If my memory serves me right (it usually does), the tournament never got completed.

This phase lasted for almost all of my 9th standard, if I remember right. Maybe it was briefly replaced by other phases, but this was the defining brand of that academic year. All bets were settled with pepsi. Whenever we went out, usually to play cricket, we would refresh ourselves with pepsi. It was the time of life when people had just started courting. Budding couples would go out to have – a Pepsi.

I don’t remember the exact date, but by the time we had moved to 10th, Preity Zinta had struck. With her “thodi si pet pooja”. Perk was the thing now. Considering that a chocolate bar is a much better device for putting blade compared to aerated cola, the number of “couples” also increased. Also, in 10th standard, the number of people going for tuitions increased, and this seemed to cause an increase in the general levels of pocket money.

There were people in my class who would stay in class for lunch break (when everyone else went out to the field) because knew they knew that raiding a certain classmate’s bag would yield them a rich haul of perks (the guy was simultaneously blading some four females, so his stocks always remained high). Then, unlike pepsi, perk could be consumed discreetly. Copious quantities of it were consumed while sitting in class (i used to sit in the first bench so that I could have unhindered view to a certain junior classroom, but that didn’t stop me from eating perk in class).

I remember that on a certain day in August that year, the shop near the school ran out of Perk stocks. It was the day after rakshabandhan, and given the quantity of unsolicited blade that was happening then, the number of rakhis tied had seen a sudden increase. And that had to be reciprocated – with Perk of course. Some rakhis weren’t acknowledged, which meant that this was probably the only day in more than a month when certain people DIDN’T give Perks to certain other people.

The first four of my five “pursuits” were low-cost (three of those were in school; and even the fourth was before I had drawn my first salary, so you can’t blame me). All four of them put together, I don’t think I spent more than a hundred rupees on blade. This included ten rupees that I had spent on a perk for #1. She had dodged me all day, and by the time I gave it to her at the end of the day, it had melted in my pocket.

I think I should incorporate this scene in one of the movies I’m going to make. Boy chases girl all day, trying to give her a Perk. She skilfully dodges him all day, and evades his offer of Perk. And each time she evades him, he is shown putting the perk back in his pocket. Finally at the end of the day, they meet. It’s time to go – in the distance you can see her father on the bike, waiting to pick her up. And he gives her the perk. She opens it. The perk has melted. And then her heart melts. Ok I must stop now.

On how blogs have changed the way I look at books

I have more than a hundred feeds on my Google Reader. It could be much more, just that I haven’t bothered to keep track. Apart from these hundred odd feeds, I also read posts which have been shared by people on my GTalk friends list. And then, you have people who send you the odd link to some strong post or article, and I usually end up reading them too.

The point I’m trying to drive at is that most of my reading time nowadays is spent reading blogs and news articles and magazine articles. The kind of stuff that promises to offer a strong insight once every 1000 words or so, and usually delivers on that promise. Which, in effect, has spoilt me.

So, in effect, whenever I read something, I end up expecting an insight every few hundred words (no, i’m not that jobless to count words. this is just an approximate estimate). And this is the reason why, I think, I’ve stopped reading fiction. Fiction simply doesn’t offer the same kind of insights that blogs do. Yes, stories can be insightful. They do help you learn stuff. They definitely help you “develop as a person”. But if they are longer than a few hundred words (i still have appetite for short stories), they end up boring me. I quickly lose interest. I find no point in reading them.

Whenever I look at a book now, I end up comparing the experience to reading blogs. I see if the book can promise insight at the same rates that blogs can. Which is why I hate single-idea books. i had recently read this book called Why Popcorn Costs So much at the movies. My crib with that was that it didn’t offer enough insight for it’s length. What could have been explained in 20 blog posts had been stitched into a book.

In the era before blogs, such books made sense. There was no quick fix way to get insights, and you would be willing to plough through long books in order to get some insights. And for the author, there was no quick and profitable way of disseminating insights – he was forced to write long books. It was a sustainable market.

Blogging seems to have changed all that. There is a quick and possibly profitable way of disseminating informationn. There is a quick and easy way of receiving it. Some books that were great ideas in an earlier era simply can’t hold up now. In these times, if you are to write a book, you need to make sure that there is actually enough material to hold up all the pages that it’s written on. That even if the main idea can’t hold for so long (it usually can’t), you put in enough sub-plots and side-stories to sustain it.

I want to write books some day. Maybe even take that as a full-time profession – though it’s too early to call on that. However, when I do get down to writing this, I need to keep this concept in mind. That I will need to fill the book with enough insights to sustain it.

PS: i don’t feel the same about movies. I don’t mind the slow buildup and long periods where nothing happens at all. maybe it’s because the movie lasts only about two odd hours in its entirety.

The ibank bailout

After the Fed bailed out Bear Stearns and arranged for its sale to JP Morgan, I blogged saying that the Fed hadn’t done the right thing, and was now creating a situation of moral hazard.
When Lehman was in trouble, I said that this was a good time for the Fed to make amends for not allowing Bear to fail. Reputed commentors such as Michael Lewis backed up my claims (sorry, i’m too lazy to find links). And the Fed seemed to take our suggestion. And Lehman was allowed to fail
Now, following Lehman’s collapse (and I’m not sure if there’s a causality here), the entire global financial system is in trouble. No one is lending to each other (remember that in my original post I had said that the point of removing the moral hazard is that no one will lend to bad banks. Based on that it’s like as if all banks are bad now). The remaining banks are going down one by one.
It seems like the Lehman collapse is just a small part of the larger picture, and if things continue to go bad the way they’ve been, it’s even likely that the impact of the Lehman collapse will not be major compared to the total size of the crisis.
So the real danger is that by the time the crisis is over and everyone has recovered (it’ll take a long time indeed for this to happen), people would’ve forgotten about Lehman. Forgotten that banks are not necessarily too big to fail (and given how bad things have got, the Fed cannot allow more banks to fail). Forgotten that no one will bail out the creditors if someone in the system tells jai. And people will go back to their old bad habits
Important question to ask here is the role of the Lehman collapse in the magnitude of the current crisis. There definitely has been some impact, but it would be interesting to see exactly how much. Would this collapse have been as bad had Bear been allowed to fail when it was about to fail? How much incremental damage was done to the system in the six months between the two major ibank failures?
In hindsight it seems like the Fed might have done better in letting Bear fail rather than letting Lehman fail; actually we aren’t even sure of this.
The question remains as to how discipline will be ensured in the system, without too many restrictions, once the system is back up on its feet (it’s going to take a long time, mind you). Maybe we will see smaller banks. Large networks of smaller banks, with none too big to fail. Yes, there will be continuous churn, wiht banks failing continuously and new banks coming up to replace them. Banks will be more ruthless in dealing with each other.
But how does one ensure that the system goes into this particular steady state, and not any other, once it’s back up?

More on the IITM Open Quiz

A while back I was talking to Pota about the IITM Open Quiz, and its possible demise. I think what happened was that the quiz was in general closely held. Three of the four original quizmasters were from the “no questions asked” team, and even after I graduated, people who continued ownership of the event were NQA guys.

We had a large number of non-NQA quizmasters (Ruddra, Chinmay, 10g, etc.) but the overall control of the event remained with NQA people. In each of its five episodes, all incumbent members of NQA contributed as quizmasters. Bhaand, who was the unofficial manager of NQA, was the coordinator of administrative affairs every year. Add to this the fact that the cultural secretaries and core group at IITM were in general hostile to the event, and you know what happened.

NQA was disbanded for all practical purposes in 2007, when The and RG graduated from IITM. Pota was the only one remaining on campus, and he did his job by coordinating the OQ of 2007. However, with the disbanding of NQA, there was no natural successor to take the event forward after pota. There was no one who could claim ownership of the event.

Looking at it from this perspective, maybe what has happened was inevitable. However, I think there is a lot to learn from this. A lot of lessons in terms of leadership, team building, succession plans, etc. I think I want to write a case study on this. If anyone of you has attended one or more OQs, and has any other feedback about this, please let us know. We can include that also in the case study.

All said and done, hope is not lost yet regarding the event. There is still the faint probability that we can somehow take it forward, on a different date. I’ll keep you posted on this.