26 thoughts on “My New Favourite Writer”

  1. It better not fail too much because whenever it fails or the economy sours, Indians go on rioting sprees killing each other in the range of hundreds to thousands (never less than hundred because that how we roll in India.)

    Social stability is more important that financial gimmicry. I shudder to think what would have happened if we had faced the Asian financial crisis in the 90s. Clearly if that that had happened, many of the new rich Indians that sing paens about free trade wouldn’t even have gone to college.

    In the US, many people are reconsidering whether any gains were made by deregulating the financial industry (repeal of Glass-Steagall Act etc). Currency pegs which were the rage in the 90s have only destabilized the global financial system and many economists now advocate against full convertibility. The India government keeps control to maintain stability and not allow the country to be exposed to decisions of hedge fund managers who come in and then go out with massive amounts of capital thus destabilizing our financial markets. China has learnt from the experiences of other Asian countries and has refused to open up its financial sector. It already finds itself in a bind with its currency peg.

    With the finance sector in deep crisis in N. America and Europe, we have to watch how they manage the crisis. What has happened until now are different kinds of bailouts. One major bank was nationalized. So nationalization of banks isn’t too bad after all.

    I see a lot of people praising the RBI these days. I chuckle whenever I hear that but they are making comparisons with other Central Banks around the world and they do have a point. We have done well indeed.

  2. HiAgain,

    just because some white people nationalise a bank, it doesn’t mean that nationalisation of banks automatically becomes a good thing. Also, how on earth are you equating full convertibility to a currency peg?

  3. Even if you were to suppose that the UK’s nationalisation of Northern Rock has suddenly made this practice a good thing, perhaps you see the difference between a nationalisation meant to bail out shareholders, and a nationalisation meant to take over a business you think you can run better?

  4. Northern Rock nationalisation was not meant to bailout the shareholders. To the contrary, it was meant to avoid the usual situation whereby profits are privatized and costs socialized. In this case, the UK government thinks that an institution that failed in the market can be run recapitalized, run better with a different management and then sold back into the market. In essence, the UK government has taken on the role of a private equity firm. Private equity firms run businesses. Hopefully the UK government knows what it is doing.

    If you referring to bank nationalization in India, it was not done from a business perspective but to bring social changes. It was meant to take away the monopoly of certain castes in the ownership and management of these banks as well as to make these banks act more towards delivering social goods rathern than making profits.

    Aadisht, I did not equate currency pegs with full convertibility. I was talking about various economic fads that seem to grip policymakers and ideologues. None of these fads have any backing from research. You are more than welcome to read Stiglitz to understand this point.

  5. Nationalizing a loss-making bank and recapitalizing it with tax payers’ money will not *avoid* the usual situation of nationalizing costs. It *is* that unfortunate usual situation.

  6. Social objectives are more important than piling up pieces of paper. I guess the UK government thinks so and doesn’t trust the market enough. Maybe the UK govt thinks that it can be a good private equity firm and recoup the costs later. We will see.

  7. HiAgain,

    Here’s more Percy Mistry for you:

    Conservatives in government will point to the sub-prime crisis and take pride in having blocked India’s progress, in having prevented sophistication of financial markets. As Percy Mistry wrote recently, the Indian response to the Asian Crisis of 1997 was reminiscent of a slow-moving bicycle (India) looking down on a BMW (South Korea) that had punctured a tyre. The right response in India is to be embarrassed that we do not even know what a sub-prime loan is, to notice how backward Indian finance is, and to have the courage to take on modern finance and the challenges it brings.

    link

  9. Ravikiran, I suspect I misunderstood your point. I did mention that it will cost to recapitalize. I did not forget that. The problem is when the cost is socialized and the profits privatized. Initially, the plan was to issue bonds with the full backing of the UK govt and the shareholder and the management maintaining control. But it became politically impossible, so they ended up privatizing it than letting it sink like the market would have wanted it. The UK govt was seeing the prospect of pensioners going bankrupt and ending up on the street. So the social objective took precedent.

    Himanshu,

    In the aftermath of the Asian crisis, well-known economist Rudi Dornsbusch said on CNBC that the positive aspect about the Asian Crisis was that “Korea is now owned and operated by our treasury.”

    I would rather ride my own “slow-moving” bicycle than be someone else’s chauffeur driving his BMW.

    Anyway, whatever has to be said has been said.

  10. “I would rather ride my own “slow-moving” bicycle than be someone else’s chauffeur driving his BMW.”

    says an Indian sitting in New Jersey. If he ever returns to India, he will lead an upper middle class existence, with his costs kept low by virtue of the fact that millions of his countrymen are poor, one jump away from starvation and willing to work for ridiculously low wages. On all their behalf, he decides, presumably by virtue of the right George W Bush has given him, that they’d rather continue to be poor than descend into the hellish existence that the Koreans and Japanese have descended into.

  11. @HiAgain:

    “I would rather ride my own “slow-moving” bicycle than be someone else’s chauffeur driving his BMW.”

    Oh yeah.. where do you intend to go on that bicycle? Merely roaming around all day on your bicycle is not going to put food on the table, you know. What’s your plan for that?

    Regardless of whether you are in NJ or elsewhere, this is the most ridiculous statement I had read today. Wake up! 2008 is calling to let you know that everyone is driving someone else’s vehicle these days.

  12. When well-known economists talk like gangsters one should be more careful about following what they advocate.

    Since I am being personally attacked, in my defense I will say that I support the loan waiver which would definitely hit my people in a bad way more than the ultra-rich and actually help the poor. The current mania will pass just like the manias of the 90s and the 80s (for those who can remember them.) In the end, India’s social justice oriented policies kept it united and kept the wealth distribution more egalitarian than those lopsided ones in Latin America, Africa and even SE Asia. I am more than happy to see wealth redistribution everywhere as long as it goes to the poor rather than to the rich as currently fashionable policies bring about.

    In this country, I am supportive of high taxes and better public services because both help the poor. NJ is one of those states that actually delivers good public services that are useful for the poor such as public transportation and (indirectly) subsidized medical services.

    Slaveholders used to argue that under them slaves lived better lives than freemen. In fact, freed slaves had a harder livelihood. But that doesn’t mean freedom has no value.

    I think everyone values freedom. We have been free only for the past 60 years. The memories are still fresh, especially to those who have not been seduced by the global corporate structure. Koreans resent foreign military presence but are impotent to do anything about it while Japanese bankers are left to whine publicly as they are asked to bailout western financial institutions. That’s their impotency. It might be 2008 but thats just a little more than 60 years since independence. They say in New Hampshire “Live Free or Die.” It’s not a bad way to live.

    PS: I do not know why you guys have to resort to personal attacks. I didn’t comment on your status and to begin with I have never even tried to find out what it is. I like the ideas and the writing. That’s all I have ever cared about. Maybe I am not curious enough. I don’t know….

  15. >>Koreans resent foreign military presence

    Presumably they’d rather hob-nob with the North Korean People’s Army?

  16. HiAgain,
    Though I sympathise with you for being personally attacked, you did kinda set yourself up for that one. You live, if Ravi is to be believed in New Jersey. You benefit from the highly developed US financial market in myriad ways. You get cheaper credit, easier mortgages access to better financial services than you would in India, precisely because the US financial market is better developed than the Indian one. If you ever screw up your credit history, perhaps because of personal misfortune, you will not be denied credit for the rest of your life.

    Banks in India will never give loans to (or have any kind of dealing with) the poor without the means to reduce some of their risk. They will never have these means without the existence of a developed credit market. For you to argue against a developed credit market is is effect arguing against loans to the poor, as Ravi said. For someone living in the US, and benefiting from their well-developed market to argue this seems like the height of hypocrisy. That is why you were “personally attacked”.

  17. Kunal, Ben Bernanke asked American banks to take a hit on their bad loans. This is a seriously screwy case where a Fed chief is talking about banks giving a pass to borrowers and thus adversely affecting the whole banking system. It makes no sense from a market point of view nor does it make any sense from point of view of protecting the health of the banking system. But still he said that. Why? Because of political expediency. He wants housing loans given to people to be waived off. He knows that it will create a political storm if the banks try to foreclose on the houses and bankrupt hundreds of thousands of borrowers. The social pact that underlies everything you said is under strain and probably dead now. So he is going along with it. A lot of changes are happening here. Anything in the world goes forward because of an underlying social pact. If that is gone, then all bets are off.

    Banks in India are forced to give loans to the poor and then recapitalized at taxpayers’ expense. Banks are simply means of redistributing wealth in India. Certainly, none of the star industrialists and financiers pay taxes. So its the middle class that takes the burden. In return they get to safeguard the status quo. I have no problem with this arrangement and never had any ever in my life and I would welcome similar arrangements in the US. This redistribution is simply a gradual change. I have seen in my own lifetime people from lower classes and lower middle classes go up in life with the opportunities provided by subsidized education, government jobs and low-interest loans. Yes there is corruption but a lot of govt aid helps.

    I am certainly benefiting from the well-developed system here (please don’t call it a market because a lot of it was developed by the state.) But the system is breaking down here and everyone knows that deregulation and social darwinism has gone too far. People are demanding social justice and it is reflected in the issues raised in the current election campaign. Unions are back, inflation is up, people are asking questions about outsourcing, NAFTA, CEO pay, private equity etc. The go-go days are over and people are finally waking up.

  18. Just a note on ‘credit history’. Here policymakers, lenders and everyone in the industry (from retail to auto) are worried about the effects of the housing crisis and credit crunch. If the credit history of hundreds of thousands of people are hit and they cannot access credit to keep the 70% consumption economy going, then the whole economy is seeing a future of contraction or sub-par growth. Nobody wants this to happen. So bailouts are being discussed and loan waivers being proposed. The same credit history was ignored in the housing boom years to keep the mania going and to mask the effects of stagnant wages. Now they are attempting to artificially keep credit rating high rather than “let the market do its job.” At the end of the day, political expediency and social demands are the key. Nobody cares about “markets” and ideology.

    Financial asset credit rating (from the likes of Moody’s and S&P) is considered a joke now. Most of the mark-to-model assets have turned out to have no value. Nobody in the market believes the ratings and the market for many assets have seized up. So much for a developed system.

    To go back to the original point. We escaped the Asian crisis and we did well. We stayed independent. Stability was maintained in an extremely fractious and violent country. We should create our policies based on current practices and realities not on by looking back in the mirror and implementing policies that have been discredited years ago.

  19. HiAgain,

    I’m amazed you can’t see a logical connection between your own sentences. On one hand, you’re in favour of riding your own hand-made bicycle because you value freedom, but on the other hand you’re in favour of middle class paying for sins of politicians and rich industrialists. Are taxes and freedom mutually exclusive concepts for you?

    And If you believe that all talk of markets is just hullabaloo and the job of governments is just to bail out distressed lenders/investors, have you ever heard of any such thing as business cycles?

  21. Kunal, I will take that as a compliment 🙂

    Himanshu, you missed the part where the middle class gains with the maintenance of the status quo.

  23. If I wanted to score “chicks” I probably would be on a “chick’s” blog wouldn’t I?

    Anyway which one of you are the chicks here? 😀

  26. Yeah, nothing like wealth redistribution talk to tickle the funny bones. I am almost interested to find what exactly constitutes dirty talk for you, great leap perhaps.

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