In the beginning there was man.. Oops, I am off to a start that smacks of a style reminiscent of a loony religious sect. Ok, in the beginning there were companies and markets. Companies were distinct entities from humans who sweated behind them. When companies made profits, everyone partied. There are profits to be shared by shareholders, increased growth & demand in the economy, salary hikes for executives & workers, assured spreads for banks who lent money who in turn made more credit available to fledgling companies. Companies went bankrupt periodically due to changes in demand, inability of company to survive and grow in competition etc. Banks went broke when a disproportionately high number of creditors go belly up. Till now things are understandable to Sharmaji next door.
Things get complex from now on. The guys from fancy business schools with affected accents, gelled hair and Hugo Boss suits take over. They introduced financial derivatives. The closest analogy to the entry of financial derivatives is the introduction of the forbidden fruit of temptation into the garden of Adam & Eve where originally, there was only nice lounge music, uninhibited sex and minimalist/ avant-garde clothing. Now these snooty nosed guys said financial markets are much more complex than what Sharmaji-next-door can comprehend. They said it is possible to leverage your assets to produce more resources, fancy salaries and exuberant markets. So we have arbitrages, futures, options etc. The assets underlying instruments were considered strong enough to keep the party going. Then the fund manager stepped in. He said Sharmaji ought to entrust his hard earned rupees to finance professionals in shiny suits who study the markets, invest and optimize returns. Then these guys got greedier and greedier. They started lending to Joe jobless whose repayment abilities were suspect due to a drinking problem and alimony issues. These suspect assets were in turn converted into bonds and sold to unsuspecting buyers who believed that the party could never end. Many speculated in the futures market. As derivatives grew more complex and innovative, they grew more and more distant from the underlying fundamentals and realities of the market.
When the party ended, it affected almost everybody. Coupled with volatility in crude and food prices, things couldn’t get any worse. Inflation shot up, interest rates went up, liquidity shrunk, business sentiments grew bleak and loans turned bad as Joe jobless shifted to inferior liquor and defaulted on alimony payments. As investment banking collapsed, the shiny suits spiffed up their CVs for opportunities in the job market. Big investment Banks are being bailed out by Western Governments. These Governments who were beacons of liberty, equality, justice and a strong faith in the invisible hand of profit motive now stand discredited for privatizing profits as long as the party lasted and nationalizing losses when investment banks went kaput. Writing off debts of these institutions sound like banditry compared to writing off debts of suicidally inclined farmers in India’s hinterland. At least the Indian farmers didn’t play with derivatives. They did straightforward business. They borrowed money from banks & village money lenders, bought seeds & planted, applied fertilizers & insecticides and either lost their crops due to bad monsoons and/or faced with lower market prices for crops, could not repay the loan. They deserve every bit of our sympathy as compared to the investment bankers in Hugo Boss suits. We ought not grudge our tax money being spent on them.
I read the Economist for a conservative viewpoint. It is a magazine that has been espousing the cause of limited Government and sound public finances for ages. When The Economist strongly condemned the Nuclear Deal due to the unintended benefits it conferred on India, I naturally believed that it must be good for India. (Suspicions confirmed when our northern neighbour acted funny in NSG- No comments about Indian politicians who opposed it). When Economist blames Western Governments for bailing out Investment Bankers, one is glad to be Indian and bailing out only poor farmers.
The bonfire of vanities by Tom Wolfe contains a very interesting conversation between an Investment Banker and his child. I quote from memory. Something about the child saying that a friend’s father is an engineer/ architect and builds bridges/buildings. Sherman McCoy, the Investment Banker tries to explain to his child that investment banking is something close to that, funding infrastructure projects. Soon he realizes that his convoluted analogy fails to convince his child. Moral of the story : If you came out of a fancy business school, try doing something honourable…like selling idlis!!
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Favourite TV shows: The Week that wasn’t, Cyrus Broacha & Kunal Vijaykar in CNN IBN at 1030 hrs Sunday. Had been watching tech2.com, a gadget show in TV18 that has been discontinued. I don’t have the patience to watch stock market shows where Fund managers use clichés like “let’s watch how the India story plays out” and “let’s watch how the oil story pans out”….etc. The language and gestures look increasingly the same as the suits look shinier and anchors look prettier in studio lights.
Liked ‘Highway on my plate’ in NDTV Good Times. This is about two large guys (one in a pony tail) trekking the country, eating in Dhabas and off beat eateries. It is great fun. The shows end with a flourish: a nonsensical rhyming verse mostly. Saw something similar in Discovery Travel & Living. If the Indian Show is an imitation, all I can say is that the forgery has outdone the original.
Things get complex from now on. The guys from fancy business schools with affected accents, gelled hair and Hugo Boss suits take over. They introduced financial derivatives. The closest analogy to the entry of financial derivatives is the introduction of the forbidden fruit of temptation into the garden of Adam & Eve where originally, there was only nice lounge music, uninhibited sex and minimalist/ avant-garde clothing. Now these snooty nosed guys said financial markets are much more complex than what Sharmaji-next-door can comprehend. They said it is possible to leverage your assets to produce more resources, fancy salaries and exuberant markets. So we have arbitrages, futures, options etc. The assets underlying instruments were considered strong enough to keep the party going. Then the fund manager stepped in. He said Sharmaji ought to entrust his hard earned rupees to finance professionals in shiny suits who study the markets, invest and optimize returns. Then these guys got greedier and greedier. They started lending to Joe jobless whose repayment abilities were suspect due to a drinking problem and alimony issues. These suspect assets were in turn converted into bonds and sold to unsuspecting buyers who believed that the party could never end. Many speculated in the futures market. As derivatives grew more complex and innovative, they grew more and more distant from the underlying fundamentals and realities of the market.
When the party ended, it affected almost everybody. Coupled with volatility in crude and food prices, things couldn’t get any worse. Inflation shot up, interest rates went up, liquidity shrunk, business sentiments grew bleak and loans turned bad as Joe jobless shifted to inferior liquor and defaulted on alimony payments. As investment banking collapsed, the shiny suits spiffed up their CVs for opportunities in the job market. Big investment Banks are being bailed out by Western Governments. These Governments who were beacons of liberty, equality, justice and a strong faith in the invisible hand of profit motive now stand discredited for privatizing profits as long as the party lasted and nationalizing losses when investment banks went kaput. Writing off debts of these institutions sound like banditry compared to writing off debts of suicidally inclined farmers in India’s hinterland. At least the Indian farmers didn’t play with derivatives. They did straightforward business. They borrowed money from banks & village money lenders, bought seeds & planted, applied fertilizers & insecticides and either lost their crops due to bad monsoons and/or faced with lower market prices for crops, could not repay the loan. They deserve every bit of our sympathy as compared to the investment bankers in Hugo Boss suits. We ought not grudge our tax money being spent on them.
I read the Economist for a conservative viewpoint. It is a magazine that has been espousing the cause of limited Government and sound public finances for ages. When The Economist strongly condemned the Nuclear Deal due to the unintended benefits it conferred on India, I naturally believed that it must be good for India. (Suspicions confirmed when our northern neighbour acted funny in NSG- No comments about Indian politicians who opposed it). When Economist blames Western Governments for bailing out Investment Bankers, one is glad to be Indian and bailing out only poor farmers.
The bonfire of vanities by Tom Wolfe contains a very interesting conversation between an Investment Banker and his child. I quote from memory. Something about the child saying that a friend’s father is an engineer/ architect and builds bridges/buildings. Sherman McCoy, the Investment Banker tries to explain to his child that investment banking is something close to that, funding infrastructure projects. Soon he realizes that his convoluted analogy fails to convince his child. Moral of the story : If you came out of a fancy business school, try doing something honourable…like selling idlis!!
*****************************************
Favourite TV shows: The Week that wasn’t, Cyrus Broacha & Kunal Vijaykar in CNN IBN at 1030 hrs Sunday. Had been watching tech2.com, a gadget show in TV18 that has been discontinued. I don’t have the patience to watch stock market shows where Fund managers use clichés like “let’s watch how the India story plays out” and “let’s watch how the oil story pans out”….etc. The language and gestures look increasingly the same as the suits look shinier and anchors look prettier in studio lights.
Liked ‘Highway on my plate’ in NDTV Good Times. This is about two large guys (one in a pony tail) trekking the country, eating in Dhabas and off beat eateries. It is great fun. The shows end with a flourish: a nonsensical rhyming verse mostly. Saw something similar in Discovery Travel & Living. If the Indian Show is an imitation, all I can say is that the forgery has outdone the original.
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