http://krugman.blogs.nytimes.com/2010/04/18/six-doctrines-in-search-of-a-policy-regime/#more-8819
Krugman at his best in being lucid and descriptive about financial crisis. what is surprising is how close are economists on the left and right (centre-right) are in their views about fianancial reform are and how far the politicians are in terms of slogans like "too big to fail" and "cut payments to banks"
Monday, April 19, 2010
Friday, April 16, 2010
is this the only way one can make money?
so in the recent crisis, there were some people who didnt lose much money and in made some cases made real good money.. Paulson Hedge fund, george soros and goldman sachs were few of those who bucked the trend and made profit. And this was supposedly because they were the smartest guys in the room and knew that this was coming . I remember that in goldman sachs presentation, one of the gentelman said that one of the reason that they did better was their risk management and they used long term investments rather than repo to fund the investments..
The recent SEC investigation is a bad publicity to this . Being smart has been always respected at least in US but defrauding and your investors is a big no-no at least with respect to reputation if not in terms of legality.
But from news report, the evidence doesnt look cohnvincing enough. Anyhow given the credibility and past history of SEC, I suspect that this case will go nowhere. Politically though this is a bomb shell. Everyone gets a whipping boy of its own. The finance reform bill will get a lift. Making derivative trades transparent has to be part of any reform bill and this incidence will make sure that such a provision is added if not present.
Another question of does the market clears in terms of reputation? Even if Goldman Sachs is not punished, shall this act as a reduced revenues for them since other investors shall be wary now. I would love to say yes but I am not sure looking at the evidences in current crisis. The investors at other funds are also playing with others money and they can come back and invest . What probably they will do is to use a consultant advice to protect their asses if this thing unravel.
There are sometimes a thin line between having enough freedom for taking risks for the good of business and esentially defrauding the shareholders. Doesn't it come back to corporate responsibility , a special sarben-oaxley for financial institutions!!
The recent SEC investigation is a bad publicity to this . Being smart has been always respected at least in US but defrauding and your investors is a big no-no at least with respect to reputation if not in terms of legality.
But from news report, the evidence doesnt look cohnvincing enough. Anyhow given the credibility and past history of SEC, I suspect that this case will go nowhere. Politically though this is a bomb shell. Everyone gets a whipping boy of its own. The finance reform bill will get a lift. Making derivative trades transparent has to be part of any reform bill and this incidence will make sure that such a provision is added if not present.
Another question of does the market clears in terms of reputation? Even if Goldman Sachs is not punished, shall this act as a reduced revenues for them since other investors shall be wary now. I would love to say yes but I am not sure looking at the evidences in current crisis. The investors at other funds are also playing with others money and they can come back and invest . What probably they will do is to use a consultant advice to protect their asses if this thing unravel.
There are sometimes a thin line between having enough freedom for taking risks for the good of business and esentially defrauding the shareholders. Doesn't it come back to corporate responsibility , a special sarben-oaxley for financial institutions!!
Nation under debt
With the whole debate on national debt, I come across this interesting piece of history while reading the book "The Lord of finance".
After the first world war, all the european countries (england, france and italy) had amassed huge debts mostly from the US governments. Since the war was the main reason for this large debt, the European countries started clamoring for reducing the debt. Mostly being linked to a war and since US was the biggest debtor, the debts were renegotiated.
Keynes famously announced that in these cases it is the debtor who has the upper hand and asked England to hold out.
England possibly out of its civility gave in first and 80 cents to dollar, France got its debt reduced to 40 cents and Italy negotiated a settlement of 24 cents to dollar holding out till very end and negotiating finally in 1926.
A similar example was when Argentina threatened to default in 2001 and got a deal by which 76% of the defaulted bonds were exchanged by others, of a much lower nominal value (25–35% of the original) and at longer terms.
Key lesson: the countries typically being sovereign and under the false modicum of international law where penalty is non-existent can easily threaten to default and negotiate its debts. This can be key lesson for the bonds of European countries under crisis now.
though it will be interesting to see whether such instances of default, debt restructuring by sovereigns lead to building a higher risk rate in the long term treasury bonds of those countries.
One of the reason for low long term interest rates for US has been the instances of US government always acceding to pay its debt particulatry after the civil war. The free market voices in US will never allow a sovereign default by US.
But if comes to shove, u don't know where the public opinion will turn to.
After the first world war, all the european countries (england, france and italy) had amassed huge debts mostly from the US governments. Since the war was the main reason for this large debt, the European countries started clamoring for reducing the debt. Mostly being linked to a war and since US was the biggest debtor, the debts were renegotiated.
Keynes famously announced that in these cases it is the debtor who has the upper hand and asked England to hold out.
England possibly out of its civility gave in first and 80 cents to dollar, France got its debt reduced to 40 cents and Italy negotiated a settlement of 24 cents to dollar holding out till very end and negotiating finally in 1926.
A similar example was when Argentina threatened to default in 2001 and got a deal by which 76% of the defaulted bonds were exchanged by others, of a much lower nominal value (25–35% of the original) and at longer terms.
Key lesson: the countries typically being sovereign and under the false modicum of international law where penalty is non-existent can easily threaten to default and negotiate its debts. This can be key lesson for the bonds of European countries under crisis now.
though it will be interesting to see whether such instances of default, debt restructuring by sovereigns lead to building a higher risk rate in the long term treasury bonds of those countries.
One of the reason for low long term interest rates for US has been the instances of US government always acceding to pay its debt particulatry after the civil war. The free market voices in US will never allow a sovereign default by US.
But if comes to shove, u don't know where the public opinion will turn to.
Monday, April 12, 2010
ebook and ecommerce
If e-books become the order of the day, would Amazon or any aggregator will be able to charge a high sales commission (right now 30%) ? In that scenario, the aggregator would be delivering search service for which commission would be very low. Hence ecommerce would move to
a) Diversifying to other goods where physical delivery is required. There supply chain efficiencies, good customer service will justify the presence of aggregator.
b) New tie-in business model like Amazon and Apple are doing. Sell hardware to which you can tie-in your e-book sales.
I think the spectre of future where Amazon and apple would lose its functionality as aggregator of music is playing a big role in forcing these companies in adopting model (b) and not trying to act just as a platform.
The same logic applies for music(mp3). Movies are a different story. There one can have a third business model of being a platform through which movies are sold by content creator (Hulu.com, Netflix).
a) Diversifying to other goods where physical delivery is required. There supply chain efficiencies, good customer service will justify the presence of aggregator.
b) New tie-in business model like Amazon and Apple are doing. Sell hardware to which you can tie-in your e-book sales.
I think the spectre of future where Amazon and apple would lose its functionality as aggregator of music is playing a big role in forcing these companies in adopting model (b) and not trying to act just as a platform.
The same logic applies for music(mp3). Movies are a different story. There one can have a third business model of being a platform through which movies are sold by content creator (Hulu.com, Netflix).
free market..
"The free market is a successful motivator of people because it does not rely upon the altruism of its participants."
Altruism is individual dependent and can't be built in a model for developing a robust process of economic exchange. Hence free market systems shall work better as a process in a large system while planned system can work in a small organization where altruism can be determined using personal interactions.
But selfishness taken to its extreme level , doesn't it cause the system to die from its own weight?
Well the thing is to have the right systems in place. All externalities are taken care of and a person is penalized for his extravagance. Is it easy to put the system in place?
No certainly not . There are lot of thin lines to be taken care of . The question is whether this line of thinking has been well accepted truth or still there needs to be debate around it.
Altruism is individual dependent and can't be built in a model for developing a robust process of economic exchange. Hence free market systems shall work better as a process in a large system while planned system can work in a small organization where altruism can be determined using personal interactions.
But selfishness taken to its extreme level , doesn't it cause the system to die from its own weight?
Well the thing is to have the right systems in place. All externalities are taken care of and a person is penalized for his extravagance. Is it easy to put the system in place?
No certainly not . There are lot of thin lines to be taken care of . The question is whether this line of thinking has been well accepted truth or still there needs to be debate around it.
Sunday, April 11, 2010
rachel getting married
just saw the movie. was blown away by the strong emotions present in the movies. the movie was replete with strong characters which were greyish. i think the most fascinating aspect of movie making or story writing for that matter is to create such interesting unique characters and tell their story, bring our their emotions. And this movie is a live example of it . story of a family with their complex emotions on display bound by circumstances no one can wish away .
and what was icing on the cake was anne hathway's acting. she never appeared to be any good in all the movies I have seen earlier but in this, she was brilliant. this does show that with good direction and script , bad actors can also bring in an impressive performance . kudos to her. and deservingly she own an oscar nomination.
and what was icing on the cake was anne hathway's acting. she never appeared to be any good in all the movies I have seen earlier but in this, she was brilliant. this does show that with good direction and script , bad actors can also bring in an impressive performance . kudos to her. and deservingly she own an oscar nomination.
Thursday, April 8, 2010
climate economics
http://www.nytimes.com/2010/04/11/magazine/11Economy-t.html?pagewanted=1
a nice matter of fact, easy to read view on climate economics in US
a nice matter of fact, easy to read view on climate economics in US
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