19.04.2010

Politics & the Nation

• Tharoor gone; Modi is not sitting pretty either
• As expected Mr. Shashi Tharoor was asked to put in his papers and he promptly resigned over the IPL row.
• The noose around Mr. Modi appears to be fast tightening with the government -- especially the IT Department -- revealing lot of muck about him ranging from his manipulation of land deals in Rajasthan and the existence of a maze of shell companies and offshore entities used to route payments and equity stakes worth hundreds of crores of rupees. The IT Department's report also makes the startling allegation that Mr Modi—through his associates—was ‘involved’ in ‘betting’, while “insider information and outcome fixing of IPL matches were hinted at”.
• More on this in today's headlines.
• Here is a very good political comment about Mr. Tharoor. Worth a read.
• Want to know more on this sordid saga? Look at page 4 of the ET Mumbai edition.
• CK Prahlad is no more
• Even as we were taking a Sunday break, came the news that this Management Guru is no more and that he died of an illness of the lungs in the US.
• He was 68.
• Take a look at this obituary penned by none other than Kumar Manglam Birla on this great management thinker.
• More on this on page 8 of the ET Mumbai edition. Recommend a read.

Finance & Economy

• On the challenges that a typical central banker faces:
• Monetary policy is a notoriously imprecise tool. Moreover, it acts with a long time lag, especially in the Indian scenario where financial markets are fragmented; we still have administered interest rates in some sectors and interest rates on government debt, that sets the floor for all other borrowing, is not exactly freely-determined by market forces.
• A very good graphic that discusses the RBI's monetary policy review due tomorrow.
• Irda tells postal dept to fall in line, triggers row
• The insurance regulator has demanded that the country’s postal department adhere to its norms while selling insurance products, triggering a potentially damaging row between the two and forcing the finance ministry’s intervention.
• The postal life insurance has over 15 million policy holders. It offers two life insurance schemes, Postal Life Insurance and Rural Postal life Insurance with a corpus fund of Rs 14,000 crore and Rs 4,000 crore, respectively as on March 2009. All insurance products offered by the DoP are not covered by IRDA’s rules and regulations.
• Under the Insurance Act 1938, Section 118 (C), life insurance schemes run by several state governments for their employees and the Postal Life Insurance Scheme of the central government don’t come under the IRDA purview. The insurance regulator is looking to extend its reach.
• Quantitative restrictions on imports may be back
• India had to remove QRs on over 700 items in 2001 after it lost a case in WTO against the US which had challenged these restrictions on import of large number of industrial and agricultural items.
  
• Under the QR mechanism, a country can impose a restriction on imports up to a limit on items which are sensitive to its domestic industries. For availing this facility, the country is required to have an enabling domestic law.
• Now, the country proposes to make good this lacuna by bringing changes in the domestic law enabling it to protect its industries against import surges. The Standing Committee of Parliament has more or less approved a provision in a bill to amend the Foreign Trade (Development and Regulation) Act.
• HDFC Bank edges out ICICI as India’s top pvt retail bank
• HDFC Bank, the country’s second-largest private bank, has moved to the top of the pile in the retail banking segment, displacing ICICI Bank as the recovery in demand and robust economic growth helped the bank to lend more to customers buying cars, homes and two-wheelers.
• How did this come about?
• Part of the reason for the surge in retail lending could be because of increasing consumer confidence and rising wages.
• Retail banking brings in close to 70% of the revenues for HDFC Bank and constitutes 55% of the asset book. The retail and corporate banking business contributes equally to the profits of the bank.
• After 2008-09, ICICI Bank, which was seen as the aggressive face of retail lending in India, changed track and started shrinking its retail loan book. The bank is now focusing only on secured loans having cut down on its loan exposure to unsecured loans. The bank has also pruned its credit cards from a peak of 8.5 million to close to 5 million now. At its peak, ICICI Bank used to disburse over Rs 1,200 crore in auto loans compared with HDFC Bank’s Rs 500 crore.

International

• What exactly is the charge against Goldman Sachs in the SEC prosecution?
• The SEC said that in early 2007, as the US housing market teetered, Goldman Sachs created and sold a CDO linked to subprime mortgages without disclosing that hedge fund Paulson & Co helped pick the underlying securities and bet against the vehicle, known as Abacus 2007-AC1.
• Very complicated to understand know? In the words of Sudeshna Sen:
• It’s all terribly complicated, but simply, SEC says Goldman deliberately sold stuff they set up to fail, to help make profits for John Paulson’s giant hedge fund, which wanted to bet against the subprime mortgage market. Paulson, who made a billion dollars when that product collapsed, and wrote a bestseller as well, is supposed to have helped pick the worst portfolio he could think of, but Goldman didn’t tell unsuspecting buyers this — ABN Amro, now government-owned RBS, took the worst hit of $800 million.
• It would be the same if your mutual fund manager, for instance, created a portfolio he knows is full of junk stocks, and then sells it to you while he’s selling it short. Or the dealer in the casino rigs the table to benefit one player.

• The firm denies any wrongdoing.
• But it will be a long haul for Goldman before it can extricate itself from the current mess.
• Take a look at this detailed article to know why.
• A very interesting article on the problem of too big to fail
• Take a look at this article by Simon Johnson. It explains the problem being posed by banks which are too big to fail.
• He goes on to discuss why the current administration's efforts at handling them will not succeed. There is an element of cross-border challenge that cannot be easily handled by legislation in a single country.

Language Lessons

• kerfuffle: Noun
• A disorderly outburst or tumult
• eg: Neither the burps of an unpronounceable volcano in Iceland nor the Kochi kerfuffle are to blame for the latest bug to hit world cricket, but the portent is equally calamitous.