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Posts Tagged ‘CRR’

poster-infam-stockDecoupling has become my favourite word of the week. Earlier, it used to be CRR.

The ripple effect or the chaos theory seems to hold more ground than the de-coupling theory given the current market scenario.

Decoupling is the theory that emerging markets (like Asia) have attained so much growth that they no longer depend on the US, and thereby they are insulated from any financial crisis for Uncle Sam. But recent events have proved otherwise.

And then again a short re-cap might help: Lehman brothers files for bankruptcy, Morgan Stanley, Goldman Sachs abandon investment bank status, US announces $700 billion dollars bailout, Fed takes over Fannie Mae & Freddie Mac, J P Morgan Chase buys Washington Mutual, Wells Fargo buys Wachovia…………All of this happened in the US. And worse, this is just the anti-climax.

So as per the theory, the rest of us shouldn’t have got hit. Unfortunately, we did.

Actually decoupling seemed to have been popular even during the credit crunch of 2007, when international financial markets ignored the turmoil in US economy. It seems to have become an unpopular word only post-October 2008.

Jeff Applegate said, If anything, global interdependence of economies is rising, not falling.

I am reminded of what Marshal McLuhan said (Proof that I wasn’t sleeping in all my Masscom classes), about the world being a global village. You just have to substitute the word stock markets, in every place he says internet, for it to hold good.

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I know this post is probably going to put off most people, who deem financial reporting boring and obtuse. Most general reporters feel business journalists are the guys who have it easy; the guys who attend press conferences that are scheduled for lunch, tea, high-tea or dinner; the guys who only re-write press releases and the guys for whom exclusives don’t make or break their careers.

Working for general newspapers for more than three years, I was prejudiced against business reporting. It took a tremendously talented boss and the AIG bailout for me to realise that finance is a wonderful world.

I’m finding words like stocks, repo, reverse-repo, CRR, solvency margins absolutely fascinating!

Also John Grisham books suddenly seem to have taken greater importance in my life. Tales of money laundering, swiss bank accounts and tax havens are proving to be fascinating reads.

Did you know that many of the re-insurance companies in the world are based in Bermuda because of the tax exclusion benefits? I was actually reading a run-of-the-mill press release, when I came upon the line…”reinsurance company based in Bermuda.” I was intrigued by that line and checked up to find that its not just re-insurance companies, but many other companies like banks, insurance companies, assurance companies, fund managers and investment consultants – whose working force is small and geographical locations don’t hamper operations – also opt for tax havens like Bermuda. What was also very interesting was that the very first tax haven was the Vatican City.

Even the nitty-gritties can prove interesting. I didn’t know that tax avoidance, tax evasion and tax fraud are totally different activities until I spoke with a lawyer. India is of course not likely to forget the hawala scam, one of the biggest and most amibitious cases of money laundering that got exposed.

And Wikipedia has become my bible. KYC – Know Your Customer is an anti-money laundering mechanism adopted by banks. Many of the bank regulations and the US Patriots Act are formulated to maitain the checks and balances in the system. But after seeing Farenheit 9/11 and being a regular reader of Counterpunch.org, I am able to see the common man’s point of view and how laws can violate human rights and invade privacy in the name of “national security” and “anti-terrorism measures.”

Even in India laws like POTA and TADA were more misused than used. MDMK Vaiko’s imprisonment was the height of misuse of POTA; political vendetta at its meanest. I was glad when POTA was repealed, but now it looks like it might make a come back in a sterner avatar.

And now since elections are round the corner or because they don’t have any issue to rake up, Tamil nationalism or jingoism has again become the trump card for Tamil Nadu politicians. I think Tamil is a great language. I also have great sympathy for Sri Lankan Tamils, who are the victims of both the Sri Lankan Army and the LTTE. But I don’t see why I should suddenly become proud of being a Tamilian, just because DMK MPs are suddenly overcome with grief at the atrocities being pepetrated against Sri Lankan Tamils. Karunanidhi of course has not said anything about his “thambi Prabhakaran” after the PM’s assasination.

But, I digress. Anyway resolution of the week is to finish reading the Business Standard, Economic Times and the Business Line, back-to-back between 6-8 in the morning; provided I’m able to get up at 5 and finish the cooking. I’m also reading the Malhotra Committee report on the insurance reforms needed post-1993 liberalisation. Planning a post on it once I get through reading this labour-intensive (hard on my eyes, which have a tendency to droop when faced with non-fiction) report.

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Disclaimer: The Indian regulatory framework ensures that Indian insurance companies and banks are well protected. India has to a large extent has been insulated from the fallouts of the global financial meltdown. Policyholders and depositors are safe from problems that may arise outside the country. This article is not a comment on any Indian financial insitution’s financial position.

Being a business correspondent, I have a hazy (but better) view of what is going on and has been labelled as “the global financial meltdown.”

The amount of misinformation doing the rounds is phenomenal.

Vernacular newspapers headlines scream, “The world’s worst crisis” “ICICI Bank down and under.” While the fringe Left groups as usual blame it squarely on capitalism. It was quite amusing to note that they blamed the crisis “On capitalists who borrow and borrow money and never repay. Banks are using the depositers hard-earned money to gamble away. Market speculations and the greediness of capitalists have brought us down to this. A $ 700 billion bailout is being given to a private capitalist company from the tax payers hard-earned money.”

Playing True or False:

a) “The world’s worst crisis” – False

Just like all other economic cycles or fluctuations like the Great Depressesion or the stag flation of the 70s, this crisis is also going to tide over at some point. What goes down always comes up. And so this bearish trend in the market will have to turn bullish.

How long it will take? How many people will lose jobs before the upturn in the market? How politicians try to instill investors’ confidence? These questions only time can answer.

The International International Monetary Fund (IMF) says, “worldwide losses stemming from the US subprime mortgage crisis could run to $945 billion.”

But, we don’t need to think its the worst thing that ever hit us as: “The current credit crisis will come to an end when inventories of newly built homes is largely liquidated and home price deflation ends. That will stabilize home equity that acts as a buffer for all home mortgages. Very large losses will, no doubt, be taken as a consequence of the crisis. But after a period of adjustment, the U.S. economy, and the world economy more generally, will be able to get back to business.” says Mr Greenspan, ex-chairman, US Federal Reserve.

b) “ICICI Bank down and under” – False

ICICI Bank did make a statement on September 16 that they had exposure of Rs 375 crores in Leehman Brothers, which has filed for bankruptcy. But ICICI Bank’s exposure is only 8 percent; being the large company that it is, the loss would be absorped in the company. But there have been complaints that brokers have been engaging in short selling; ICICI Bank’s shares have fallen. I think ICICI Bank’s move to file a police complaint was a good counter to the rumours being sent through SMSes. Within two days I as an ICICI customer got two communications from the bank – one an SMS and another a detailed mail from its ED; and as a journalist one communication to allay the fears, prevailing in the market about ICICI Bank’s financial situation.

On why its selfish of me:

I can’t help thinking about the benefits to me because of the current liquidity crunch faced by the banking system. Banks have decreased the CRR and released Rs 60,000 crores; so as far as the comman man is concerned he might get a good deal. How? Well, the banks are trying to mobilise funds or they want your money. So banks might give lower home loan rates and increase the interest on your fixed deposits and savings to attract more depositors. Also with the fall in the stock market, this is the best time to buy stocks at the cheapest rate possible. For long-term investors in the equity market this is the best of times. For the short-termers this is the worst of times.

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