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Thursday, January 08, 2009

Two observations, and a question

1. One more time, this: no comments are accepted from anonymous sources (including people with weird pseudonyms such as 'Hobo') and from those who have nothing to say beyond 'Nice post' or 'I've been there too'.

2. It is important that someone who is going to write a comment read up the earlier comments first. Otherwise, I see that many new comments are mere repetitions of what has already been said earlier, or irrelevant, or confused.

3. Over the last couple of months several people have been asking me to write on the causes and likely effects of the ongoing economic 'meltdown' worldwide. I have desisted so far not because I don't know anything or don't have anything to say but because many people are likely to take offence at what I will say. That's because there's no other way of saying it: this disaster has happened essentially because too many people at all levels in society, in the US, India and elsewhere, got too greedy and hoped the party would go on forever. Well, do people want me to write on this? I shall see how many affirmative comments I get here.


Subhanjan said...

I do not know the opinion of other people visiting this blog. But I seriously want you to write what you feel of this world-wide triumph of capitalism. Enough is enough. If some among us do not raise their voices and influence others, things are going to become worse. You may not be an eminent revolutionary figure. Quite obviously you will not be able to influence millions. But you will definitely influence some of your students. And that is far better than spending dirty money at the South City Mall. I will be eagerly waiting for your viewpoints on meltdown. I expect a long, brilliant, and exhaustive post; as some of your previous posts had been; the one on 'labour theory of value' for example.

Sayan Datta said...

My sense of purpose is generally reinvigorated when I read your posts. It adds that extra dimension required to pursue the kind of work that I do. Not that I do nothing, waiting for others to jolt me out of slumber; but from time to time that jolt really helps.
Does it sound strange if I confess that I actually feel good when you speak of the ills of the society as a whole? And yet I know how optimistic a person I am by nature. Perhaps the good feeling arises out of the thought that I am not mad and I am not alone!
Now, I am a novice in the field of economics, but I do understand your posts fairly well. Of course, I would love to read about the causes and effects of the economic meltdown. In fact I have some pretty deep questions, maybe not directly relevant to the economic meltdown, but certainly connected somehow. I can feel that connection but can't quite grasp it.
I am glad to hear you enjoyed your trip. And all those wonderful pictures.....how amazing it would have been had I been born and raised in the himalayas, I wonder.
Sayan Datta

Tanmoy said...

Dear Suvroda

Though not specifically on meltdown but I think you have touched upon the topic on many of your earlier posts. Therefore, when on one hand I would love to read and accumulate anything you write, on the other you have so many different things to tell us beyond meltdown / corporate thieves that I normally shall prefer reading them.

Public opinion may urge you to decide otherwise but preference undoubtedly lies in anything that you wish to write beyond meltdown.

Please do not mind that,



Suvro Sarkar said...

You have hit the nail on its head, Sir, when you say that greed is the cause of all this "meltdown misery". Greed – in the form of executive salaries and bonuses, which were far inflated beyond all realms of rationality. Bonuses were linked to profits. And profits equaled paper profits. Nobody cared about the cash. The whole incentive structure in the financial industry is clearly bogus.

In the brick-and-mortar manufacturing sector, your performance bonus is related to your performance: revenue equals number of products sold multiplied by average selling price. It’s simple. Understandable. Financial services companies have financial statements, which make a mockery of the traditional accounting rules. They can show profits, which do not exist, build up hugely overvalued assets and pay out unimaginable bonuses based on these non-existent profits. All stakeholders are happy. But in reality, it’s a bubble than cannot withstand the tiniest pinprick, in the form of scrutiny. But then, who cares for scrutiny when the times are good?

The venerable Lehman Brothers used to pay fresh graduates from B-schools in the US or even India a base starting salary of US$130,000. Add assured bonus, joining bonus, variable bonus and that becomes US$250,000. For learning how to work? They literally threw money down to the lower ranks to keep everyone happy. SO as not to expose the scam that everyone knew on the inside. The scam that the skill level required to be an "I-banker" did not deserve that kind of compensation. Any moron could do it, with a month of training. All it required of you was to lie glibly. And to gamble.

The problem is, those who caused this meltdown are happily looking forward to a life of retirement, with all the benefits they accumulated in the last 5 years before the bust. It’s only the small fish who are suffering. Retail assistants out of work. Semiconductor technicians on forced leave. They didn't get their cut in the good times. They'll face the cut in the bad times. All because some banks chose to be greedy on both their loan books and investment books in order to book supernormal profits. Now the same banks choose to play safe, killing among others, all the SME entrepreneurs who strive to create new technologies and new jobs every year, and possibly, get to take home less than what a first-year analyst at Goldman Sachs made last year.

Maybe God does sometimes try to make the world a fairer place. I wonder, though, how well that effort pans out in the end.

Subhasis Graham Mukherjee said...

I am a Bush basher, more so after 9/11. Though, recent events have made me think long and hard.. and wonder why Condoleezza Rice Defends President Bush's Failure Legacy.

As disgusting and lamentable Bush's tenure and the resulting recent economic turmoil is- it has exposed frauds like Madoffs and Rajus who have been fudging numbers and fooling people for years.

An economic meltdown (read-reality check) exposes them and forces them to confess years of wrongdoing- is this something bad or good happening?

Abhijit-Bhabhi said...

Respected Sir

I request you to kindly pen down your thoughts on the recession and its implications. I would paricularly be more interested in your views on the social impact of the meltdown and how our social behaviour has resulted in this debacle.

I think Durgapur "CITY CENTRE " is enough evidence of the growing greed in the minds of the public. It is this greed and social "peer pressure " which helps sell Satya Paul sarees among other useless "style statement " items. I am personally disappointed to see this new face of durgapur. The Durgapur I knew till 2002 , was much simpler, cleaner, and the people were contended driving a Maruthi 800.

I am sure all your Blog visitors will benefit immensely from your views on the current "bad times ".


Abhijit Bharadwaj


Navin said...

Dear Sir,
yes I would be glad to get to know more about this ongoing financial crisis. This article will be very relevant to me, as this is the year I will be seriously searching for a job and any information about the crisis is extremely useful to me.


Suvro Chatterjee said...

Only seven comments in four days, and only three of them clearly saying 'Yes, go ahead'... so maybe I shouldn't write that essay after all. I am terribly scared of people telling me I write things just for the heck of it, or for self-advertisement!

Sayan Sarkar said...

I would like to express my views which might be slightly different from those of Suvro Sir and Suvroda (Sarkar). I apologize for copying some parts which was a part of an email I wrote to sir about four months ago.

Yes, excessive eagerness ( let's say, greed) to invest in the mortgaged-homes market is the main reason behind the plight of today ( yesterday I read from the Financial Times that the total quantum of bad debts currently in the world market is $ 1.9 trillion, which is much higher even than India's GDP). And also, dubious practices like those of Enron make us wonder as to how honest businesses really are.

But the point is, no matter how smart one is, one can never time the market with perfection.I am myself critical of many of the lending practices that are prevalent now, but my limited knowledge of the financial markets have taught me against taking a short-term view of the market. Booms are bound to be interspersed with bursts. It happened with oil,it happened with mass-produced goods, it happened with IT, it is now happening with financial services. The large chunk of people who vociferously lend their voice to support the home market in the US in 2005, have now started lambasting the banks which undertook those ventures ( I guess when the chips are down, the blame-game becomes all the more interesting). I take the volte-face with a pinch of salt.

They must respect the fact that ultimately, growth cannot be achieved if people stop taking decisions which involve high risks. High risk decisions generally have high returns as the premium for the person. But I am not sure where exactly the difference between intrepidity and greed fades into non-existence. And speaking of risks, even a middle-income vendor who has put a few thousand rupees into shares, essentially acknowledges the fact that there is no gain without a risk! I guess most of us would like to see our money grow.

Investment banking suddenly fell from being the cynosure of wall street to the most-despised profession, and of course, business press has performed the due diligence necessary to drive in the fact with a generous dose of exaggerations and hyperboles. But they should judge situations on merit, without adopting a partisan and/or popular stance. Not seeing both sides of the story negatively affects the quality of information that flows out, and as a cascading effect, the opinions which form based on those information.

My learnings from the recent happenings is that greed and shortsightedness eventually spells your doom, but on the other hand, it is fair to expect an honest and confident businessman to take reasonable risks. I remember the age-old lesson that moderation is the key. Isn't it, Sir?

And yes, I totally agree with your saying that if one does not have the humility to learn from past mistakes, he is as handicapped as a blind man.

Shilpi said...

Suvro da, Just an observation for now that seems rather delightful and curious for some reason: There are people from Khartoum, Rome, and Oslo (among other less "exotic" places...although Edinburgh and Belfast seem pretty exotic as well. Some other day I saw Angola lit up) reading your blog...the little red concentric beady circle means you have readers there, doesn't it?
Love and regards,
P.S: Yes, yes I know I haven't said I want to read what you write "on this"...