Tax is what a society pays for consuming societal goods – roads, security from marauders, judicial services… and so on. If society is to prosper the taxes can not be higher than the aggregate excess income left with the society after it has met its consumption needs for survival; else the society, unable to consume enough for its survival, will gradually shrink into nothingness. Clearly, all taxes – income tax, excise duty, VAT etc must come from this excess income.
State can tax the society’s income in different ways. It can directly tax the income, or it can tax the consumption. VAT and excise duties are essentially taxes on our consumption and income tax is levied directly on our income. Income tax is not levied uniformly on all our incomes, even if we exclude agricultural income. By and large, tax is heavier on labour income (income earned by labour – i.e. wage) than on capital income (income earned from capital assets such as dividend). Typically all labour income is fully taxed but only a part of the capital income is fully taxed, rest is either fully or partially exempted. Dividend income is a ready example. I buy shares and receive dividends that are not taxed in my hands at all. I sell the shares after a few years and gains if any again are not taxed. The interests I earn on my debentures are fully taxed. These incomes came out of my capital; on the other hand the income I earn from my labour, i.e. my wage, is fully taxed.
By taxing capital income selectively, the taxation system distorts the capital investment choices made by the society. The distortion takes place in both legs of capital budgeting exercise – in investment decision as well as in financing decision. Tax considerations play a crucial role in deciding where to invest (Will the income be tax exempt – fully or partially?) and how to finance the venture (Will the servicing cost of capital be a deductible expenditure for calculating taxes– fully or partially?)
The impact of this distortion is that the investment decisions are not efficient. They are, instead, tax-efficient. In a free economy investment decisions should be made based on the considerations of costs and benefits. To be sure, this is the way they are being made; but both costs and benefits being considered are not true costs and benefits as both are affected by the tax regime. This is admittedly a vast field; I am limiting my enquiries to the differential treatment of equity capital and debt capital.
For a company, interest payments are tax deductible but dividend payments are not. This has added a bias favouring debt financing. And as accumulation of debt is often cited as one of the gravest sources of systemic instability, I think, it can be said that taxation system has contributed to systemic risk, often without adding any offsetting benefit.
Let us take a simple example. A firm is expected to generate FCFE of 100 every year for all time to come. Its cost of equity is 15%. The value of the firm would be 100/0.15 = 666.67. We also suppose that it is a well run firm and its performance cannot be improved by controlling it. There should not be any economic incentive to purchase such a firm. Nevertheless a private equity fund decides to buy it. Its incentive comes from taxation system. It decides on a debt equity ratio of 3 to finance this transaction. Raises 166.67 in equity and 500 in debt (at 11%) and acquires the undertaking of our firm for 666.67. The FCFE it can now expect will be 100-11%*500(1-Tax rate). If tax rate is 35%, it works out to be 64.25 which means FCFE now is 39% of equity investment.
Now, suppose the PE firm is a group concern of a major bank. The bank needs to increase its business, income …. Even if no new proposals are coming by buying this efficiently run firm (thus giving no particular benefit to the society – adding nothing to the physical capital stock of the economy) the bank can increase its interest income and non-interest income! To be sure as long as the PE firm can raise debt at post tax cost of less than 15% (cost of equity of our firm) a leveraged buy out will be beneficial but tax break on interest makes available huge margin of error and makes it that much more attractive.
Can we say that tax policy, by making interest a deductible expense, makes the capital structure debt heavy and sub-optimal and it thus encourages firms to add to their risks? Can we say that many Americans would not have bought the houses if mortgage servicing were not tax deductible?
Some time back Germany and Denmark placed caps on deductibility of interest expenses. This has been hailed by some and derided by some others as Nordic nonsense. An interesting analysis is here.
The only major argument against the idea is that as firms have built their businesses over years on deductibility of interest expenses, any change will be "severely disruptive". (Accountancy fraternity should spot the opportunity.)
Friday, November 20, 2009
Saturday, November 14, 2009
Insider Trading
As the reverberations of investigations into Galleon are unlikely to die down soon I think it is an opportune time to take a look at what commentators feel about it.
Ajay Shah has forcefully argued against banning insider trading. Read here. His argument can be summarised as follows. Free markets keep the economy on the right path by allocating capital efficiently. Thus market regulation should aim to keep the markets efficient. Markets allocate capital efficiently by efficient discovery of asset-prices. Insiders’ trading speeds up the flow of information and helps the price discovery process. Thus insider trading increases market efficiency and is, therefore, desirable, provided it is reported promptly.
Shah differentiates between insider trading and price manipulation. Since manipulation is essentially making market prices move away from their fair values, manipulators reduce market efficiency whereas insiders enhance market efficiency. He concedes that insider trading appears unfair; it hurts individual and institutional speculators, but adds that the interests of the economy and the interests of professional traders are not always congruent.
Prof Damodaran (read his views here) favours a world where all investors have the same access to information but is conscious of the inherent unfairness of life and of varying information across investors. He however feels that the line between insider trading and savvy investing is a very hazy one, especially for a short term investor.
He also thinks that banning insider trading does not make the problem go away; instead it drives it underground and enriches those who are most unscrupulous. Accordingly he favours reduction in insider trading laws and more emphasis on the transparency of the trading process. He thinks that insiders hurt only those investors who try to trade short term on news or what they think is news.
Here is a recent and rather shrill attack. The argument goes like this. Stock trading is a zero-sum game. One cannot make money without someone else losing money. If your counterparty has more information than you, you are doomed.
Prof Donald J. Boudreaux of George Mason University has a refreshingly different view point. Read here.
His premise is that insider trading cannot really be stopped because most of it is undetectable. If the markets can function as well as they have with those undetectable insider trading why believe that the detectable portion of such trading would be harmful if they were legalised?
At times a company may have huge economic interests in not letting an information slip into public domain till the last moment - for instance in an acquisition. Leakage of such information will increase the target’s price and reduce the efficiencies of merger; thus, the economy (i.e. the general public) has an interest in allowing the acquirer to ensure that no trades are made on such information.
This implies that we need to distinguish between types of information and protect only that information whose revelation through insider trading would likely reduce overall economic efficiency. This is easier said than done. But this task of determining what types of information should be protected can be left to companies to decide. Thus a company should be free to specify in its code of conduct for employees / business associates the types of information that insiders may not trade on. Any insiders who trade on such information would violate that firm's by-laws and, hence, subject themselves to suit by that firm – (please note a civil claim but can be made a criminal prosecution if it can be construed a breach of trust).
Prof Boudreaux argues that firms will not make all of their inside information off-limits to inside trading. The reason is that they compete for capital and shares in a firm that prevents insiders from trading on, say, knowledge of executive malfeasance will be a riskier investment than shares in a firm that doesn't prohibit such insider trading. It implies that the firms that allow trading on inside knowledge will enjoy a lower cost of capital!
Prof concedes that this method for selecting information that is proprietary and thus off-limits to inside traders, isn't perfect but avers is preferable to blanket proscription.
Finally, does insider trading pay? Though it seems obvious, Prof Damodaran compared the results of Galleon’s with those of other hedge funds and found that Galleon had posted just about average returns and concluded that insider trading may not really be as profitable as it appears. I am not sure on this point. May be Galleon would have posted really poor returns without the insider info it had been getting or may be all hedge funds have means of getting such info but have not been caught so far.
One thing appears certain, if you are an investor rather than a trader i.e. if you are aiming for market gain rather than for trading gain, insider trading does not really harm you.
Ajay Shah has forcefully argued against banning insider trading. Read here. His argument can be summarised as follows. Free markets keep the economy on the right path by allocating capital efficiently. Thus market regulation should aim to keep the markets efficient. Markets allocate capital efficiently by efficient discovery of asset-prices. Insiders’ trading speeds up the flow of information and helps the price discovery process. Thus insider trading increases market efficiency and is, therefore, desirable, provided it is reported promptly.
Shah differentiates between insider trading and price manipulation. Since manipulation is essentially making market prices move away from their fair values, manipulators reduce market efficiency whereas insiders enhance market efficiency. He concedes that insider trading appears unfair; it hurts individual and institutional speculators, but adds that the interests of the economy and the interests of professional traders are not always congruent.
Prof Damodaran (read his views here) favours a world where all investors have the same access to information but is conscious of the inherent unfairness of life and of varying information across investors. He however feels that the line between insider trading and savvy investing is a very hazy one, especially for a short term investor.
He also thinks that banning insider trading does not make the problem go away; instead it drives it underground and enriches those who are most unscrupulous. Accordingly he favours reduction in insider trading laws and more emphasis on the transparency of the trading process. He thinks that insiders hurt only those investors who try to trade short term on news or what they think is news.
Here is a recent and rather shrill attack. The argument goes like this. Stock trading is a zero-sum game. One cannot make money without someone else losing money. If your counterparty has more information than you, you are doomed.
Prof Donald J. Boudreaux of George Mason University has a refreshingly different view point. Read here.
His premise is that insider trading cannot really be stopped because most of it is undetectable. If the markets can function as well as they have with those undetectable insider trading why believe that the detectable portion of such trading would be harmful if they were legalised?
At times a company may have huge economic interests in not letting an information slip into public domain till the last moment - for instance in an acquisition. Leakage of such information will increase the target’s price and reduce the efficiencies of merger; thus, the economy (i.e. the general public) has an interest in allowing the acquirer to ensure that no trades are made on such information.
This implies that we need to distinguish between types of information and protect only that information whose revelation through insider trading would likely reduce overall economic efficiency. This is easier said than done. But this task of determining what types of information should be protected can be left to companies to decide. Thus a company should be free to specify in its code of conduct for employees / business associates the types of information that insiders may not trade on. Any insiders who trade on such information would violate that firm's by-laws and, hence, subject themselves to suit by that firm – (please note a civil claim but can be made a criminal prosecution if it can be construed a breach of trust).
Prof Boudreaux argues that firms will not make all of their inside information off-limits to inside trading. The reason is that they compete for capital and shares in a firm that prevents insiders from trading on, say, knowledge of executive malfeasance will be a riskier investment than shares in a firm that doesn't prohibit such insider trading. It implies that the firms that allow trading on inside knowledge will enjoy a lower cost of capital!
Prof concedes that this method for selecting information that is proprietary and thus off-limits to inside traders, isn't perfect but avers is preferable to blanket proscription.
Finally, does insider trading pay? Though it seems obvious, Prof Damodaran compared the results of Galleon’s with those of other hedge funds and found that Galleon had posted just about average returns and concluded that insider trading may not really be as profitable as it appears. I am not sure on this point. May be Galleon would have posted really poor returns without the insider info it had been getting or may be all hedge funds have means of getting such info but have not been caught so far.
One thing appears certain, if you are an investor rather than a trader i.e. if you are aiming for market gain rather than for trading gain, insider trading does not really harm you.
Friday, November 13, 2009
Doing God's Work
Lloyd Blankfein was reported on Nov 8 as saying “I am doing God’s work”. It might interest you how God has behaved recently. Bloomberg reports Goldman Sachs Group Inc. paid off at face value some junior-ranking slices of two CDOs it had issued at the potential expense of more-senior classes that now are likely to default, according to Fitch Ratings. Goldman applied its “sole discretion” to ignore standard payment priority and use cash in reserve accounts to retire lower-ranked notes. The moves are unusual in that the most senior creditors are typically the first in line to get paid. Fitch analyst Karen Trebach said “We are not aware of the use of this feature in other transactions we rate”.
And I thought it was impossible. It seems CDO agreements can run hundreds of pages and Goldman is exploiting the fine prints. But what did the rating agencies do when they had rated the senior classes as investment grade? Had they seen this risk and weighed it while rating?
Goldman could do it because it had carefully inserted (way back in 2006) this opportunity. Fitch has downgraded the senior tranches of the CDO by some seven rungs. Here’s what Fitch says in how Goldman could get away with it: The optional redemption provision allows the issuer to redeem the notes using principal proceeds from the eligible investment account. The notes may be redeemed without regard to sequential order. Principal proceeds may also be used to reinvest under the eligible investment criteria. Use of the proceeds is under the sole discretion of the issuer (Goldman Sachs).
And why should Goldman have done it, just when it has been trying to refurbish its image? Bloomberg report says: “Motivations for such action could include ownership of the notes or separate bets against higher classes …”.
The way I understand it, I issue a set of 10 papers – tranches A to J, promise to pay them in sequential order, i.e. first A then B and so on, hide an overriding power to change the order somewhere in the document, buy the last five papers in the market perhaps at 5 cents to dollar, short the first five and then pay the last five (to myself) in full!!
And I thought it was impossible. It seems CDO agreements can run hundreds of pages and Goldman is exploiting the fine prints. But what did the rating agencies do when they had rated the senior classes as investment grade? Had they seen this risk and weighed it while rating?
Goldman could do it because it had carefully inserted (way back in 2006) this opportunity. Fitch has downgraded the senior tranches of the CDO by some seven rungs. Here’s what Fitch says in how Goldman could get away with it: The optional redemption provision allows the issuer to redeem the notes using principal proceeds from the eligible investment account. The notes may be redeemed without regard to sequential order. Principal proceeds may also be used to reinvest under the eligible investment criteria. Use of the proceeds is under the sole discretion of the issuer (Goldman Sachs).
And why should Goldman have done it, just when it has been trying to refurbish its image? Bloomberg report says: “Motivations for such action could include ownership of the notes or separate bets against higher classes …”.
The way I understand it, I issue a set of 10 papers – tranches A to J, promise to pay them in sequential order, i.e. first A then B and so on, hide an overriding power to change the order somewhere in the document, buy the last five papers in the market perhaps at 5 cents to dollar, short the first five and then pay the last five (to myself) in full!!
Bubbles & Us
Roubini says there are bubbles in emerging market stocks, in oil and in gold; because big guys are shorting (borrowing in) dollars and buying these assets / commodities. Jim Rogers says he sees no bubble in stocks (though he does not plan to buy now), and sees great potential rise in gold (he might buy some). Only bubble he can see is in US bonds. He cannot understand why anyone should lend to US for 30 years at these rates. In today’s (Nov 13) Business Standards, Parkash says he smells bubble formation in power assets in India.
What is a bubble?
I do not think it has been rigorously defined. Generally speaking, when prices rise and assets trade furiously at those high prices, which seem to have little correlation with the intrinsic values of the assets, and eventually prices fall rapidly, we say, in retrospect, there was a bubble. Thus the bubbles are characterised by trades at high prices followed by rapid declines in prices. Clearly a bubble can be known for sure only ex post. Equally clearly, spotting a bubble-in making can be a great source of income for traders. (But then spotting any trend correctly is a great source of income for them.)
Bubbles can be short-lived or of longer terms. Short term bubbles, though spectacular (tulip mania) and disruptive, do not do as much harm to the economy as those that persist for a longer term. Bubbles of longer term – dot.com bubble of nineties and the more recent housing bubbles in the US – can be equally spectacular with sinister implications for the economy because they lead to sub-optimal allocation of capital. Since the shares of e-commerce firms were rising spectacularly, more people came up with such projects and more of capital went into those castles in the air. Since dwelling units were rising fast in value, more capital went into real estate development and US was reportedly saddled with over four million houses against demand of some 1.5.
Since prices crash only because assets were earlier trading at unrealistically high prices, formation of bubbles demands a disconnect between the asset prices and their intrinsic values. A die hard believer in market efficiency, who believes that the markets are always efficient, will be hard put to explain bubble formation. (Indeed, some economists maintain that there are no bubbles!)
Bubbles impact our spending behaviour in a predictable manner. When the asset prices are high, we feel rich and generally splurge. When the prices crash and we are forced to reckon our “paper losses”, we feel poor and spend less. Thus bubbles do seem to accentuate cyclicality.
While impacts of bubbles are easy to see, their causes are not so obvious. Bubbles have been seen to form in experiments where there were no uncertainties about prices of the assets being traded! Interestingly “bubbles appear even where speculation is not possible.”
Many people believe that liquidity favours bubble formation. High liquidity makes the jobs of lending bankers more difficult. They need to lend more to maintain their return on assets and the distinction between good and not so good credit gets blurred as almost everyone is in a position to repay a debt by raising a new loan somewhere else. Lending standards, consequently, dilute during periods of high liquidity. High liquidity (coupled with low interest rates) thus, supports bubble formation. If interest rates are down, investors tend to eschew savings accounts; instead they leverage their capital and invest in equities and other such assets. Conversely when interest rates go up they avoid borrowings and become more risk averse – favouring fixed income securities. This is necessarily over simplification. If it is correct then we should see a correlation between asset prices and monetary liquidity.
A behavioural explanation lies in the trading adage “trend is your friend”. Investors generally take positions (i.e. go long or short) in the direction of the market trend. Even professional fund managers, who should know better, avoid contrarian positions. They are compensated on the performance of their funds vis-à-vis the market and vis-à-vis the performance of other funds. Clearly a prolonged contrarian position is potentially more harmful to their bonus than a call which may be irrational but favoured by their peers. Remember Keynes “market can remain irrational for a longer period than you can remain solvent”. This is a powerful argument for adopting the much seen herd mentality, which helps in bubble formation in no small way. It is further augmented by the moral hazard; manager takes risk because he does not face its downside.
What should a rational investor do when she clearly sees a bubble in making? Newton, the great(est) mathematician had seen the South Sea Bubble, had seen through it and resisted making investment, saw many of his colleagues doubling their net-worth, took a tentative position and chickened out long before peak, later in a moment of courage / optimism / envy / stupidity (call what you like) took a heavy position and lost heavily.
Long lasting bubbles are usually tied to some development with long lasting implications – invention of electricity, automobile, internet, emergence of China and India as economic powerhouses etc. To begin with the rise in values of related businesses is justified! Somewhere along it gets disconnected from reality. They keep rising even in face of someone like Greenspan muttering about irrational exuberance.
A rational investor is rational enough to realise that she alone cannot break the trend. If all the rational investors could agree to bet against the bubble, they could make big profits. But betting alone is ruinous for any one of them. So it makes sense to ride it. Even if you know there's a bubble, play along, just be agile enough to get out quickly as soon as the bubble's existence becomes common knowledge.
What is a bubble?
I do not think it has been rigorously defined. Generally speaking, when prices rise and assets trade furiously at those high prices, which seem to have little correlation with the intrinsic values of the assets, and eventually prices fall rapidly, we say, in retrospect, there was a bubble. Thus the bubbles are characterised by trades at high prices followed by rapid declines in prices. Clearly a bubble can be known for sure only ex post. Equally clearly, spotting a bubble-in making can be a great source of income for traders. (But then spotting any trend correctly is a great source of income for them.)
Bubbles can be short-lived or of longer terms. Short term bubbles, though spectacular (tulip mania) and disruptive, do not do as much harm to the economy as those that persist for a longer term. Bubbles of longer term – dot.com bubble of nineties and the more recent housing bubbles in the US – can be equally spectacular with sinister implications for the economy because they lead to sub-optimal allocation of capital. Since the shares of e-commerce firms were rising spectacularly, more people came up with such projects and more of capital went into those castles in the air. Since dwelling units were rising fast in value, more capital went into real estate development and US was reportedly saddled with over four million houses against demand of some 1.5.
Since prices crash only because assets were earlier trading at unrealistically high prices, formation of bubbles demands a disconnect between the asset prices and their intrinsic values. A die hard believer in market efficiency, who believes that the markets are always efficient, will be hard put to explain bubble formation. (Indeed, some economists maintain that there are no bubbles!)
Bubbles impact our spending behaviour in a predictable manner. When the asset prices are high, we feel rich and generally splurge. When the prices crash and we are forced to reckon our “paper losses”, we feel poor and spend less. Thus bubbles do seem to accentuate cyclicality.
While impacts of bubbles are easy to see, their causes are not so obvious. Bubbles have been seen to form in experiments where there were no uncertainties about prices of the assets being traded! Interestingly “bubbles appear even where speculation is not possible.”
Many people believe that liquidity favours bubble formation. High liquidity makes the jobs of lending bankers more difficult. They need to lend more to maintain their return on assets and the distinction between good and not so good credit gets blurred as almost everyone is in a position to repay a debt by raising a new loan somewhere else. Lending standards, consequently, dilute during periods of high liquidity. High liquidity (coupled with low interest rates) thus, supports bubble formation. If interest rates are down, investors tend to eschew savings accounts; instead they leverage their capital and invest in equities and other such assets. Conversely when interest rates go up they avoid borrowings and become more risk averse – favouring fixed income securities. This is necessarily over simplification. If it is correct then we should see a correlation between asset prices and monetary liquidity.
A behavioural explanation lies in the trading adage “trend is your friend”. Investors generally take positions (i.e. go long or short) in the direction of the market trend. Even professional fund managers, who should know better, avoid contrarian positions. They are compensated on the performance of their funds vis-à-vis the market and vis-à-vis the performance of other funds. Clearly a prolonged contrarian position is potentially more harmful to their bonus than a call which may be irrational but favoured by their peers. Remember Keynes “market can remain irrational for a longer period than you can remain solvent”. This is a powerful argument for adopting the much seen herd mentality, which helps in bubble formation in no small way. It is further augmented by the moral hazard; manager takes risk because he does not face its downside.
What should a rational investor do when she clearly sees a bubble in making? Newton, the great(est) mathematician had seen the South Sea Bubble, had seen through it and resisted making investment, saw many of his colleagues doubling their net-worth, took a tentative position and chickened out long before peak, later in a moment of courage / optimism / envy / stupidity (call what you like) took a heavy position and lost heavily.
Long lasting bubbles are usually tied to some development with long lasting implications – invention of electricity, automobile, internet, emergence of China and India as economic powerhouses etc. To begin with the rise in values of related businesses is justified! Somewhere along it gets disconnected from reality. They keep rising even in face of someone like Greenspan muttering about irrational exuberance.
A rational investor is rational enough to realise that she alone cannot break the trend. If all the rational investors could agree to bet against the bubble, they could make big profits. But betting alone is ruinous for any one of them. So it makes sense to ride it. Even if you know there's a bubble, play along, just be agile enough to get out quickly as soon as the bubble's existence becomes common knowledge.
Thursday, November 12, 2009
Galleon Group: Collateral Damage
So far four Indians have been charged in the insider trading fraud investigations in the operations of Galleon Fund. It is too early to say whether they will be convicted or exonerated or they will buy their way out by becoming approvers. Our (Indians’) reputation has already taken a hit (notwithstanding the fact that a key member of the prosecution team, Preetinder Singh Bharara, too is of Indian origin).
The Indians / PIO’s charged so far are: Anil Kumar (Director, McKinsey), Rajive Goel (Managing Director at Intel capital), Deep Shah (a former analyst at Moody’s) and Gautam Shankar a proprietary trader at Schottenfeld Group in New York. Shankar, reportedly, has already pleaded guilty.
It is difficult to believe that some one like Anil Kumar would go astray and take a stupid risk for just a one-off mere 20 million deal. Prosecutors naturally feel that perhaps the accused had a relationship rather than a transaction. Out of 14 persons charged so far four are Indians / PIOs.
Some rants from the blogosphere:
The best and the brightest from India for sure. Geniuses America's economy can't do without. Intel and McKinsey. McKinsey is also headed by an Indian CEO. Their purpose is to shove American jobs out to India so that otherwise unemployable Indian workers can have jobs. The whole thing is just one tiny part of the India, Inc. fraud racket. Just like when Countrywide sent mortgage applications to India for processing and they ended up being processed by people who, until then had never seen a light switch. Way to go corporate America. Another big win.
This is just another chapter is what an Indian economist described as India's "friendly takeover of the world" :
…The process is in its infancy still. But remember that most H1-B visa holders will become US residents, and bring over several family members too. Something similar will happen in Germany and other Western countries. So, in a few decades, we can look forward to the creation of a huge global brainpower network of 50 million people of Indian origin. These will constitute a tiny fraction of the global population, but a big slice of the influential global population.
…They will matter in academics, business, stock markets, law, medicine and the arts. And so they will matter in politics too…
And didn't Matt Tiabi of Rolling Stone imply that packs of Indians working at investment banks sliced and diced the derivatives that caused the sub-prime meltdown?
Finally, no need to play the race card. The Indian offshoring lobby started the rhetorical race war by deeming Americans too stupid to do "maths".
Wonder if this chap is related to Sanjay Kumar who was jailed for falsifying financial date to jack up the price of Computer Associates stock. The "License Raj" mentality of these characters goes hand in glove their corrupt business practices and sense of entitlement.
Anil Kumar and Rajat Gupta are bosom buddies. They sit on the board of Indian School of Business (ISB) (read article in link). This is what they teach in the business school. Am sure people will now think twice when hiring from this place.
What's new? It's their culture to lie steal cheat and anything else to take from others. That's the caste system in action. Americans are just Dailits to these people.
IBM, what can you say? They have become the scum of the corporate world. Layoff Americans and hire H1b's is their motto.
… the point of cronyism/ corruption being rampant in Indian diaspora is not inaccurate. Friends/ relatives in India don't understand what the big deal is about insider trading .. that's how stock market moves happen in Dalal St (Wall St of Mumbai), and how fortunes are made (& lost). However, this cronyism is not unique to India or China. Think NYC of 1929 was any different?
People shouldn't be surprised at the anti-Indian rhetoric. The Indians have brought the bullying caste-culture to the American I.T. industry and many IBM'ers have been forced to train their low-wage, low-skill replacements. Now we see the connection. That is why IBM is referred to as "Indian Bowel Movement".
The Indians / PIO’s charged so far are: Anil Kumar (Director, McKinsey), Rajive Goel (Managing Director at Intel capital), Deep Shah (a former analyst at Moody’s) and Gautam Shankar a proprietary trader at Schottenfeld Group in New York. Shankar, reportedly, has already pleaded guilty.
It is difficult to believe that some one like Anil Kumar would go astray and take a stupid risk for just a one-off mere 20 million deal. Prosecutors naturally feel that perhaps the accused had a relationship rather than a transaction. Out of 14 persons charged so far four are Indians / PIOs.
Some rants from the blogosphere:
The best and the brightest from India for sure. Geniuses America's economy can't do without. Intel and McKinsey. McKinsey is also headed by an Indian CEO. Their purpose is to shove American jobs out to India so that otherwise unemployable Indian workers can have jobs. The whole thing is just one tiny part of the India, Inc. fraud racket. Just like when Countrywide sent mortgage applications to India for processing and they ended up being processed by people who, until then had never seen a light switch. Way to go corporate America. Another big win.
This is just another chapter is what an Indian economist described as India's "friendly takeover of the world" :
…The process is in its infancy still. But remember that most H1-B visa holders will become US residents, and bring over several family members too. Something similar will happen in Germany and other Western countries. So, in a few decades, we can look forward to the creation of a huge global brainpower network of 50 million people of Indian origin. These will constitute a tiny fraction of the global population, but a big slice of the influential global population.
…They will matter in academics, business, stock markets, law, medicine and the arts. And so they will matter in politics too…
And didn't Matt Tiabi of Rolling Stone imply that packs of Indians working at investment banks sliced and diced the derivatives that caused the sub-prime meltdown?
Finally, no need to play the race card. The Indian offshoring lobby started the rhetorical race war by deeming Americans too stupid to do "maths".
Wonder if this chap is related to Sanjay Kumar who was jailed for falsifying financial date to jack up the price of Computer Associates stock. The "License Raj" mentality of these characters goes hand in glove their corrupt business practices and sense of entitlement.
Anil Kumar and Rajat Gupta are bosom buddies. They sit on the board of Indian School of Business (ISB) (read article in link). This is what they teach in the business school. Am sure people will now think twice when hiring from this place.
What's new? It's their culture to lie steal cheat and anything else to take from others. That's the caste system in action. Americans are just Dailits to these people.
IBM, what can you say? They have become the scum of the corporate world. Layoff Americans and hire H1b's is their motto.
… the point of cronyism/ corruption being rampant in Indian diaspora is not inaccurate. Friends/ relatives in India don't understand what the big deal is about insider trading .. that's how stock market moves happen in Dalal St (Wall St of Mumbai), and how fortunes are made (& lost). However, this cronyism is not unique to India or China. Think NYC of 1929 was any different?
People shouldn't be surprised at the anti-Indian rhetoric. The Indians have brought the bullying caste-culture to the American I.T. industry and many IBM'ers have been forced to train their low-wage, low-skill replacements. Now we see the connection. That is why IBM is referred to as "Indian Bowel Movement".
Monday, November 9, 2009
More on Decoupling
Bill has posted some interesting thoughts on decoupling. Pl check out here. It seems the markets are getting integrated but economies are gradually decoupling.
Sunday, November 8, 2009
Mother of All Carry Trades
Nouriel Roubini wrote in the "Financial Times",recently where he has tried to forecast how the various markets will react when the "dollar carry trade" begins to unwind. very interesting.
Subscribe to:
Posts (Atom)
