People Inspired

Thursday, July 25, 2013

Decelerated Growth

Amartya Sen says “...the achievement of high growth must ultimately be judged in terms of the impact of that economic growth on the lives and freedoms of the people...”

Sen believes that in democracy, equality comes with freedom and social justice. Such are his views and such views cannot be solemnly misjudged. India is growing, a fact, yet its depreciating in terms of social empowerment and there is still no void filled when it comes for health reforms, rural infrastructural reforms, Girl child education and safety so on...

Let’s speak about the India that youth inhabit in. We have seen booming start-ups, new innovations, diversifying fields of professionalism and educational establishments, more rankings and researches, better opportunities, more reformed status of youth, greater emphasis on education and much better sense of accountability with younger generation looking the prospective of creative professionalism fuelling countries long-term prospects of growth. But is it?

NGO’s have been established, many are working to lift the rural people especially the children who are lacking the fundamental resources to cult a living in their budding age. Education is always prime importance; health becomes an important catalyst and resources, well, needed as by the urban people. Growth is not just acceleration of economy or winning competition from a bordering country but it is what happens within the country; it is the scale of ‘social justice’ that cannot be argued and it is the surety of equality of opportunity for every citizen that holds certain duties within the constitutional framework.

Nehru believed in capitalism even though India was more of a socialist and progressing in the same way under the Indira Gandhi regime. I do credit Mr. Rajiv Gandhi for the commercialization of our country with better technologies and more job-oriented opportunities stepping onto our shores. But the corruption was a side effect and that slowly nauseated India in its long run. If you agree, then it is still.

Being young gives me advantage of not knowing everything yet forming opinions is self analysis. I do not understand UPA or NDA or the Left and right. What I understand is that India needs to aim properly and focus at its goal as is said to a young student aiming to crack an entrance test. Having an economist leader like Mr. Singh is an advantage said my grandfather during the UPA win after Mr. Vajpayee lost. But ten years down the line, I could just see more scams and less development and many people angry with the same leader silent. If the sub-ordinates are angry then there was a mistake in the part of the leader and such organisation can, well, be imagined in rubbles when the D-day of new elections comes in. I, as a youth of this country, may just want to study, work hard and earn a proper living but then if my expenditures can, as per Keynesian economics, lead to a small growth of the country then I need assurances that my hard work and perseverance for such a long time to get that money is spent wisely and the required channels are being followed.

India is inching slowly towards the developed status quo. Such progress requires proper mentoring and taming by goal-oriented masters. Politicians can step in the shoes of such masters, forget the divisions among the parties, centrally allocate power to a neutral man like the President and move towards reform else Kedarnath was a natural calamity and can be excused for the several reasons but if the whole country, someday, is flooded and people scream out for help, then tell me, Who would carry out the rescue operations?

Growth statistics can be obtained from any websites or magazine, but the philosophy is what requires proper perspectives. Comment not only on your instincts of failure but also on the required governance and steps to save our deteriorating political offices. India lacks a leader and even if a strong one steps in, he or she would surely be suppressed or delayed by the opposing parties and bad politics. We require a neutral leader with one aim and one aim only- Growth. 

Wednesday, July 3, 2013

The Housing bubble of 2008

The housing bubble wasn’t just a shock but rather a disaster

Raghuram Rajan says, “...the housing bubble that helped bring about the Financial crises was merely a symptom...”

When Raghuram Rajan presented his paper ‘Has Financial Market made the world riskier?’ (Raghuram Rajan-2005), he didn’t think much on it because he had nailed it right. The Financial machinery hasn’t been regulated well and soon is going to break down. Did the Bankers do it? A question he asked and we all would have had our answers if we realized what he was talking about?

He did make sense and effectively presented the declining options for private banks to liquidate their ‘stocks’ which ‘they’-the ‘private’ banks labelled as ‘The Collateralized Debt Obligation’ (CDO). Not only were they insured for this but they also managed to get private investors buy loans given to middle class people whose probability of repaying the amount was KNOWN to be minimal.  

In his paper, Rajan describes the incentive structure of the traders and how Investment bankers are actually nailing their boots to the floors and waiting for the boom. When in 2001, the CDO’s were effectively sold out as Sub-Prime mortgages, very few had their eyes open into the future guessing about the bubble burst. Rajan was one of the few and he dared to speak it out. 

In 2005, the paper was presented in front of huge galore of widely-recognised listeners. The crowd wasn’t just any other financial-conference crowd but it was a pack of A-Lister’s, the Government know-how’s and the policy makers, who were trying to condemn the idea Rajan was presenting.

Many didn’t want to hear.

In 2006, Banks had started to show the danger signs. Red flags were drawn and economists had already pointed at the high-cost incentive structures and roll outs. Wall Street started to feel the tremors of the bubble burst when few private banks were declining at a faster rate. Some officials from the foreign governments signalled the US finance authorities of the ‘Tsunami’ that was to come. Still many private banks didn’t actually understand the signs until the fall of three major banks and one of them inching to slow death- Lehman brothers was out- Senate hearings have started and many economic evangelists are asked for help. 

2008: Institutional grounds on economics remained weak and Rajan saw what he had pictured right in front of him as soon as 2008 started to become more disastrous. Many great banks fell and so was their insurer- AIG was down. World was trembling with losses. Families were shattered and the recession had taken its diabolic face.

Stimulus plans were out. Trillions of dollars were streamlined considering the Keynesian economics yet many still didn’t understand what the housing bubble was? And whether these stimulus plans were actually effective? 

Great leaders behind these private banks were asked to step down but it wasn’t for long. The presidency was ending and a new era of change, as promised by the new President-nominee, was starting. But the effect actually never subsided and we saw same people institutionalizing over the dollar, which adds to the decline of value for many currencies around the globe. A second stimulus plan was sanctioned and it did nothing good than worse. The economy was sledge-hammered and Rajan knew the picture he saw is still missing some pieces. 
There’s more to the bubble and the burst is yet to happen.