Is the Subprime Crisis Over!

Yesterday my friend told me that he has heard that “Subprime crisis is over “ and it is this news which is making the Sensex go up. I was really puzzled hearing it and started laughing after that.

 We all know that subprime crisis is far from over , but who will declare it once it is over , what is the methodology and procedure to actually verify if someone says its over .These  financial crisis are so huge and affect so many economies , even to find the real impact of them is so tough . During Asian Financial crisis of 1997, it took many years and many declarations by prominent leaders of financial community to make the markets believe that the crisis is over.

I hope my friend is right and we see a better managed financial world past subprime very soon.

Dream Car finally a reality ..

When everything starts going all wrong for a particular dream of yours, than its nothing but a celestial conspiracy , to check your capability , to check whether you are determined to  make that dream of yours into reality  .The final outcome will be nothing but pure brilliance which will give you tears of Joy and happiness.  I have seen this happening time and again with people; nothing comes easy in this world. Follow your dreams, for as you dream you shall become.

Today when Tatas has finally launched their Dream Car, I really feel elated about this new beginning. This ain’t an ordinary car or another reverse engineering wonder but it’s something which has changed the whole dynamics of the auto industry in India.  People are saying that it’s the biggest product from India so far, Lets hope it’s only the beginning and we are going to see whole new era of innovation and creativity not just in making better products but marketing and selling them in different parts of the world.

IPL Blues…

Indian Premier League (IPL) launched just a year back was a big hit in the Indian subcontinent and the best part of it was the win-win situation, everyone was getting benefitted out of it. The players which could not make it up to the Indian team were getting great remuneration and high visibility which was at par with the international players, government was getting tax revenues and a chance to showcase India, TV channels were making loads of money through advertisements , the sports infrastructure of the country was benefiting out of the events and people were just loving it as it was their daily dose of affordable entertainment, better than the regular soaps which they have to watch. The 20-20 format was very entertaining and the time format of 2 hour game made it all exciting for even the people who don’t like to watch cricket all day.

The attack on Srilankan Team in Pakistan has caused more damage to IPL than any other event in the world. It is a classic case of a Black Swan as termed by Mr Nassim Talib in his book ‘The Black Swan’. As per Mr Talib Black Swans were debated not to be in existence and it was only before scientist found the rare breed in Australia that people realized the existence of Black Swan,  it’s a low probability event with high damage potential and nobody usually think of it in normal circumstances. A Mumbai attack through local boats or a 9/11 through passenger aircraft is a classic Black Swan which nobody thought will occur. The insurance companies never included this probability in calculation of their premiums and suffered badly from it.

Mr Lalit Modi is trying all out to make the event possible but who will take guarantees of guarding the lives of players when our own Home minister has refused to provide security to the teams during election season. Even if someone takes guarantee, the International Player might still reject the offer due to fear of attacks. Time is not far when people will start paying for their own security to outside intelligence Agencies. It does sounds like a good business proposition ‘Private Intelligence Agencies ‘?

Can India and Pakistan Coexist?

If we see the geographical location of India, it is surrounded by so many unstable nations. Srilanka is fighting LTTE , Nepal is struggling with maoist , Afganistan is still occupied by Taliban , Military is trying to overtake Bangladesh and worst of all a nuclear power in the form of Pakistan is struggling with democracy and homegrown terrorism. The condition is not very fruitful for a friendly nation like India who is trying to improve the condition of its economy by attracting foreign investment.

The only stable country can be seen in the form of China which does not share a history of good relations with India. We are still having issues over borders and they don’t recognize some part of Indian territory. What will be the future of India with so many issues surrounding it from all sides?

The world now is slowly realizing the importance of peace and the downside of terrorism as everyone is suffering from it. The bigger question becomes, Can India and Pakistan coexist with such tensions building up in the face of instability and terrorism as rest other problems are not as huge as relation between two of the nuclear economies of the region. What would have happened if the team attacked by terrorist in Pakistan was Indian? It could have led to yet another war.

With Pakistan suffering hugely from the terrorism and in the aftermath of attacks on the Srilankan team even the people of Pakistan have realized how home grown terrorism can harm any country. In the future they might vote for a more India friendly government who wants to actually improve their economy rather than sponsoring terrorism in India. The anti Indian venom which is being taught through modified history books in Pakistan has to change in order to ring the two countries closer which share the common culture and history.

If we see the countries in Europe, they are living peacefully , even after waging so many wars against each other in which millions of people lost their lives. Gradually things start moving and every one realized that war and hatred cannot bring prosperity to any nation. Now Europe is one of the most prosperous region in theworld and they are even sharing the same currency.

I am very hopeful that in future Pakistan will curb the terrorism as they would require it to survive in the interlinked economies of the world . It will require a lot of change in the way they think about their future. I hope they change.

Crowd Behavior, Social Networking and financial Decisions ..

Majority of our decisions are based on how others are doing it. Crowd behavior gets mostly influenced by the social network one maintains. Most of the people invest in stocks as his neighbor is investing and making money in it. Most of the people invest their hard earned money in risky trades without any knowledge of market, As Shankar Sharma of ‘First Global’ gives the analogy of a revolver with only one bullet in it, and the investor is asked that he will earn a million if he tries it on himself, few people might get richer in such games but end of the day more people shoot themselves rather than earning the money. The probability of becoming a millionaire is getting reduced by every trial and the rule of the games also keeps changing. Nobody knows if there is only one bullet in the gun.

Social networking is giving way to a regular crowd behavior pattern which is very prominent in many ways: -

1. Increased Information Levels: - Social networking keeps people informed about others and leads to an increasingly informed society. Such level of information might not be very useful for all.
2. Comparisons in Society: - Increased information about friends and peers leads way to comparison of decisions, similarity in life style and even peer pressure at times.
3. Peer Pressure: - (From my earlier Blog) When we talk about the art of decision making and psychology behind it, we believe that peer pressure has the most significant influence behind our decision making. We may live our own life but the rules of the life are mostly defined by the people with whom we work or study. The reason is simple, we spend a significantly high portion of our time with them and hence their personalities and reactions affect our decision making process. The more important the decision, the more is the peer pressure. Infact even the decision of selecting a job or going for higher studies is sometimes influenced by the peer pressure. People constantly fear that they will be judged by other people on the basis of their decision.
4. Financial Decision Making: -Financial success of peers and friends whom a person can easily associate in his network motivates other people to take similar risk or even at times more risk than a person can actually afford. Social networking thus makes you believe that you can also achieve the similar level of success in financial decision making.
5. Incentives and Recognition: - Social networking also prompts a person to take increased risks as the society can make a hero out of him if he succeeds in his plans and financial decision making. The improved recognition in the society acts as a big incentive in making financial choices for a person.

Right Path ..

In the recent visit to Seattle I learned a lot about the basic philosophy of Social Entrepreneurship; It’s a way doing well by doing good. The level of concern about raising the standard of living of the people of developing world was truly amazing. I actually found people with extreme consciousness, who don’t choose to shop in Walmart as it might be exploiting human labour or choose body shop as it is environmental friendly. It clearly showed the importance of Corporate Social Responsibility in the future for building brands and selling products. People might say it is a marketing gimmick , but this gimmick will become a necessity for most of the companies to survive.

Our trip started with a visit to Path, a Seattle based NGO working with technological innovation in order to improve the health of the under privileged. They showed us their various projects most of them have been developed by in house research. 

Few of the products I liked were

1.         Safe disposal system for syringes so that they cannot be reused and the spread of diseases like AIDS can be prevented

2.        Fortified rice where every 100 kernel of the rice is fortified with extra vitamins and minerals to provide extra nutrition to the under nourished people.

3.       Small kits for the safe delivery of babies in rural areas where medical help is not easily available.

4.        Sticker which can be pasted on Polio vaccine which indicates if the vaccine is suitable for use.

Path forms partnerships with the local partner in developing world to transfer technologies and monitors the whole process very keenly. The local partnership helps Path in providing culturally relevant solutions to the people. I was really impressed by the kind of work this organization is doing which actually has great impact on the lives of millions.

GSEC provided us a platform where like minded people discussed their ideas to improve the conditions of our society . It may be a very small beginning where most of the ideas are still on paper but it was definitely very encouraging and motivating for all the people attending the summit.

New York Darshan in 5 hours ..

On 20^th morning we landed in New York (NY) at around 6:00 am in the morning, the flight to our ultimate destination Seattle was at 2:00 pm local time. We thought of trying to prepone our flight to Seattle but there were lot of confusions regarding transfer of baggage etc, finally we ( Raka , Bedi , Srejith and me ) decided to just kill the time sitting at Newark Airport . The rest of the story is nothing less than a adventure ride, full of twist and turns and yes a lot of FUN.

As we were looking for a place to sit, we met Manisha, a girl from Mumbai, smart and friendly .She was traveling through NY to some country in Latin America.  She insisted that we should go around NY .Initially we were skeptical but finally we agreed as she knew about the places in NY. We bought our bus trip return ticket from the counter and boarded the bus at around 8:00. The buses were really warm and clean.

 The city was really cold, and the cool wind which never stopped blowing was making our lives even tougher. The excitement was the only thing which was keeping us interested in moving out of the airport.

 We got down on Grant Station; the place was huge, had beautiful lights and looked clean and well maintained. It instantly reminded me of our CST station which is equally beautiful but no one cares to keep it clean. Their was lot of space but people were moving very swiftly in a typical NY style , may be because it was office time and none of them were jobless like us that time.

 After seeing the huge library we headed to the Time Square which I have seen so many times on TV and really wanted to see how it looks in real. The place was a real treat to eyes. So bright with lights and electronic hoardings even at 11:00 am in the morning, looked like the most happening place for marketing. We were totally amazed and just keep clicking the photographs in n number of poses which were all similar in a way.

We still had nearly 2-3 hours, hence we decided to take our chances to see the Statue of Liberty, the biggest symbol of freedom in USA .We took the suburban train and went to the World Trade centre and walked nearly 10 blocks to see the Statue which didn’t really excited me at all. The wind there was blowing even more swiftly and we all were just trying to survive the sudden climatic change.

Then came the bonus, something we didn’t thought of, the wall street BULL on which we have named our team as 'NMIMS BULLS'  one and a half years back and we had a dream run. The feeling was great. We quickly clicked a few pictures and walked briskly back to catch the train back to the bus stop to get back to airport

Luckily we reached the airport at 12:50 pm just to find that our flight has been a little delayed , we anyway reached on time in Seattle 

In all, a great start to the trip and all credit go to Manisha. Thanks alot !

Slumdog Millionaire revisited..

Today I had a long discussion about Slumdog millionaire with my friend Bedu who is studying in US .His views were different than what I expressed in my last post about Slumdog Millionaire “About the Slum dwellers and the Millionaires..”.

My initial reaction after watching the movie was that the movie did well in west because it allows them to claim that Indian is still a country of hungry and poor, denying us of all the progress we have made in the last decade , when Mr Bachhan came up with somewhat similar theory on his blog I was patting myself of thinking like him. All the euphoria was short lived as I found Bedu’s argument much more apt and logical explanation of why the movie is doing wonderful overseas. As per him the movie remind the people in west about what London was 200 years back, they wanted to improve and they did improved a lot and now a progressive nation.

People won’t go to watch a movie in recessionary times by paying 15-20 $/ticket just because it portray India in bad light , they are watching the movie as it shows them hope that even a slum dweller becoming a millionaire (Feel good factor ) and the story is quite engrossing full of twist and turns. They don’t want to see the poor condition of slum but how a person can struggle and rise even from difficult conditions. They are comparing it with the likes of Oliver Twist..

The whole discussion was indeed lot of learning.

When Umpires comes under pressure..

In last three matches Tendulkar has been wrongly given out LBW by umpires and even if  we look at the past , he has been the victim of poor judgment countless number of time.  Is it shear chance that he gets out so often due to umpiring mistakes or is there some other reason?

Some figures become larger than profession they are in, Sachin Tendulkar is one such  player who has been worshipped by cricket Fans all over the world , His genius with both Bat and Ball , breath stopping performances and humility makes him the worthy owner of the title  “GOD of Cricket‘. As all good things come with a cost, the popularity of Sachin also has some intangible cost associated with it. I believe Sachin’s importance in the game puts additional pressure on umpires which makes them give poor decisions against him.

 All the decisions for or against Sachin goes through loads of analysis and scrutiny which only adds to the burden of umpires who are as human as the one playing the game and likely to make mistakes.  

With or Without you ..

Government of Pakistan has barred their cricket players from participating in IPL 20-20 cricket tournament where Indian Inc buys contracts for almost all the major players of the world to play and earn like lords. The decision came as a knee jerk reaction to the Indian government's directive of cancelling the Indian cricket team tour to Pakistan after the Mumbai terror attacks. It  look rather a routine decision but can have lot of implications , some of them can be

Risk Management Strategy: -Since most of the terrorism in India is direct or indirect effort (supported by state or entrepreneurial venture) of Pakistanis, it may reduce the chances of Pakistani players caught in friendly fire and getting executed by their own men.

Forex Reserve:- Pakistani state treasury which is running on outside support from past few months won’t be helped by this opportunity of earning at least a million US $ in foreign currency. The money could have been used to buy some arms and ammunition for the Pakistani army.

Politician’s effort put to rest: - With no real issues left for politicians, many of them had been trying to use the popular anti Pakistani sentiment and were openly advocating of not to allow Pakistani players to play on Indian soil, now all such issues cannot be converted into vote Bank.

News channel/Print Media loss of news and revenue: - Should India allow Pakistani players to participate in IPL, many more useless discussions like this ,both on TV and newspaper won’t be possible anymore, it can lead to loss of revenue to the media companies both by advertisements and SMS polls.

On a serious note the major learning for the Pakistani government should be that the Cricket won’t die without Pakistani players and the show will just go on with or without them.

Dream ..

Today I woke up at 7:30 in the morning; it was bit early for me as usually I am not able to get up until 8:30 every day. I saw a dream today of flying Kites along with my brother at our older residence which I’ve not seen since last 16 years.

The amazing part of the dream was that I can still recall all the names and faces of my friend in the locality. Our competitors in the kite flying competition were still the same set of people and even the landscape around the area was visible in the most trivial details.

I felt very nostalgic after seeing such a dream as I have not touched kites from so many years and it used to be so much fun. I started thinking about those old time friends which I have literally forgot for so long. The dream reminded me of Basant Panchmi , the festival of Kites when everyone use to fly kites all day and prepare for it for a complete year.  

But the most interesting and surprising part of the dream occurred in reality, It was when a friend of mine told me that today is Basant Panchmi , I was really surprised by such a coincidence , Dreams can be so enigmatic.

May be that’s why I woke up at 7:30 am as that was usual time to kick start the Kite Festival.

Peer Pressure ..

How many times it happens that when we make decision, we try to enquire about what others are doing. It can be termed as lack of confidence but most of the time it is Peer Pressure. “Peer pressure can happen when we are influenced to do something we usually would not do, or stopped us from doing something we would like to do”.

When we talk about the art of decision making and psychology behind it, I believe that peer pressure has the most significant influence behind our decision making. We may live our own life but the rules of the life are mostly defined by the people with whom we work or study. The reason is simple, we spend a significantly high portion of our time with them and hence their personalities and reactions affect our decision making process.

The more important the decision, the more is the peer pressure. Infact even the decision of selecting a job or going for higher studies is sometimes influenced by the peer pressure. People constantly fear that they will be judged by other people on the basis of their decision.

A study was conducted in a Top Business School, the students were given a set of activities, after the research was over the researcher told `They can't really step back and take a critical view, They're totally defined by others and by the outcomes of what they're doing.' . This is one of the main reasons behind the herd behavior what we see a lot of times.

The question again arises, what’s the use of all this education and knowledge if we can’t even make our own decisions.

About Bollywood Stars and Power Politics ..

Sports, Politics and Acting are arguably the three most glamorous profession in the world . Few of the people in such profession keep shifting to other professions to keep their name and charisma alive .May be the fame and attention are the most desired elements for people who have achieved a lot in their career or life and they keep doing different things to seek attention to remain in limelight or Page 3 of the newspapers.

It was not surprised to see Sanju Baba agreeing to contest elections from Lucknow when he is nowhere related to the issues or politics of the place. One of the prime reasons of the actors entering politics is their dwindling acting career which can no more guarantee them the popularity of their past. Likes of Rajesh Khanna ,Govinda,  Vinod Khanna , Darmendra etc all have tried their hand at politics with little success at the fag-end of their careers . What differentiates Sanjay from other politicians is his checkered past and his experiments with AK-47 which may not help him in becoming the Nawab of Lucknow but can certainly revive the ugly stories of his past.

Lord Byron says “What is fame? The advantage of being known by people of whom you yourself know nothing, and for whom you care as little.” But in this world of people seeking power and attention, the charm of fame will remain as the illusionary power which will keep driving the people to fall for it.

About the Slum dwellers and the Millionaires..

Slumdog Millionaire, a tale of impoverished Indian slum dweller who goes through troubled time but went on to become a millionaire by winning the game show “ Who wants to be a millionaire “. The movie showed abject poverty and humiliating conditions which will make you say the F word umpteen number of time .It’s a typical Mumbaiya bhelpoori with emotions of anger, pity, disgust, romance, action, evil, lust, crime all mixed together with music and a happy ending, good enough to be seen once but is no different than lot many other bollywood movies. 

Bollywood has a habit of over doing things, shows stuff which seems larger than life and involves far too many coincidences which are hard to believe, this time it was Hollywood to follow our suit and people just loved it.

If we actually go to dhaaravi, the second largest slum in the world, it houses a population of nearly 2.5 million people with an average density of population as high as 17000. Life is tough there and people are living in horrible conditions but things shown in the movie looked a bit over stretched. No wonders the film is doing great in western world. They are allowed to see what they proclaim India is about and it was not surprising to see the long list of awards and recognition the movie has got since its release.

I went to many movie discussion forums to get the feel of the opinion’s about the movie, people from different parts of the world are claiming that the movie shows ‘Real India ‘ , which may be a truth for about half of India but is definitely hard to swallow.

The main issue which remained unhighlighted in the movie is about the great divide between the Slum dwellers and the Millionaires. The country which boasts about the richest people in the world also houses the poorest amongst the poor. India’s Gini Index has increased from 34 in 1950 to 38 in 2000’s; it clearly shows that the wealth is getting concentrated among far fewer people than desired, certainly a cause of concern and requires some action.

Satyam Satya …

The recent fraud disclosure by Mr Rama Linga Raju of Satyam Fame just reminds me of one of the classic dialogues of the movie ‘A Beautiful Mind ‘where John Nash (Russel Crow) says “Terrified. Mortified, Petrified. Stupefied... by you “. It really makes me think about the possibility of a new crisis involving ‘Auditing and financial reporting’, which can be prevalent in many more listed companies?

The fraud of this nature was simply unprecedented in Indian history when a BSE 30 company has been fudging its balance sheet by reporting higher profits for years together and the system was unable to detect it. It may cast a dark shadow on the standards of accounting and auditing in India which was once seen as one of the better regulated market in the emerging world.

What was really surprising and a mystery was ‘How can Mr Raju alone do all the innovative accounting without informing or taking the senior management in confidence’ and bigger surprise was how could a company as big as Satyam operating on margins of 3% when the industry margins were hovering around 30%. The basic model of all big IT services companies is same and there is no considerable difference between the bench strength, the billing rates or the salaries of the employees.

Only the future will decide how will this lone incident affect the Indian IT companies , future of beleaguered Satyam employees , financial condition of various institutions like ICICI Prudential, Fidelity , Citi , LIC etc who have considerable equity exposure in Satyam and the confidence of FII / Mutual Fund about investing in Indian capital markets .

Some companies should be allowed to go Bankrupt..

Bankruptcies are normally associated as terrible news, something which disturbs the whole system and causes lot of unemployment. The biggest setback a bankruptcy causes is the lost of trust, the whole credit crunch situation has arisen due to this lack of trust among financial institutions to lend to each other. Year 2008 has seen all kinds of bankruptcies; some of them like AIG were saved by the timely bailout packages announced by the state while some were not fortunate enough.

As the company were going bankrupt so were the people of USA, as per a estimate the number of people filing bankruptcies in USA has exceeded I million in 2008 .

 But not everything is bad in bankruptcies and it is actually an integral part of the system. In case the company files bankruptcy it goes to the court of law where it is either liquidated or restructured based on the type of filing. Some companies should be allowed to go Bankrupt due to the following reasons: -

1.       Survival of the fittest: - If some product or service is not required in a certain scenario, than its best to shut down the shop rather than pumping money to keep it on artificial oxygen. It gives way to better technologies, keeps the research and development department on toes to improve upon the existing products.

 

2.       Reduces Inefficiencies: - Incorporating a company is easy but running it efficiently requires planning, implementation, technology and management. If any of it is missing, it’s better that the one who is more capable takes over. A recession actually removes lot of inefficiencies from the system which were developed due to excess demand.

 

3.       Fights Moral Hazards: If the government just keep saving all the companies from bankruptcies, it will create a moral hazard of lax regulation and control.

 

4.       Risk Management: - The stake holders learns a lesson of risk and return, otherwise everyone will take more risk to maximize returns. The risk management of the company should be properly thought of before taking critical decisions.

 

5.       Lax corporate governance: - Many a time in cases of bankruptcy, the corporate governance is the major issue. The management bonuses and salaries should be in line with average and should be appropriate as per the current financial condition of the company.

Biggest lesson learned in 2008

Last year when I read the book “ The Secret “ , heard the audio book by Brain Tracy ,all the mysteries of life became so clear , and during the course of one year I have realized that it’s the power of sub conscious mind and belief which drives everything in life . Indeed it was the biggest learning in last year. When I was 6 year young ,one of my primary school friend told me a trick for getting up at right time in the morning “ He told me to pray to the pillow to wake you up at the right time and it will help you “ . When I tried it, it worked for me but I thought that it’s just a coincidence and I doubted that power which I realize now was nothing but power of super conscious mind.

The most important lesson learned are:-

1.       Genius trust and believe in their insights. They trust their creatively and intelligence,

2.       All creativity is the way of improving the existing way of doing things .The more we use the creativity; the more we will improve it. The subconscious mind and data works on it. It brings us idea which lies outside our individual expertise. That’s why most of the major breakthrough coming from individuals who do simple things. See things from different perspective. It is even  capable of goal oriented intelligence.

3.       Bible says “ to those who are positive and excited and moving towards the accomplishment of their goal , they get more ideas , more energy and more creativity to those who are going nowhere , those who have very few ideas and goals and even the energy they have gets drained away and they become tired ,depressed and fatigued “

4.       Most of the inventions and discovery are made word perfect very first time. We can program our goal in mind and fire our mental torpedo and it will find its own target.

5.       The winners accept and believe that they are fated and destined to be successful and everything happened was required to give them learning which was valuable to prepare them to archive their purpose. Everything is happening for success. Every defeat has equal and opposite advantage, just have to look out for it.

6.       When the answer come from insight, immediately act on it. The more rapidly you act the more ideas you will get.

7.       Any thought, plan or idea will become a reality through our super conscious mind, whether its positive or negative .Sooner or later develop the habit of what you want to happen to you. Systematically remove all fears or negative thought from mind. It’s the most important powerful source in our mind.

8.       Discipline, Perseverance. Persistence, Control and determination about the goal is required for making our dreams into reality.

Soporific Value ..

Just a few years back Anchor came out with the advertising campaign which claimed that their tooth paste is vegetarian. It gave great boost to the sales of the Anchor as people assumed that the other tooth paste might not be vegetarian. This is how improved information can increase the perceived value of the products and services.

Nowadays there are all kinds of information written on the packets of different food products which ranges from the calorific values in kilo calories to the vitamin content in milligrams as the customer is educated and knows what exactly he wants.

I have always felt it time and again that some food products are more sleep inducing than others and hence if have some idea before consuming that food about the effect it will have on us we can very well avoid certain types as per our requirements. This information which I think is quite necessary to be put on the packets of eatables can be called as the soporific value of the product. Soporific value is essentially the indicator of value which informs us that X food product when consumed in Y quantity will cause Z effect on your energy levels and sleep after consumption. I don’t know if this calculation is technically possible but it surely doesn’t seem very tough to devise.

Such information would certainly help people fighting to stay awake for an important meeting or presentation after lunch or students like us who find it even tougher to stay awake in classes.

 

Helpless ..

26^th – 28^th Nov , Sitting at home, watching the live videos of destruction and misery of people who fell victim to the planned attacks , that strong feeling of disgust and utter helplessness which few of us had ever felt .

This is not a fact to ignore that some people actually came, killed for fun and we were just the mock spectators. It differs from the cowardly planned bomb attacks, this time they took the whole city for ransom for 60 hours, looked liked as if the freedom of 60 years evaporated in 60 hours.

After everything got over, the anger of the people came out; they showed their solidarity for the cause and wanted a swift action from the government machinery. They pledged to put all their energies together to fight against the evil.

The question remains -Are we civilians really helping out our authorities in putting an end to the terrorism. What can we people do other than candle light marches and shouting for justice? How can we make our effort count? Is it really possible? I think this case is much tougher and complex than any of the case studies we have discussed in class. Do anyone have any concrete answers to the problem. 

I believe that even the government is helpless to a certain extent. Diplomacy is not working out for us the way it works for other countries as most of the countries are looking safeguard their interests rather than seek justice for India. Starting a war in this crisis will not only weaken the country financially but it will also affect the foreign relations and image of our country. So what can the government do? 

Credit Rating Agencies ..

The origin of credit ratings agencies can be traced back to 1840 when agencies started rating merchant’s ability to repay their financial obligations. It was the gift of 1837 financial crisis which saw increased credit defaults and it led to the birth of credit rating agencies which can predict the interest and debt repaying abilities of the lenders. The functioning of these credit ratings have remained questionable ever since and this topic revisits itself after every financial crisis, sub-prime crisis is no exception.

The whole purpose of structural finance and financial engineering for sub prime loans was to improve the credit ratings of various financial instruments by credit enhancement and converting them into marketable securities. The underlying risk of the financial innovation and the difference between Prime AAA+ securities and sub-prime AAA+ was never contested before the whole system failed. 

The biggest issue with these agencies is their financial model where they actually get there revenues from the company they rate and not from the users of credit ratings, it causes two problems,

1. The credit rating company cannot be conservative in its approach as there is high competition in the ratings business and the company may lose out on lucrative deals if it starts giving conservative ratings. 

2. Most of the companies which undergoes rating process wants better credit ratings to reduce the cost of financing and no company wants to increase their cost of capital even after paying rating agencies.

If we actually compare the number of above investment grade to below investment grade ratings issued by different agencies, we will find that most of the ratings given are above investment grade. There is a need to change this financial model to make the whole structure more fundamentally strong.

The second crucial issue with rating agencies is their operating model, which relies totally on the auditor and the companies for all financial and non financial statements. It increases the risk of distorted ratings in case the auditor and the company are running a joint partnership firm which happened in case of Enron. 

I feel that the world has seen enough recessions and depressions, there is an urgent need of a single world regulator who can improve the functioning of various financial markets and limit the grey areas of finance.