I was feeling a bit feverish this morning, perhaps a result of the headache I got from the Go tournament last Saturday in the Japan Club where I had two wins and two losses. The normal thing to do is to just sleep tight for a day and rest before going to work again tomorrow.
But I couldn’t do that because I had three meetings lined up today. The first was with a boutique Corporate Finance adviser where they are advising on our coming corporate exercise, the second was with our company auditor and then in the afternoon, a meeting with our corporate banker to discuss some banking facilities and to restructure the exisiting facility. And then tomorrow morning, a meeting with a leading investment banker, again for the corporate exercise.
While doing this, of course, naturally the finance side of me will take over the movie and Go side of me. Recently I read a book entitled THE WORLD IS CURVED. Of course, most people have read or heard of the book THE WORLD IS FLAT by Thomas Friedman. Ironically, I read the book over a weekend in my condo in Hyderabad and reflecting on the book in Hyderabad, I felt that I was at the right place at that time. Anyways, back to THE WORLD IS CURVED, it basically says that while Thomas Friedman’s book brilliantly described the world of commerce in goods and services, the world of Finance is essentially curved in that you can’t really see what is around the corner.
Reflecting on that book, I was of course thinking of the current economic condition that the world is in. Of course, many people thought that the crisis stems from the Subprime housing mortgage crisis but actually, the root of the problem goes further than that, even further than what is accused of Alan Greenspan, i.e. creating a housing bubble by lowering interest rate for a prolonged period of time (by the way, Greenspan’s biography THE AGE OF TURBULENCE is also a very good read and I got a lot of inpiration from it while working in Jakarta).
The thing with modern finance is just the complexity of it and thus the frequent lack of transparency in the system. Financial derivatives and structured financing masks too much of the risks involved in such financial instruments and as such exposes the holder of such instruments to very high risks, risks that they often are not really aware of due to the lack of transparency. As such, banks are “suddenly” insolvent and the government has to pump national money to rescue these troubled financial institution whereas these money would have been better used to improve the country’s infrastruture and to enrich its citizens.
So, with the government pumping so much money, in the trillions in rescue packages, it is only logical to think that those trillions are no longer in the economic system. So where did all these money go? Needless to say, they went to a small group of extremely powerful people but who are these people?
The modern world of finance is such that those who knows how to play the system will make huge amounts of money while those honest, down to earth people, will work their buttocks off day in day out, doing productive work, but finding that the money that they have earned with their hardwork is slowly eroded by the financial system, if not wholly swallowed up by those who know how to play the system.
Imagine the common American, for example, who finds that the value of his home has gone down by half and he is no longer able to pay for his mortgage while the company that he is working for is retrenching while someone in Norway has bought a repackaged asset backed securities who finds that that asset is no longer backing up the finance sufficiently and has to lose money on that investment, those money that he has saved up so hard to invest for the future. There is no more future then, and they have to start all over again, toiling day in day out, to save money again.
While some fat cats are sitting somewhere in the world, laughing at these sad and honest people. The world of finance is not fair. The world of finance is curved.
Is India a bubble?
After a couple of weeks in India, I began to think to myself, “How could a place such as India with such poor infrastructure and such a large population that is still not prepared can aspire to be an economic superpower?” Of course, anyone who has at least some interests in what is going on in the world would have read, or at least heard of, Thomas Friedman’s megahit “The World Is Flat”.
With the rising costs in India, which include fuel prices which is more than double of that in Malaysia and the rising cost of utilities and labour, not to mention the fickle mindedness of the the labour pool which job hops like mad, I will think that unless India do something to address the basic problems, the Indian bubble will burst very soon.
The economic foundation of India is not the same as in China. China, for what you would want to call it, is still basically a command economy. When something needs to be done, the central government will issue an instruction and it will get done. This system did prove itself to be rather effective in such a giant country like China which has to cope with accelerated growth.
India is the world largest democracy and democracy is not always the best way forward. It may even hamper growth even before the country has grown. To deal with acclerated growth in a huge country like India and China, I do think that democracy will be quite a handicap. This may be one reason why the government of India is fretting on why they are still lagging behind China by so far.
All these are speaking from a speed of growth point of view.
The Indian model, if the government is persistent enough to put through reforms to eliminate bureaucracy and corruption and improve on it’s infrastructure and mass education, will come out of the race with China a stronger country. One key reason is that India is more of a knowledge and services based economy whilst China is still a rather manufacturing based economy. The way the Indian economy is built and it’s foundation in democracy and individual enterprise will make it a more resilient economy. But then again, the government must get things moving forward as soon as possible. Before the bubble bursts.
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