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GLG News by this Author

Back to Nationalization of Banks

March 3, 2009

Analysis of:GLG News Commentary: Stress tests and temporary nationalization of US banks | www.bloomberg.com

All these years  the IMF  and World Bank were preaching the virtues of  privateization of banks to the developing countries. Suddenly the financial crisis and the deep economic recession   have changed all that in the very developed and advanced countries  as the major US   banks like Bank of America, City groups etc have been on the verge of bankruptcy and if the US  government allowed those banks to die the way they allowed Lehman groups to die , it would have desroyed the entire banking and monetary system and the cofidence of people in  banks . Rightly, the US government decided to step in to support those banks by injecting the capital in the form of prefereed shares. In turn the government may impose some conditions on those banks in public interest  like more rigorous risk management systems and procedures, and even some restrictions on executive pays and traders bonuses etc.

The US Dollar Rate is both the cause and effect of other factors

May 27, 2008

Analysis of:The dollar's short-lived comeback | biz.yahoo.com

The US Dollar being the kingpin of the hard currencies until now, but not very sure in future , it's exchange rate has been affecting the US economy and the rest of the world.The US financial markets , including the derivative markets,being the most liquid and deep among the financial markets, has attracted capital from the rest of the world to USA, and hence it has been able to live with huge deficits in its BoP current account, and led to a situation where the Ammericans have been able to live beyond their means.But every cris including the recent sub-prime crisis and the recession of the US economy deflates the aforesaid high optimism about the US economy and markets.Also, recently the central banks of many countries have shifted their currency reserves  from the US dollar to the Euro and other currencies , and the international investors have shifted the investments to the commodities and gold , which in turn has contributed  to the commodity price inflation in many countries.

RBI's Policies towards 'Inflation' and the effects on Indian Economy

April 7, 2008

Analysis of:Rupee Volatility to Rise After RBI Meeting, Morgan Stanley Says | www.bloomberg.com

Inflation in India has crossed   7 %  mark   , and the Government of India is very worried about it's political survival of the UPI's ' Amadmi's'  agenda. It has correctly taken some steps to correct the  high rise in ' foodgrain prices'  and' energy intensive prices' by cutting the customs duties  . Howver one may suspect about the long term viability of restricting the export of   rice  and other commodities from India.. The Government has rightly attacked the supply side factors though one can suggest more measures  . But what is  of big consequences to Indian economy is the RBI's policies to contain the commodity price inflation, which is to be announced on the April 29th  policy.Indian  stock markets have already factored in the policies towards a tight monetary policy by RBI , of increasing further interest rates/ or CRR ,  which in turn forces the commercial banks to make the credit dearer, by   pulling down the stock prices in general in the capital markets.

The Role Of Federal Banks in Mortgage backed credits

April 1, 2008

Analysis of:Federal banks can buy more mortgage-backed debt | www.latimes.com

This issue  is important  to policy makers, economists, financial institutions, and finally to the US economy and the world economies.During the economic boom, financial institutions expanded their balance sheet  and found due to the  increasing housing prices that their leverage is small. This in turn encouraged them to give more and more housing loans to customers who were not even  good credit worthy borrowers.When house prices start collpsing , this worked in the o[pposite direction that they found that the leverage is high and therefore started reducing the balance sheet sizes , and declining the housing loans.And paradoxically when the supply started reducing, the demand also fell considerably for housing loans. This of course is against the common economic principle that when prices start declining both demand and supply also declining. This has implications not only at the micro level balance sheet adjustment  but also for the macroeconomy.

Indian Economy after the budet presentation.

April 1, 2008

Analysis of:Budget Highlights (India) | www.thehindubusinessline.com

In spite of a budget presented , which has pleased the farmers for the big loan wavers, and the income tax payers for the big relief in the form of reduction of the tax rates , the Indian economy is now facing serious challenges in the form of a slow down in economic growth , falling stock prices, increasing inflation, especially for foodgrains and energy products, declining export growth, increased real interest rates. The policy makers  both at the Government and the Reserve Bank Of India are facing difficult dilemmas . This dilemma comes from the stagnation in economic growth  on the one hand  , and the increasing commodity prices on the other hand.The policies now taken  are having serious implications  for the Indian industry , the financial institutions,   and the exporters , and the economy in general. When the Federal Reserve System has reduced the Federal target rates to near 2 % level, India has not  reduced the rates fearing inflation.

Model risks in the international financial markets

August 13, 2007

Analysis of:Insurers Brace for Policy Fight | online.wsj.com

In the financial derivative markets  , the proper  pricing of the derivatives is really important to add liquidity  and depth to the underlying cash markets. But the trices are based on inputs like market's expectation of the volatility, which may be just implied volatility or the historical volatility. The historical volatility may not be forward looking. That was the reason many currency ' out of money options' were underpriced in the beginning by the banks and they incurred huge financial losses.Another important factor is the asumed stastistical or stocastic  structure of the underlying distribution, which will not be normal distribution.Having said about the negative side, it does not mean that in a falling market, when liquidity dries up , any risk  management tools like 'Value at Risk' models will protect  the market value of the portfolios, as exceptional events come only under the stress scenerios, and will be 'out of the confidence limits '

US housing slump and the effect on US and the world.

July 13, 2007

Analysis of:US housing slowdown weighs on retailers | www.ft.com

Retail Housing Sales data are really important   to predict future of the US economy in terms of  recession or growth, and also to predict about the US financial market future behaviour  in terms of movements of the prices of dollar, long term bond yields etc.It appares that the economy is on a slow down mode.It is already leading to lay offs etc.So the interest rates may be moved in a lower direction. This can lead to a fall in dollar, and hence to a  marginal improvement in trade deficit, and the current account of the BoP. But the fall in dollar can lead to inflation, and the increase in long term yields in the financial markets.It can affect other countries in the world in terms of their ability to continue to export to the USA.Immediately the temporary capital inflows to the emerging countries  may further increase , and the ability of those emerging countries to absorb those capital inflows to them will be further tested.

Blackstone Equity Funds and Red China's new love for ' finance capital'

June 19, 2007

Analysis of:Blackstone's founders to reap $2.3 billion in IPO | www.iht.com

The Blackstone's public offering has attracted the attention of the world manly because the country 'red China' has offered to take about 9.7 perecnt of the public offering or buy about $3.6 billions of  shares of the fund.The amount may not be much but it has made  and added the symbolic values to the Blackstones and it's share value also might have gone up because of that decision.After accumulating more than a trillion of foreign exchange reserves , China has started investing in US share markets. And this is supported by a large pool of savings in China.On the contrary, countries like India's central bank still debates about the reserves being invested in infrastructure and is mostly under the IMF's influence. Now, Backstone is making money by a variety of financial investments, including hedgefunds, real estate developments, equity investments . They handsomely pay to their executives in the form of shares stakes in the company and dividents to all share holders .

' Outsourcing' and All that ...'

June 19, 2007

Analysis of:Many 'undercurrent' on outsourcing in US | economictimes.indiatimes.com

As part of the globalization process, even though free movements of the Labor is still a far dream, 'outsourcing 'of the repetitive and  mostly unskilled ,but occasionally skill oriented routine work and service industries  from the developed countries like USA   to the Labor cheap countries like India, has raised a number of concerns  about the effect of the ' outsourcing' on  the employment and wage situation in the USA.And sometimes ,even it has raised quite rightly ,the security concerns of the original data sources like credit card , hospital records, personal confident information, etc.,and their possible misuse also.However, mainstream economists  often hold the view that 'outsourcing ' adds to the bottomline profits of many major companies, and their saving and investment rates increase , and ultimately, even contribute to more employment growth in the developed countries like USA.But, in the short run ,definitely ,it creates some job loss in the USA.

Countervailing duties on Chinese paper by the USA: Some micro and macroeconomic issues.

April 16, 2007

Analysis of:In Big Shift, U.S. Imposes Tariffs on Chinese Paper | www.nytimes.com

The USA has initiated to start a process to impose countervailing duties on the import of the Chinese Paper. Notwithstanding the fact that ultimately whether the USA will actually impose the countervailing duties at the end of lengthy legal processes on the Chinese paper or not, as discussed by Mr. Stephen in an earlier analysis, this raises very interesting macro and microeconomic issues. At the microeconomic level, the dumping duties are imposed when the import price is less than the Chinese domestic price, and the countervailing duties are imposed when the Chinese gives subsidies to that industry, prohibited under the WTO. This leads to a discussion on the competitive market structure and how far discriminatory prices and subsidies are justifiable. At the macro level, the question, how the Chinese trade surplus and US trade deficit are tackled for revoking the world economic imbalances, needs our attention. A big protectionist response from the US will not be in the interest of the smooth world trade and progress. The low US saving growth and the high Chinese saving rate, and the exchange rate policies of the two countries have to be analyzed in perspective. Is the Chinese currency undervalued? Is the Chinese savings excessive and US savings very low? Is Chinese growth based on mainly huge investment and not sufficient consumption? If Chinese currency is revalued, will it reduce USA's trade deficit, or only to the deflation and recession in China?

The World economic imbalances , and the currency and interest rate movements

April 13, 2007

Analysis of:Euro Remains Strong Against Dollar | www.forbes.com

The US economic data and the Fed's interest rate policy are being watched with interest all over the world.The US economy is having the largest current account deficit, in the world. So far the capital flows to the US economy, have been able to finance the current account deficit and to support a relatively lower inflation. Some of the recent signs of the weakness of the US economy, namely the slowing down of the housing sector, have begun to worry international investors . Traditionally, the US Federal Reserve System, has been mandated to keep both a low inflation and low unemployment rate. On the other hand ,the European Central Bank (ECB) has been mandated to keep always a low inflation only. As a result of that, the ECB often does not hesitate to increase interest rates, where as the Federal Reserve System is very hesitant to raise rates especially recently. But the consensus view among mainstream policy makers and academia is that a hard landing decline of the US dollar is not in the interest of the the whole world, as it can lead to both inflation and higher interest rates and recession in the USA and in most other countries which depend on USA for trade in goods and services. The US tells other countries mostly China and Japan that their currencies are far undervalued, and therefore to remove the global imbalances, their currencies should revalue much. The other countries tell US that US saving rates are very low compared to the investment in USA and therefore to increase the US saving rates.     

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