Paul Krugman - Nobel Economics 2008

This just in..

Paul Krugman of Princeton University wins the Nobel Prize in Economics for the year 2008 "for his analysis of trade patterns and location of economic activity".

Congratulation Paul, as much as you and I differ on politics (you hating Obama), we still agree on one thing...free trade, free trade for the dumb! :-). I am a regular reader of your NY Times columns. I have also read some of your books. I admire the way you write without jargon so non-intellectual people like me can understand the complex world of economics. You are easily the most popular economist ever to win a Nobel!

Blame it on the PC :)

"The whole thing, starting with the subprime, is the fault of the computer. I was just talking to a banker the other day, and not that long ago, 20 years ago, an investment banking house, let’s say, Lehman Brothers, when it got a package of mortgages, they would go through every mortgage, every single one, and they’d throw out the ones that just seemed absurd, they just wouldn’t accept them. Things used to arrive on paper. Today things arrive on a screen, and a screen is back lit, and one of the biggest pains in the neck is trying to read something dully written and complicated on a computer screen. It will drive you nuts—I mean, try it sometime. Now they say, ‘Oh, to hell with it,’ and they just accept the whole package. And if it hadn’t been for that, they’d be going over each loan. What’s happened is the backward march of technology."

-- Tom Wolfe

Android, Paranoid!

Google's Android, based on HTC's Dream, is gonna be out on Oct 22. I first heard about Google getting into telephony a couple of years back. Apparently Goog has already sent out a few hundred phones out in Silicon Valley for real-world testing. Here are some useful links on the phone, if you are curious!

- code.google.com/android/
- www.youtube.com/watch?v=1FJHYqE0RDg
- en.wikipedia.org/wiki/Google_Android

Android appears to be bulkier than iPhone and surely not as slick. Glu Mobile chief Greg Ballard said last June that Google's system would help developers to take advantage of data, especiallycontact lists and Global Positioning System information stored on the phone. The phone will hit select markets on Oct 22, so we have to wait and see what tech's most promising company has for us. But analysts are cooling off a bit since most think that Android is not too radically different from existing phones. But surely, this has to be the most eagerly watched launch since the iPhone. Android signed with T-Mobile (iPhone with AT&T), and T-Mobile does not have as extensive networks as AT&T does. Also, personally I am curious about the O/S in Android since HTC uses Windows Mobile and just imaging a Google product using Microsoft technology seems weird to me. Besides, I personally hate Windows Mobile since I believe what works on desktop will not necessarily work well in hand. WM has progressed well since inception and has some nice syncing features with PC's but there is a long way to go. Will this Android makes the Apples and Nokias paranoid? Gotta see, its exciting...I love anything Google so this is an exciting time for me although I gotta admit that Android is surely not bringing sexy back, at least in looks. Who knows, maybe Android will run killer applications!

Vultures of Wall St.

Greed isnt good, look it just killed Wall St.

Wall Street, as we know it, is dying. The masters of the universe are turning into mendicants. I think there is a semblance of sanity dawning over this iconic street. Starting with the demise of Bear Stearns, now Lehman, most certain death of Merrill (owned by BOA now), things have turned so ugly that the last of the Mohicans Goldman and Morgan are being converted to corporate banks. Thats the final nail in the coffin for the sexy world of investment banking. For some reason, I-banking had a glamor unparalleled by any other profession. Big ticket deals, high profits and cuts of successful trading, sex appeal of M&A, etc etc have all built an aura on Wall St. As one of my best friend has pointed out recently, this episode has shined light on the WASP model of capitalism. Profits are private, losses are public, how disgusting.

These ivory tower, ivy-league educated bankers come up with the most esoteric and exotic derivative transactions, make big cuts from them when the going is good and keep spreading the greed. They are the role models for younger generations in undergrads. The stylish I-bankers tying their laces on the way to work, with a starbucks in hand and ready to bite the ass of the bear. Whey they face the comeuppance for their rotten transactions (which most of the exotic deals such as Mortgage Backed Securities, IOs, POs, complex derivatives, securitized assets are anyway), they beg Govertment to bail them out. Actually, if Govt. doesnt bail them out, its us the common investors who get screwed since there will be a systemic collapse. Bottomline, greed makes people blind to reason. Gordon Gecko is wrong, greed isnt good!

There is no value creation from these exotic transactions. Nothing positive happens to the society. Warren Buffet has always insisted on the perils of these derivatives. Its high time we realize them. In school they taught me that derivatives are used for hedging, well yeah and I am Batman. They are almost always used for speculating and the underlying is stock or bond or bullion or commodity and hence everything is tied together in a complex mess. The undoing of one is the undoing of the other. No synergies created here, only a zero sum game!

I am happy the shine is lost from the sex appeal of I-banking. The Goldmans and Morgans of the worlds will now be like the State Bank of India or Bank of America or Bank of Nigeria etc. Goldman and Morgan will now take deposits and you can have checking accounts in them. They will now report to Fed Reserve and not SEC. They will just become banks, only a little bit more sophisticated in look and feel from ordinary banks. Which Ivy leage B school grad would want to work for, say Syndicate Bank?

Check this. The US Govt. is going to spend a staggering $700 billion to salvage this home loan mess. This monster that Wall St. created is going to cost the Americans a lot of money. Some facts now. The deficit for this budget year, which ends on Sept. 30 2008, is expected to rise to $407 billion, a figure that is more than double the $161.5 billion imbalance for 2007. The Bush administration is estimating that the deficit for this budget year will hit $482 billion, a record.

And that forecast doesn't include the $200 billion the administration committed to spending two weeks ago when it took over the nation's two biggest mortgage companies, Fannie Mae and Freddie Mac, the $80 or so billon the US Govt. put into AIG, and the $700 billion the administration is now seeking to soak up the bad mortgage-backed securities. The legislation Congress passed this summer that gave the authority to rescue Fannie and Freddie boosted the limit on the national debt by $800 billion to a mind-numbing $10.6 trillion and the new package the Govt. is working on will further the debt limit to $11.3 trillion. Now think about the Iraq war (cost upwards of $2 trillion according to various estimates) and imagine the mess the US Govt. is in. All that glitters isnt gold. It takes a lot of hard work now to fix the American financial system and its important, very important that someone fixes it sometime soon because the world needs a healthy US. Its time to look at the problem square in the eye. I sincerely doubt war-mongering McCain is the man for the job and I have no doubt that Obama has the right intentions if not the vast experience. But sometimes, all it needs to fix a mess like this is chutzpah and not experience.

Remember the post-Milken S&L crises? The US Govt. stepped in then too, to undo the wrong doings of Wall St. That tab was around $700 billion again and it was a mess. But this housing bad loans seems a bigger mess and might take longer to resolve. Maybe, the title of Sin City should move from Las Vegas to Wall St., perhaps Sin Street! The smart bankers who wrote this mess and orchestrated this economic crime should have some shame when they look at the mortgage valuation mess they made. Someone somewhere said this and I quote "If these guys were so smart, why couldn't they value a mortgage properly and insist on proper documentation and collateral?".

Beat, Scarred But Not Out

This is the second economic turmoil I am seeing in my professional life already. First was the .com crash which I was privvy to from close quarters since I was born in that boulevard of broken dreams. I enjoyed the exuberence with limit-less expense accounts and daily festivities, which all got to an abrupt end when people started realizing that it makes no sense to fund Pets.com! But when the party lasted, it felt like there would be no tomorrow. I miss those days! That crisis came from funds which invested in everything from online petfood to online astronomy websites. This second crisis is again started by banks which invested in shady real estate transactions and the subsequent fall of their prices. Credit rating companies, where are thou? How many times have we seen these ratings companies fall flat? Why did they not proactively whistle-blow before all this crap started anyway? Its because those ratings companies work like white elephants in ivory towers.

I grew up wanting to get into banking and dreamt of working for the Goldmans and Lehmans of this world. I ended up doing something totally different and I dont have an iota of interest in banking now but it feels strangely sad to watch the demise of banks that survived railroad bond collapses and great depressions. Pundits say Morgan could be next, AIG could not survive without taxpayers money and Wamu is in death rattle. ML is no more independent and is taken over by a corporate bank. These really are strange times indeed.

My stock investments tanked in India and DJ wiped out close to $1 trillion of wealth in a few days. As Dollar gets stronger to Rupee these days and Oil hitting below $100, we are facing some weird situations in India to what we faced few months back, rising crude and falling dollar. The vicissitudes of life. The smartass analysts give the same reasons for these strange about-turns as they gave for the vice versas. As I read these opinions and analysts reports, I get the same feeling that kept me away from making a career in banking. Analysts know nothing and star analysts are even worse. If their reports come when the market timing is right, they are stars or they fall from grace. When times change and they do in days in these markets, all analysts are wrong so why pay for any analysis anyway? And when banks have trading divisions and corp. advisory (M&A, etc), the Chinese walls usually disappear as Elliot Spitzer knew before his fall from grace. I have stock reports from star analysts that cry BUY BUY and those stock turned out to be damp squibs soon. It baffles me that people actually pay for bunkum. DCF does not hold here brothers! Those approximations sound kewl in class rooms but in real life, seldom do they come true!

But like the wiseguys say, what dont kill us makes us more strong (wrong English but sounds right), I am sure I will be up again as will the US economy and I pray for it. I dont know about you but I strongly believe that since we are so integrated globally, when America does well, we will do well and vice versa. Besides, I just want the US to do well for many other reasons. I hope America gets back on its feet stronger than ever and shows its resilience to the doubting thomasses who are predicting doom. We are down, we rise, we are down and we rise again....

What better! Obama is leading in the polls again..I would be sad to watch a hockey mom with lip stick stand in the way to his astounding run.

A Soil of Bones...

The poor are fast forgotten,

They outnumber the living, but where are all their bones?

For every man alive there are a million dead.

Has their dust gone into earth that it is never seen?

There should be no air to breathe, with it so thick. No space for wind to blow, nor rain to fall;

Earth should be a cloud of dust, a soil of bones. With no room even, for our skeletons.

- Sacheverell Sitwell, 'Agamemnon's Tomb'