1. Sandip G has an excellent essay on Thangarasu Natarajan, the Yorker-king of the Sunrisers Hyderabad (SRH) Indina Premier League (IPL) team. It weaves together so many dimensions - how IPL is starting to impact even remote and rural India, the value of aspirational models, the dire lack of opportunities and facilities for the vast majority of youth, the social dynamics and cultural norms in villages, the influence of Rajanikanth, and so on. Nothing more exceptional than the willingness to give back, gratitude, and large heartedness - be it his friends, his village, his coach. People talk of philanthropy in the content of billionaires. That may be nothing before this type of giving back.
2. There are two things that certain policy makers in the financial markets don't realise - financial markets are only a means to a larger objective, and there is a context in which financial market regulation has to operate. When you come from a world steeped in models, these blindspots become even more acute. It's understandable that academic economists, especially those helicoptered in from outside, struggle with these two aspects of policy making.
This interview of Viral Acharya is littered with snippets that amply demonstrates the point. For a start, the answer to realising financial stability and fiscal stability is not to "severely limit most of government of India's spending". The lack of perspective in the interview is mind-boggling and a great exhibit about what Paul Tucker highlights when he warns about the arrogance and ignorance of the experts in places like central banks.
3. Talking of fiscal dominance, the irony of Carmen Reinhart cannot be missed,
Carmen Reinhart, the eminent economic historian who is now chief economist at the World Bank, recommended countries should borrow heavily during the pandemic. “While the disease is raging, what else are you going to do?” she asks. “First you worry about fighting the war, then you figure out how to pay for it.” Ms Reinhart was a leading advocate of austerity a decade ago after publishing a research paper which concluded that at a similar stage in the 2008-09 financial crisis — to where we are now — high levels of public debt undermined economic performance. It concluded that, “traditional debt management issues should be at the forefront of public policy concerns”.
Or sample this,
In recent weeks, Jay Powell, the Federal Reserve chairman, said “the recovery will go faster if we have both tools [fiscal and monetary] working together”, while Andrew Bailey, Bank of England governor, called for “a very close and sensible co-ordination” of the two economic policies. Long gone is the notion, supported by former UK chancellor George Osborne, that it was imperative to have a credible plan to reduce deficits in the public finances because that would give households the confidence to spend rather than save.
IMF is formally telling all countries with access to financial markets to raise debt and spend without the prospect of austerity later. In fact, Kristalina Georgieva of IMF has exhorted governments "to be able to dare"! But, in case of developing countries, also because they lack "access to financial markets", the same IMF prescriptions verge more towards austerity.
4. Disturbing new form of journalism - websites that publish only paid news items. NYT has this story about 1300 such websites in the US which effectively serve as propaganda outlets for various interests.
5. An economically flourishing Bangladesh is in India's strategic interest on multiple grounds - adding a new dimension to the sub-continental politics by increasing its importance and thereby also diminishing Pakistan's salience; opening up opportunities for greater mutual economic co-operation that would benefit India more than now; being a bridge for economic integration with S E Asia and thereby development of India's own north east etc. C Rajamohan has an important column in this regard.
6. Alongside Milton Friedman's monetarism and shareholder value maximisation, and Eugene Fama's efficient markets, another Nobel contribution which deserves revise is the Modigliani-Miller hypothesis which articulated that it was irrelevant whether companies funded themselves with debt or equity. It has been an important ideological contributor to the age of leverage that has brought the world economy to a precipice with high levels of corporate debt and phenomena like zombie companies. Robin Wigglesworth has a good column in this regard.
If the mix of funding is in practice irrelevant to the overall cost, why not leverage up and increase returns to shareholders that own the business, and, indirectly but no less importantly, corporate executives? Indeed, given that debt enjoys tax breaks in most countries, isn’t it almost irresponsible not to take advantage? When interest rates began to fall globally in the 1980s, many companies did just that. That executive compensation is largely tied to earnings per share was an additional incentive for companies to leverage up. Later on, other economists would give the corporate borrowing binge more academic legitimacy by arguing that debt was a potent tool to ensure corporate discipline and therefore increase economic dynamism. This gave rise to the idea of “efficient” balance sheets layered with debt, and immortalised by a memorable phrase written by two corporate finance specialists in 1988: “Equity is soft, debt hard. Equity is forgiving, debt insistent. Equity is a pillow, debt a sword.” The result can be seen in the evolving distribution of corporate credit ratings. Four decades ago, Standard & Poor’s had given 65 companies around the world a spotless triple A rating, equal to almost 6 per cent of its total ratings. Another 679 companies enjoyed ratings in the A range. Today there are only five — five! — companies with triple A ratings, out of nearly 5,000 companies. And under 14 per cent of all rated companies are in the A range.
7. In the context of the Supreme Court of India's observations suggesting waiver of interest and delaying recognition of non performing assets in light of Covid 19, Manish Sabharwal has a very good oped making the case against doing so. The Court's suggestion to the government that common man's Diwali was in government's hand was the equivalent of judicial dog whistles.
8. Following the now well-established precedent of too big to be convicted, the US Justice Department and Goldman Sachs have found a way to reach a settlement that would bring a closure to the 1MDB scandal. A Goldman subsidiary in Asia will plead guilty of wrongdoing and pay $2.8 bn, thereby allowing the parent company to escape felony charges that would have hurt its business prospects. With this Goldman has settled the matter in Malaysia and US for $5 bn.
The settlement allows Goldman to escape without any formal record of felony nor having to take action against any of its serving executives, including the current CEO, who have all had documented parts to play in allowing the scandal to unfold. Two Asia-based executives who have already left Goldman are the only ones to have been penalised. As the WSJ article writes,
Critics have said that the fees Goldman earned from 1MDB, which were far higher than is typical for the kind of work it did, should have been a warning sign that something wasn’t right.
The settlement also has a feature, deferred prosecution arrangement, that may have some relevance in addressing such corrupt practices,
A Goldman subsidiary tied to the misconduct in Asia is expected to plead guilty but the parent company won’t face prosecution, the people said, avoiding a felony mark that could have crippled its ability to do business. The arrangement, known as a deferred prosecution agreement, would allow officials to pursue charges later if Goldman errs again. The bank will also escape without a government-appointed monitor to oversee its compliance department, which... had earlier been a priority for prosecutors.
9. From Ananth, this NAR article about the pandemic induced debt rescheduling initiative for low income countries. The G-20 countries agreed to a 6 month debt repayment freeze for 73 poor countries due to the pandemic. Interestingly, China has refused to include its bilateral loans in this arrangement.
Some of these countries, like Zambia and Mozambique, face debt equivalent to over 100% of their gross domestic product. The World Bank considers 33 of the 73 countries to either be in external debt distress, or at a high risk for it. The 73 countries together owe $744 billion to the World Bank and other foreign actors. Official government loans from a G-20 member accounts for $178 billion, 63% of which comes from China. Certain countries like the Republic of the Congo and Djibouti owe 50% to 60% of its total external debt to China... Chinese financing also carries an interest rate of over 3%, compared with the roughly 1% for World Bank and IMF loans... According to a team, which includes World Bank chief economist Carmen Reinhart, China has lent $385 billion to developing countries, including $200 billion in hidden debt.
10. More wolf warrior diplomacy, this time from the Chinese Ambassador in Canada, Cons Peiwu, who has threatened the safety of Canadian citizens and businesses in China and Hong Kong if Canada persists with giving asylum to Hong Kong refugees.
11. As Andy Mukherjee writes, ITC can emerge as a third strong e-commerce competitor to Reliance and Tata if the group restructures and hives off its tobacco operations.
12. Nice oped by Janmajeya Sinha on the achievement of TCS, which is currently the world's most value company in the market segment of IT services, ahead of Accenture and IBM.
In 2000, TCS was not a listed company. It was not even the segment leader in India. By 2010, its market cap had grown to a creditable $25 billion and it had become the segment leader in India. In the next 10 years, it has managed to enter the $100 billion club, and today, it has become a global segment leader. India, therefore, is the only Asian country that can currently boast of a global segment leader.
13. The headlines tell us that Tesla delivered its fifth successive quarter of profits, thereby adding more fuel to the raging fire that its stock price is. The stock price gained 2.5% in the after-hours trading. But even a cursory look tells another story. Its net profit was $331 million, of which $397 million came from sale of regulatory credits (where Tesla sells zero-emission credits from various governments to other carmakers).
In other words, operationally Tesla lost $66 million! Furthermore, while profits may have risen 131%, its revenues from regulatory credit, the driver of profitability, fell from $428 million to $397 million. It may also be useful to look at the share of profits from other non-core activities. It is inevitable that these drivers become marginal as car production expands.
14. This does not look like the popularity graphs of a country aspiring to be a global influencer.
15. Fascinating graphic of India's population density.
The gangetic plains stand out.
16. One more signature of how badly the Indian economy has done during the pandemic - highest increase in public debt.
17. The steep rise in NPAs at SBI Cards highlights the possibility of more problems in the Indian financial sector. TN Ninan asks whether it is a canary in the coal mine for the personal credit segment, one which had been among the only growing part of the loan portfolio of public sector banks.
18. Finally, Economist has a briefing on the problems faced by social media in content moderation. The near black-out by the main social media platforms of the New York Post articles on the Hunter Biden tapes
Facebook disables some 17m fake accounts every single day, more than twice the number three years ago. YouTube, a video platform owned by Google with about 2bn monthly users, removed 11.4m videos in the past quarter, along with 2.1bn user comments, up from just 166m comments in the second quarter of 2018. Twitter, with a smaller base of about 350m users, removed 2.9m tweets in the second half of last year, more than double the amount a year earlier. TikTok, a Chinese short-video upstart, removed 105m clips in the first half of this year, twice as many as in the previous six months (a jump partly explained by the firm’s growth).
While all but a tiny share of the content is being screened out using AI software, the explosion of content has only meant that the magnitude of inclusion and exclusion errors on such content has become very high. What should have been shown are getting clipped by the algorithms and certain things which ought to have been blocked get past the algorithms. The media platforms say they employ human content moderators, but even at large numbers, they remain very small compared to the requirement. And such moderation comes with its own problems.
Facebook now employs about 35,000 people to moderate content. In May the company agreed to pay $52m to 11,250 moderators who developed post-traumatic stress disorder from looking at the worst of the internet... The pressure from the media is to “remove more, remove more, remove more”, says one senior tech executive. But in some quarters unease is growing that the firms are removing too much... Elsewhere, liberals worry that whistle-blowing content is being wrongly taken down... Last year Google received 30,000 requests from governments to remove pieces of content, up from a couple of thousand requests ten years ago (see chart 3). And Facebook took down 33,600 pieces of content in response to legal requests... Some governments are leaning on social networks to remove content that may be legal... “Authoritarian governments are taking cues from the loose regulatory talk among democracies,” writes David Kaye, a former un special rapporteur on free expression.
The most disturbing part of the issue, one on which all parties agree, is that of leaving such content moderation to the whims and fancies of privately owned media platforms.
It may be instructive to study the evolution of print media in its early stages, in particular the evolution of regulation of libellous and incendiary content. Digital social media may well be going in that direction.
2 comments:
Item no. (18) needs to be called out for the craven hypocrisy. This was not a decision made by algorithms. The continued banning NY Post twitter account is proof of it. 'The Economist' spins it. But, that said, one must be thankful to Twitter and FB for what they have done. No amount of persuasion would have achieved what their own behaviour achieved - to highlight to the American public and the rest of the world, the stakes involved in the election and beyond, in the evolution of the American society.
If societies and commentators cannot recognise '1984' even if it staring them in their faces and even when the perpetrators make no effort to hide their designs and methods, then these commentators and societies will realise it only when it is way too late.
Apropos item no. (4), it is quite hilarious, actually.
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