Weekend reading links

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.

While it's tempting to attribute this U-turn to differences in economic conditions (this time is different!), a more accurate response would be that Reinhart is now in the position of having to deal with a problem herself rather than be the academic sitting in the ivory tower. 

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. 

Weekend reading links

1. MS Sriram has a very disturbing picture of India's banking sector. He argues that policy makers should allow banks to focus on clearing the NPAs and getting more loans out, rather than hobbling them with reforms.

Andy Mukherjee points to the stress facing Indian banks. It's acute.

The sheer scale of numbers here is staggering and means that something has to give. And it may have to go much beyond even recapitalisations.

More importantly, given the state of affairs, banks will be loath to open up their credit taps, and that means growth will remain constrained.

2. NYT has an investigation of Global Anti-Trust Institute (GAI), part of the Antonin Scalia Law School at George Mason University. The Institute is bankrolled by the likes of Amazon, Google and Qualcomm and organises conferences and workshops for regulators from across the world and within the US, where they advocate that the best way to foster competition is to maintain a hands-off approach to anti-trust law. Besides, the institute's leaders have longstanding tech company ties to help them fend off anti-trust action.

The article chronicles how the Institute has worked to establish the hegemony of a particular approach to anti-trust across the world. It also describes how the GAI has infiltrated and captured the judges at the Brazilian anti-trust regulator, the Administrative Council for Economic Defense (CADE) by hosting its judges in swanky conferences with all expenses paid business class trips.

As the India pursues similar actions against tech companies, it is important to safeguard against such attempts to capture important regulators. The systematic nature of capture of CADE is disturbing. 

3. Goldman Sachs and the Malaysian government agreed on a settlement on the 1MDB scandal, with the former paying $3.9 bn. Malaysian prosecutors had charged several Goldman units for their role in helping raise billions of dollars for the sovereign wealth fund, which was later found to have been used as a personal piggy bank, involving the then Prime Minister, Najib Razak. The settlement closes all the criminal charges against Goldman and its executives.

Goldman executives are accused of conspiring to circumvent its internal controls to bribe Malaysian officials and secure the lucrative bond work. But the settlement absolves Goldman executives, including its current Chief Executive, of culpability in Malaysia of activities which include criminal conduct. However, it still faces action brought by investigators and regulators in the US, though that too is likely to end up in the form of a similar settlement with large fines.

The settlement decision has naturally raised hackles,

Goldman will fork out $2.5bn, instead of the $7.5bn the finance minster had originally demanded, and the Malaysian government agreed to drop criminal charges against the bank and cease legal proceedings against 17 current and former Goldman directors... In the aftermath of the 2008 financial crisis, Goldman was pilloried for its sales of mortgage-backed securities and derivatives. But, unlike virtually all of its competitors, neither Goldman’s bank holding company nor its subsidiaries ever pleaded guilty to criminal charges. It is now trying to emerge from the 1MDB scandal with that record intact. With Malaysia out of the way, the last big hurdle is the US Department of Justice... “If the DoJ does less, it will once again show that Wall Street’s biggest, wealthiest, most politically connected banks are still too big to jail, no matter how many crimes they commit, how many laws they break, how many victims there are or how much damage they inflict,” said Dennis Kelleher, president of Better Markets.

4. Interesting research paper which shows that industries with less business concentration is more innovative,

Using New Product Announcements as a measure of innovation, we find that industries dominated by small firms prove consistently and significantly more innovative than industries where large firms dominate. Taking account of industries’ structural and dynamic levels of competition, we find that high existing and increasing levels of new firms entering an industry, exercising what Schumpeter called the ‘entrepreneurial function’, actually decrease industry innovativeness. We conclude that the contribution of small firms in terms of industry innovativeness is different from that of large as well as new firms.

5. Auto manufacturers in India have been lobbying the government to allow import of components from China.

Last year, auto components worth around $17 billion were imported into In­dia, of which 26 per cent, or $4.5-billion-worth parts, ca­me from China. The balance came from South Korea (13 per cent), Germany (12), Japan (9), USA (4), Thailand (6), Singapore (5) and Italy (3), according to data from the Auto Component Ma­nufacturers’ Association of India (ACMA). The Indian auto components sector is worth about $57 billion. The industry estimates nearly 2 per cent of the components in a passenger car are from China and without those parts — from engine, transmission, suspension, braking, cooling and steering systems to electronic and electrical items — cars will not be rolled out from the manufacturing lines as the automotive value chain is a highly complex, integrated and interdependent one.

Clearly the industry is dependent on China. But also, to put this in perspective, the dependence by value is $4.2 bn in the (formal) $118 bn automobile industry, or 3.6%. It would be much lower when the entire industry is taken into account. Besides, a significant proportion of this would continue to get sourced from China, through various kinds of intermediation, even with a ban from the Indian government. The actual impact felt finally will be limited. Given the numbers above, the actual price increases has to be marginal and the consumers will have to bear with that.

If it is a collective/universal problem of the industry, then it should pass through the higher prices. The government should support it with equivalent tariffs to protect against import competition. The industry should go on the over-drive to diversify away their reliance on China, including encouraging local manufacturing. Needless to say, the government's role in this is important.

If it is a problem faced by a handful of the companies, with their excessive dependence on China, then I guess they are paying the price for poor risk management. The government could provide them some preferential treatment for a period of time to diversify away their dependence.

Without in any way underplaying the importance of sourcing of critical components in the manufacturing, given the nature of the situation here and stakes involved, I am inclined to think that this is an issue which, when all is said and done, the industry can and should manage. Or am I missing something entirely?

6. Nothing unusual about Maharashtra reporting an 18.2% increase in 10th class pass percentage to a record 95.3%. And that too in times of Covid 19. It begs the question about why have such examinations? Given universal pass percentages above 90%, matriculation examinations across Indian states must be the costliest way to screen out 5-10% of students!

7. Jamie Metzl (HT: Ananth) who served in the Clinton administration writes about the lack of serious attempts to hold China accountable for the outbreak of the pandemic. He argues that it is more likely that the virus escaped the high safety Wuhan Institute of Virology, where it was being researched.

8. Business Standard discusses the floundering PMFBY crop insurance program.

9. Vijay Gokhale has a very good profile of Xi Jinping,

It is worth recalling that he was chosen as general secretary in November 2012, because the party feared that Bo Xilai, another Red Child of the Revolution, displayed dangerous traits of megalomania and Maoism. Xi had given no hint of such traits. Bo Xilai was handsome, flamboyant and media-friendly; Xi was modest in both dress and demeanour and, in a word, underwhelming. Such comparison is important to comprehend how he rose without being viewed as a “threat”. Those who encountered him before 2012 tended to judge him only by his appearance or outward demeanour. Perhaps for this reason, people misjudge him still.

10. Anirudh Burman cautions that the draft proposal by the Government of India's Committee on Non-personal Data Governance Framework runs the risk of India creating a license-permit raj in data economy,

The draft report proposes an expansive regulatory regime that would mandate data-sharing by anyone collecting data above a certain threshold, and require registration with another new data regulatory body for anyone collecting or deriving benefits from non-personal data. Also, it proposes state “beneficial ownership” of certain categories of non-personal data. For this, the report makes a specious argument — that useful data created by a business should no longer be considered property owned by it: “The term ‘ownership’ holds full meaning only in terms of physical assets.” It says that the government should be the beneficial owner of what it calls “community non-personal data”, which is still data collected and generated by the private sector. Not only does this upend India’s existing regime for intellectual property, it also goes contrary to global property rights protections India has signed up to.

11. Late on the €750 bn EU pandemic stimulus, with €390 bn in grants and €360 bn in concessional loans. As Emmanuel Macron described, at a time when political consensus on anything is proving difficult anywhere, for 27 countries to agree on some thing which involved decisive breaks from the past is impressive. NYT writes,

The deal was notable for its firsts: European countries will raise large sums by selling bonds collectively, rather than individually; and much of that money will be handed out to member nations hit hardest by the pandemic as grants that do not have to be repaid, and not as loans that would swell their national debts.

And this from Bloomberg,

The recovery package would be financed by joint EU debt issuance, marking a major step toward further economic integration in the bloc. The money will need to be repaid by the end of 2058 and will come out of the EU’s budget, meaning countries that contribute more, like Germany, will be shouldering more of the financial burden. In order to defray the cost of the program, the bloc will increase the amount of revenue it can collect. A new tax on non-recycled plastic waste will be introduced next year, and the European Commission is preparing proposals on a digital tax and a carbon border adjustment mechanism that would take effect in 2023.

The deal involved overcoming stiff resistance from the Frugal Four (Austria, Netherlands, Sweden and Denmark) and within Germany itself. The deal is another feather in the cap of Angela Merkel, as Germany held the rotating Presidency of the EU and worked with Mr Macron to pull this through.

Weekend reading links

1. Interest rates may be inching upwards, but the rate at which it is happening appears not to be having much impact on leveraging. Ananth points to this FT Alphaville article on the unabated rise in the share of Covenant-lite loans, or loans with weak lending protections, among loans given to riskier borrowers (leverage loans).

The robust economic growth in the US makes everyone lower their guard and borrow more and lend less prudently.  

2. Oil prices are declining again reflecting good and bad signs for the Indian economy. Good in terms of likely lowering the twin deficits and bad in terms of its portends for weaknesses in the global economy. 

One of the features of the oil market in recent times has been the rise and rise of US oil production. Sometime between May and June this year, US became the largest crude producer at 11.65 m barrels per day, the first time since 1973.

3. The cost of US sanctions on China, at least for now, appears to being borne by the Chinese exporters than US consumers. Bloomberg points to a new paper by Benedikt Zoller-Rydzek and Gabriel Felbermayr appears to point out that US companies and consumers will only pay 4.5 percent more due to the 25% tariffs on $250 bn Chinese imports and the other 20.5% will fall on Chinese exporters.  

The reason being the smart choice of goods for the first round of tariffs, those with the highest "price elasticity" or availability of substitutes which can replace the Chinese imports. This in turn prevents importers from passing through the tariffs to consumers in the US. They find that total welfare gain to US consumers to be $18.4 bn. Further, they show that this would cut US imports of affected Chinese goods by more than a third and lower the bilateral deficient by 17%.

The challenge will be when the basket of goods expands to those with lower elasticity. But for now, give Trump some credit!

4. The issues raised by Carlos Ghosn arrest in Japan on charges of fraud from an internal enquiry for having deceived Nissan by consistently under-reporting on his pay package and benefits claims and using company assets for personal purposes is symptomatic of executive culture in the corporate world. It is only a surprise that more such demeanours do not come out to the open. Perhaps the reason this came out in the open is because it happened in Japan, which, unlike in the US, has less cultural tolerance for such corporate excesses.  

The Nissan-Renault alliance, which was expanded in 2016 to include Mitsubishi, produces 10.6 million cars annually, making it the world's largest car maker. 

Rest assured that in the coming days, more stories will come out about the details of the power-struggle between the French and Japanese parts of the Nissan-Renault empire. Nissan's Japanese employees had long resented the dominance of Renault's French owners. For long, Ghosn's dominating presence had papered over differences. This FT article may only be the preview to what could come out in the open.

All this again raises questions about the alleged superiority of the "efficient" US business management style and culture over the "inefficient" Oriental one. The argument in favour of this comes from the market performance of US firms compared to their Japanese counterparts, especially the stock market performance and bottomline growth. The idea of cutting costs aggressively (Ghosn built his larger-than-life image on being the "Le cost killer") and promoting performance payments with eye only on the financial reporting bottomline imposes significant long-term costs besides corroding corporate culture. Ghosn compensation was a massive outlier in Japan - Takeshi Uchiyamada, chairman of Toyota, for example, was paid ¥181 million in 2017, compared to Mr. Ghosn’s reported ¥735 million.

But, as we all know now, these things come at considerable costs. Not just on the corporate governance and ethics, but even on business practices (sample Nissan's grow-at-all-cost discounting strategy in the US market which alienated stakeholders like its dealers) the claims of superiority appears questionable. On the net, and taking a long-term view, one cannot but not get the impression that the adoption of western management and business practices may have come at a net cost to Japanese companies.

5. Staying on the theme of corporate governance, there are growing signs that the 1MDB-Goldman Sachs scandal involved the topmost leadership of Goldman. It now emerges that Jha Low, a financier with close ties to the then Malaysian PM, Najib Razaq, and the alleged mastermind in the plot to siphon over $6 bn of Malaysian public funds, met one-on-one with Goldman Chairman and CEO, Lloyd Blankfein in December 2012. This seriously weakens Goldman's efforts to spin the scandal as the work of a few rogue employees.

Sample this,

In the three years before the 2012 meeting, the bank’s compliance staff had repeatedly rejected Mr. Low’s attempts to become a Goldman client because it was unclear how he had amassed his wealth... The compliance team also identified Mr. Low as someone Goldman should avoid working with on any 1MDB transactions...  But when Mr. Blankfein’s aides sought information about Mr. Low in preparation for the meeting, a senior investment banker in Asia praised Mr. Low and did not mention the compliance concerns, according to a person who has reviewed internal Goldman emails about the meeting. Nor did the compliance red flags stop the bank from doing extensive business with 1MDB, which Malaysia’s prime minister at the time had set up in 2009 ostensibly to invest in infrastructure and other projects to improve Malaysians’ daily lives. Goldman ultimately helped 1MDB sell more than $6 billion in bonds to investors, earning about $600 million in fees.

It is hard to believe that a deal like this, an that too one which was bagged without any competitive bidding and on nomination, and especially one which earned the firm $600 million in fees, did not involve not just the knowledge but the active support of the top leadership. Btw, if this were government, it would be impossible to not have loud public demands for resignations and the like.

6. Finally Paul Romer makes good suggestions about the role of governments in the promotion of innovation,

First, government needs to take a more active role in creating scientific infrastructure... Congress can help without any additional spending by letting recipients of research grants use those funds to support open-source projects, which make their blueprints publicly available... Take Python, the open-source programming language that has become the language of choice for software developers in the fields of artificial intelligence and data science. Programmers have used Python to power innovation in everything from the detection of gravity waves (resulting in last year’s Nobel Prize in Physics) to reducing the cost of developing new drugs... Second, Congress should look for opportunities to extend scientific transparency to the private sector. It could draw on the principles that guided the design of our patent system; the law protects a private right to charge for the use of a discovery, but mandates public disclosure of its details so others can learn from it. To see how this could work, consider hydraulic fracturing, or fracking, for oil and gas. Regulators in North Dakota forced firms to disclose how much water and sand they used to frack each well and how much oil it produced. This let a different firm drilling a well nearby select a better mixture for its well. Over time, the entire industry optimized the mix used in various geological conditions and substantially reduced costs.

Weekend reading links

1. On the traffic related negative externalities associated with ride hailing services,

Far from reducing congestion by encouraging people to give up their cars, as many had hoped, ride-hailing seems to increase it. Bruce Schaller, a transport consultant, estimates that over half of all Uber and Lyft trips in big American cities would otherwise have been made on foot or by bike, bus, subway or train. He reckons that ride-hailing services add 2.8 vehicle miles of driving in those cities for every mile they subtract. A new working paper by John Barrios of the University of Chicago and Yael Hochberg and Hanyi Yi of Rice University spells out one deadly consequence of this increase in traffic. Using data from the federal transport department, they find that the introduction of ride-sharing to a city is associated with an increase in vehicle-miles travelled, petrol consumption and car registrations—and a 3.5% jump in fatal car accidents. At a national level, this translates into 987 extra deaths a year.

As I have blogged earlier, this really should not have been a matter of debate. Ride-hailing services clearly induce more passenger vehicles into the roads. And that is precisely what public policy should strive to discourage.

2. This timeline of events on the insolvency resolution process in India is very informative.

One of the true "big bang" reforms and a genuine success of the government. The challenge is now its implementation - both in terms of supply (capacity and integrity of NCLT, IRP, CoC etc) and demand (market absorption, debtors gaming etc). 

And it also raises the question about whether such reforms could not have been pushed without the gravity of the crisis being so. 

3. Good illustration of the challenges associated with infrastructure project bond financing,

A 2016 bond issued for the construction of a public‐private partnership (PPP) hospital in Turkey is frequently mentioned as a model for how MDBs can credit‐enhance project bonds, but is in many ways more illustrative of its difficulties. The project involved a risk guarantee provided by the Multilateral Investment Guarantee Agency (MIGA) for €208 million (out of a total €288 million bond) in the event of expropriation, transfer restriction or breach of contract. This was supplemented with a liquidity facility by the EBRD for €89 million to mitigate project construction risk and potential payment delays from MIGA’s guarantee caused by required arbitration procedures. Even with this credit enhancement package, investor interest was insufficient to float the bond publicly. It was in the end a private deal, and a substantial portion was purchased by other development finance institutions (DFIs): IFC for €80 million, France’s Agence Française de Développement‐ Proparco for €40 million and Holland’s Nederlandse Financierings‐Maatschappij voor Ontwikkelingslanden (FMO) for €20 million.

The EBRD support was effectively a guarantee on a guarantee!

4. Juan Ketterer and Andrew Powell from IADB are the latest to highlight the unbundling of construction and maintenance phases of an infrastructure asset and finance them accordingly. They also suggest refinancing of assets post-construction with bond issuances and establishment of national infrastructure development funds that aggregate projects and fund them. 

5. The Indian Economic Survey 2017-18 said that 12% of urban housing stock is vacant. It triggered a flurry of responses to address this "problem".

So how does this 12% compare with that in other countries. The Bloomberg has an article which shows that over 50 million units or 22% of China's urban housing stock is unoccupied and 12-15% is pretty much the norm across countries.

Clearly there is a natural dynamic associated with all systems. In this case, it is clear that even in  a reasonably efficient steady state 12% of houses are likely to remain vacant for various reasons - temporary migration, second property purchases, speculation, and just the flow from purchase to moving in. Further, the numbers are likely to be even lower in average percentage terms across Indian cities if we take out the largest 4-5 cities whose absolute house numbers skew the percentage.

6. Too many of canonical experiments that purport to illustrate evidence on something are being debunked. The Easterlin Paradox (and this) and Marshmallow Test (and this) are but just two examples. The latest is new research which traces a biochemical cause for the Placebo effect - fake treatments with no plausible reason to create an effect. 

Depression, back pain, chemotherapy-related malaise, migraine, post-traumatic stress disorder: The list of conditions that respond to placebos — as well as they do to drugs, with some patients — is long and growing. But as ubiquitous as the phenomenon is, and as plentiful the studies that demonstrate it, the placebo effect has yet to become part of the doctor’s standard armamentarium — and not only because it has a reputation as “fake medicine” doled out by the unscrupulous to the credulous. It also has, so far, resisted a full understanding, its mechanisms shrouded in mystery. Without a clear knowledge of how it works, doctors can’t know when to deploy it, or how... theories, which posit that the mind acts upon the body to bring about physical responses, tend to strike doctors and researchers steeped in the scientific tradition as insufficiently scientific to lend credibility to the placebo effect...

Aided by functional magnetic resonance imaging (f.M.R.I.) and other precise surveillance techniques, Kaptchuk and his colleagues have begun to elucidate an ensemble of biochemical processes that may finally account for how placebos work and why they are more effective for some people, and some disorders, than others. The molecules, in other words, appear to be emerging. And their emergence may reveal fundamental flaws in the way we understand the body’s healing mechanisms, and the way we evaluate whether more standard medical interventions in those processes work, or don’t. Long a useful foil for medical science, the placebo effect might soon represent a more fundamental challenge to it... the placebo effect is a biological response to an act of caring; that somehow the encounter itself calls forth healing and that the more intense and focused it is, the more healing it evokes... “Rituals trigger specific neurobiological pathways that specifically modulate bodily sensations, symptoms and emotions,” he wrote. “It seems that if the mind can be persuaded, the body can sometimes act accordingly.” 

Does this also mean that Eastern systems of medicine which focus as much on the mind as on the body itself is correct on purely technical basis as well?

7. FT covers how the infamous Malaysian 1MDB scandal is engulfing Goldman Sachs with the DoJ indictment of three of its senior executives, including the co-head of Asia-Pacific investment banking division. The investment bank had raised $6.5 bn for the Malaysian state investment fund in 2012-13 pocketing nearly $600 m in fees in the process.

Goldman is presenting the case legally as one of 'rogue employees' and not known by its leadership. But it is a very hard act to pull off since these 'rogue' employees were themselves part of the leadership.

8. Finally, Times has a long overdue post on the corrosive political implications of business concentration. Tim Wu writes,

Over the last two decades, more than 75 percent of United States industries have experienced an increase in concentration, while United States public markets have lost almost 50 percent of their publicly traded firms. There is a direct link between concentration and the distortion of democratic process. As any undergraduate political science major could tell you, the more concentrated an industry — the fewer members it has — the easier it is to cooperate to achieve its political goals. A group like the middle class is hopelessly disorganized and has limited influence in Congress. But concentrated industries, like the pharmaceutical industry, find it easy to organize to take from the public for their own benefit. Consider the law preventing Medicare from negotiating for lower drug prices: That particular lobbying project cost the industry more than $100 million — but it returns some $15 billion a year in higher payments for its products.

Midweek reading links

1. Arguably the biggest suffering caused by the sub-prime mortgage meltdown involved the 7.8 m home foreclosures during the 2007-16 period. While the TBTF firms got bailed out, households got foreclosed out!

And who purchased them? Sample this

Since the crisis Blackstone has marched into markets that others have been forced to vacate. Its credit arm finances businesses that would once have borrowed from Wall Street banks. But nothing underscores Mr Schwarzman’s rise more clearly than the portfolio of more than 80,000 single-family homes that have made his firm one of America’s biggest private landlords. With so many people unable to get on the property ladder, Blackstone reckoned the rental market would be highly lucrative. Beginning in 2012, the firm dispatched representatives to buy houses in fast-growing metropolitan areas across the nation, including southern California, Chicago and Atlanta. About one-third of the properties were bought in foreclosure auctions, typically without anyone even inspecting them first. The result of that effort is a company called Invitation Homes that floated on the stock market last year. Today it is worth $21.6bn including debt, buoyed by a 35 per cent increase in US house prices since the start of 2013 and an unyielding approach that few private landlords can match.

People lose their houses and with it their hard-earned life-time savings. Hedge funds, benefiting from the extraordinary monetary accommodation, pocket these houses for fire-sale prices!

2 Interesting take on Trump by Peter Beinart who argues that Trump's supporters fear the corruption of American traditional identity, not American law. In the context of a murder in Iowa of a white woman by a Latino immigrant,

In a forthcoming book titled How Fascism Works, the Yale philosophy professor Jason Stanley makes an intriguing claim. “Corruption, to the fascist politician,” he suggests, “is really about the corruption of purity rather than of the law. Officially, the fascist politician’s denunciations of corruption sound like a denunciation of political corruption. But such talk is intended to evoke corruption in the sense of the usurpation of the traditional order.”... When Trump instructed Cohen to pay off women with whom he’d had affairs, he may have been violating the law. But he was upholding traditional gender and class hierarchies. Since time immemorial, powerful men have been cheating on their wives and using their power to evade the consequences. The Iowa murder, by contrast, signifies the inversion—the corruption—of that “traditional order.” Throughout American history, few notions have been as sacrosanct as the belief that white women must be protected from nonwhite men. By allegedly murdering Tibbetts, Rivera did not merely violate the law. He did something more subversive: He violated America’s traditional racial and sexual norms.

Once you grasp that for Trump and many of his supporters, corruption means less the violation of law than the violation of established hierarchies, their behavior makes more sense... Why were Trump’s supporters so convinced that Clinton was the more corrupt candidate even as reporters uncovered far more damning evidence about Trump’s foundation than they did about Clinton’s? Likely because Clinton’s candidacy threatened traditional gender roles. For many Americans, female ambition—especially in service of a feminist agenda—in and of itself represents a form of corruption... For many Republicans, Trump remains uncorrupt—indeed, anticorrupt—because what they fear most isn’t the corruption of American law; it’s the corruption of America’s traditional identity. And in the struggle against that form of corruption—the kind embodied by Cristhian Rivera—Trump isn’t the problem. He’s the solution.

3.Tirthankar Roy draws attention to the serious limitations of historical economic data.

Maddison’s work shows growing inequality in average incomes between countries. The data is – to put it mildly – bad data. Look closely, you will see that the average income of India was USD533 for 1820-1870. Year after year for 50 years Indians earned exactly USD533 on average (and exactly USD550 for 320 years before that). These numbers contain no worthwhile information about Indian history. Such is the quality of the statistics on which the divergence debate has so far been based.

4. Fascinating essay on the rise of India's Rs 23 trillion mutual funds industry which today attracts Rs 75 bn every month.

5. FT has a nice story on the emergence of a united US-Japan-US front in the trade war with China and how it is starting to bite in Beijing.

In recent months the EU and Japan have joined forces with the US in WTO complaints against “forced technology transfers” in China through mandatory joint venture structures with local partners... Tokyo has been pleasantly surprised by a Beijing-initiated rapprochement over the past year. According to one Japanese official, a recent spate of Chinese overtures are all “thanks to Trump”. The official adds: “Trump’s trade policies have been influencing China’s diplomatic stance.” ... “The Chinese should be worried about Trump,” says Steve Bannon, Mr Trump’s former political adviser. “They’ve never had to confront anything like this.”... Wang Chong at the Charhar Institute, a Beijing-based think-tank, says China’s current problem in the US is not just related to Mr Trump: “Both the Republican and Democratic parties have reached a consensus that they should try to curb China’s development.”

... the only trade deal he would accept from China is one Mr Xi could not possibly offer, because it would include concessions on how the party manages everything from industrial policy to state-owned enterprises and the renminbi. Others argue that Mr Trump’s ideal outcome is in fact no deal at all, so he can implement long-term tariffs on all Chinese exports to the US in a bid to bring about a radical overhaul of global supply chains. “People in the administration now understand that Trump may be flexible on so much stuff, but the hill he’s willing to die on is China,” says Mr Bannon. “Trump’s focus is shifting the supply chains out of China.”

Donald Trump gets eviscerated in the mainstream media for pretty much everything he does. And rightly too in many cases. But he deserves some applause here.

Not too many people will disagree that China resorts to extremely unfair trade practices, those which hurts manufacturers in other developing countries as much as in the US. In a fair world the Chinese actions should have long since been called to account. No American President who would have represented the mainstream establishment would have had the resolve and courage to do so. Trump has called the bluff and, in his own bluster-filled way, shaken up the entrenched equilibrium. 

6. The popular reaction to Serena Williams' abhorrent antics at the just concluded US Open Women's Final is a great illustration of the duplicity associated with the liberals. Serena has made a mockery of the existing rules of the game, behaved disgracefully (and has a track record of doing so),  and like the classic opportunist taken shelter behind race and sex to justify her actions. The referee has done what he was supposed to do as per the rule book and has a track record of doing so. And what do we get from the liberal establishment? Serena is portrayed as the victim and Carlos Ramos as the aggressor, in fact as a straw man who represents the racist and sexist establishment.

Evidently gender and race are very politically sensitive subjects. It is a mark of a liberal to be always on the right side of any gender and race debate. Serena Williams, also due to the politics surrounding her, ticks both boxes. So, it is almost suicidal to be seen to be taking on Serena, whatever the provocations. Liberals, therefore, rallied to her support. 

Add to the sex and race dimension, Serena is also a powerful persona in the tennis world. Besides being the GOAT, she also wields enormous influence among tennis administrators, sponsors, media, and players associations. Add everything in and the strong reactions in her favour is unsurprising. 

Martina Navratilova is among the very few sane voices trying to put matters in perspective.

This also highlights the contrast between the on-field governance of tennis and cricket. A tantrum like this is just impossible. Just remember the flak Steve Smith got with his "brain fade" moment when he apparently turned back to get dressing room reaction for an on-field review.

7. As emerging economies face turmoil, Times has a graphic that captures the external vulnerability, in terms of external debt to GDP ratio for the major emerging market economies.

8. As its new CEO, David Solomon, prepares to take charge, Times carries the story of sensational leak alleging unethical practices by a Goldman Sachs Partner, James C Katzman. Katzman, while leading Goldman's US West Coast M&A practice, complained to the bank's whistle-blower hotline about repeated attempts to obtain and then share confidential client information and hire a customer's child. Senior Goldman bankers apparently tried to "extract confidential client information from him that they intended to share with other Goldman customers or otherwise use for the bank’s benefit".

But the law firm managing the hotline, instead of independently investigating and presenting it before the Company Board, referred it to the Company's General Counsel and quietly buried it. Worse still, insiders, including the incoming CEO, tried to dissuade Katzman, who resigned from the firm, from pressing forward his complaints.

9. Finally, the Eritrea-Ethiopia border is open for trade after 20 years following the bitter separation of the two countries. Sample this,

Eritrea gained its independence from Ethiopia in the early 1990s, and war broke out later that decade, locking the two nations in unyielding hostilities that left more than 80,000 people dead. The turning point came in June, when Mr. Abiy announced that Ethiopia would “fully accept and implement” a peace agreement that was signed in 2000 but never honored. The formal deal was signed weeks later. Few people expected such a quick turn of events. Embassies have reopened, telephone lines have been restored and commercial flights between the capitals have resumed. An Ethiopian commercial ship docked in an Eritrean port last Wednesday — the first to do so in more than two decades.

Is this the most dramatic reversal of cross-border relations between countries in recent times?

How much low can this get?

Two news stories over the week gave good illustrations of how far down the slope that the mainstream discourse and the establishment elites have slipped.

The first is an excellent story in FT about the latest in line from Wall Street's stable of financial market innovations. This one is manufactured default. In simple terms - buy default insurance on a company for a specific form of default, sell that company a loan which it "defaults", pocket the default insurance even as the loan keeps getting serviced in normal course. The graphic below nicely captures the transaction.

The description,

It is the debt equivalent of a controlled explosion: offering a company favourable financing, such as low interest loans, to convince it to intentionally default in a way that will trigger payouts on CDS contracts, but without bringing down the whole company. By doing this GSO pushed its trading edge on rivals to the limits of what many saw as legal.

The protagonist being Blackstone Group's GSO Hedge Fund, and the market being that for the very controversial Credit Default Swaps (CDS). And for once, Goldman Sachs was at the receiving end of chicanery that they have been used to dispensing, ending up owning the CDS which GSO had purchased. 

There are two observations. One, the surprising thing here was what a friend described as the break down of the "honour code" among the Wall Street majors. Goldman complained in public about manufactured defaults. Clearly, even by Goldman's standards this was a new low!

Two, this was not the work of a rogue trader. This was led by a Senior Managing Director, who apparently sat on  Blackstone's European Investment Committee. Clearly this was a part of Blackstone's (or GSO's) formal business plan. 

The second concerns this article on the happenings at London's Evening Standard tabloid whose editor is the former British Chancellor of Exchequer George Osborne (HT: Ananth). The ubiquitous London daily may be the first to almost formally breakdown the barrier between news and advertisements and package advertisements as news. Here is the summary,

London’s Evening Standard newspaper, edited by the former chancellor George Osborne, has agreed a £3 million deal with six leading commercial companies, including Google and Uber, promising them “money-can’t-buy” positive news and “favourable” comment coverage... The project, called London 2020, is being directed by Osborne. It effectively sweeps away the conventional ethical divide between news and advertising inside the Standard – and is set to include “favourable” news coverage of the firms involved, with readers unable to differentiate between "news" that is paid-for and other commercially-branded content... The London Evening Standard has a circulation of close to 900,000 and distributes more copies within a two-mile radius of Westminster than the Times does across the UK nationally. Many London commuters, who pick up their free copy of the Standard at underground and rail stations, will be unaware that they will be reading paid-for news coverage that is part of a wider commercial deal.

There is another important dimension to this story - the conflicts of interest associated with George Osborne. He also hold a £650,000 a year part time job (a day a week) with BlackRock, which holds a £500 m stake in Uber, one of the six groups.

Clearly, if these are true, Osborne is pioneering the standards for a new low in the formal news media industry. 

It also draws attention to the relevance of career politicians, as against those successful elites who foray into politics occasionally. Are we better served by corrupt career politicians who may have sufficient administrative capabilities? Or are we better off with fleeting professionals (and in the net maybe equally corrupt in a more sophisticated way) whose administrative capabilities are questionable (assuming that it does require some experience of government processes to be able to control government bureaucracies and get stuff done)? After all how can we reconcile President Obama who would have been confronted with very hard decisions on Wall Street firms and regulations governing them with Citizen Obama who is hobnobbing with them in the most egregious manner? Or Governor Ben Bernanke and Economist Ben Bernanke?

Now consider this. Both Blackstone and its executives, and George Osborne form part of the liberal elite establishment on both sides of the Atlantic. Their actions and the venality inherent in them are clear enough. Despite these they remain the most respectable icons of the establishment. 

I struggle to understand why Trump's actions are any more morally repugnant than these? I can understand the indignation that comes out when Trump uses public office to aggrandise himself. But I cannot understand when such egregious fraud and venality by the icons of the liberal establishment, which by the way is pervasive, gets nary a mention. FT has to be complimented for covering the GSO story. If this is the case, why should we at all be surprised by Trump or Brexit?

Weekend reading links

1. Ajay Shah has an excellent column examining the issue of unbundling of commercial activities,

Consider the New Pension System (NPS). Project OASIS, saw that the overall pensions problem contained three distinct industries: managing money, owning customers, and record-keeping. It suggested an unbundled architecture, where pension fund management was separated from interaction with customers. Record-keeping was centralised to harness economies of scale and ensure that it was easy for consumers to switch from one pension fund manager to another. This design caters to heightened competition. On the strength of better fund management, a new pension fund manager can steal customers, as switching is always possible. Similarly, the front end firms would live or die based on their friendliness to customers, and not on the quality of their fund management. In the conventional world, finance professionals generally focus on the deal-making required to get a new product to the customer. These finance professionals are a little shocked when, in the NPS environment, incumbent manufacturers do not control the distribution. All distributors are equally keen to push all products; all manufacturers have equal access to all distributors.

Though Shah sees unbundling as having worked in only NPS, electricity, and net-neutrality, I am inclined to cast the net wider. In particular, one could think of looking at many financial market activities in this way.

The only observation is that with the emergence of IT solutions, the entry barriers from an incumbent's entrenched presence in the downstream side of selling a service may not be as important as earlier.

2. The underlying signatures of Indian economy continue to remain weak. The capex index from IIP data comes in at the lowest since April 2010.

The RBI's latest Industrial Outlook Survey shows that the business expectations index is lowest since at least 201-11

Much the same story about expectations on industrial production, order books, and job creation. Not a happy picture at all.

3. Mexico City's air pollution levels fall back to the nineties. This stat about its vehicle population is stunning,

Developers erect skyscrapers with a dozen floors reserved for parking. The Mexican Institute for Competitiveness, an economic think tank, estimates that 42 percent of space in new developments built between 2009 and 2013 was designated for parking.

4. Livemint points to BIS data for the 2007-15 period for 18 countries which finds that housing prices in India rose the highest at 72.3%.

As the article points out, for whatever reason, housing market in India does not respond to over-supply and piling inventory by price corrections. Developers prefer to hold tight. It may just be that the margins are large enough (or supply small) to provide them the comfort to hold on to vacant units long enough.

5. Very good analysis of India's new Bankruptcy Code here. This is more likely to be an evolutionary process where the fruits will start appearing only 5-8 years hence. A very important reform though.

6. When in China Capitalists sing the Chinese tune! Consider the example of Disney. Disney opened its $5.5 bn Shanghai Disney Resort, its first facility in China, a joint venture with Shanghai Shendi Group. Times has a nice essay, which describes what Aswath Damodaran calls the "China trade-off",

In addition to handing over a large piece of the profit, the control-obsessed company would give the government a role in running the park. Disney was also prepared to drop its longstanding insistence on a television channel... Disney is sharing the keys to the Magic Kingdom with the Communist Party. While that partnership has made it easier to get things done in China, it has also given the government influence over everything from the price of admission to the types of rides at the park...

The partnership structure puts Disney in a complicated spot. Shendi is really a consortium of four powerful government-owned companies: the Shanghai Radio, Film and Television Development Company; Jin Jiang Hotels; Bailian retail shops; and a property developer, the Lujiazui Group. And each of those companies has separate business ties to Disney’s new resort. The Jin Jiang Group has a contract to provide tourism services for the park. The Lujiazui Group helped develop the world’s largest Disney Store. The Shanghai Media Group, a division of the development company, is positioned to capture a big share of the park’s television and advertising budget, since it controls the city’s biggest television stations, as well as major newspapers, magazines and radio properties.

7. Germany followed Japan and Switzerland into having its 10 year sovereign bond yield slip into negative territory. It is estimated that 40% of the $6.4 trillion Euro region debt is now trading below zero, which as one analyst said,  

Nobody buys bunds at these yield levels thinking they are attractive. Demand for haven assets is being driven by fear of Brexit and growth concern. Investors are buying bunds as a hedge against uncertainty.

Another analyst had this to say,

Every day you own a bond like that you compound a loss, and the only way to make money is when someone else is willing to pay a higher price. As a store of value I don’t see it as a very good investment.

Former PIMCO head, Bill Gross has already described negative bonds as a "supernova that will explode one day". Since retail deposit rates have not become negative anywhere, the direct impact of negative rates is not being felt by citizens. Also, since yields have been continuously on the decline, prices have been rising and investors have been making profits.

8. More evidence that we may have reached "peak ship size". With 18% of world's container capacity anchored and idled, and global shipping capacity rising by 7% last quarter even as demand grew by 1%, the shipping industry is staring down the barrel,

A study last year by the OECD found that economies of scale from today's mega-boats are four to six times smaller than those in previous periods of up-sizing. Around 60 percent of cost savings now comes from engine technologies. In other words: Building smaller boats with better engines would offer more savings than going bigger. Then there's risk. Today's largest container vessels can cost $200 million and carry many thousands of containers -- potentially creating $1 billion in concentrated, floating risk that can only dock at a handful of the world's biggest ports. Such boats make prime targets for cyberattacks and terrorism, suffer from a dearth of qualified personnel to operate them, and are subject to huge insurance premiums. 

Yet the biggest costs associated with these floating behemoths are on land -- at the ports that are scrambling to accommodate them. New cranes, taller bridges, environmentally perilous dredging, and even wholesale reconfiguration of container yards are just some of the costly disruptions that might be needed to receive a Benjamin Franklin and service it efficiently. Even when taxpayers foot the bill for such upgrades, the costs can be passed on to vessel operators in the form of higher port fees. In recent years, mega-vessels have caused traffic jams in the water and on-shore as overwhelmed ports struggle to offload thousands of containers. The expense in worker overtime and cargo delays can be significant. Making matters worse, the bigger ships make fewer port visits, leaving operators wondering if they should invest in costly renovations for what would amount to infrequent stopovers.

9. Business Standard chronicles Lavasa, the five-town smart city complex being developed independently by Hindustan Construction Company (HCC), on the foothills of the Western Ghats in Maharashtra. The project which was launched in 2004 and has so far incurred a cost of Rs 6600 Cr in the partial development of two towns (on 8000 and 2400 Acres respectively) follows the pattern of a very dense central core with sparse radial developments.

Despite the investments made, Lavasa continues to be largely a holiday destination with limited investments in services employment and other non-recreational commercial investments. Lavasa is a test case for the belief, which underpins a large part of Chinese urbanization, that "build it and they'll come". I am inclined to believe that Lavasa will be a success in the next 8-10 years and a great example for planned urbanization in India. And if that happens, the reasonable sizes of each development (a few thousand acres), will have had no small a role to play.

10. Finally, Goldman Sachs has been all over the news this week with two scandals. First, came news that Goldman Sachs advised the 2014 sale of BHS, the UK Department store chain, for £1 to Retail Acquisitions, a group of investors led by Dominic Chappell, an ex-bankrupt with no retail experience. Now with BHS with its 11000 odd employees facing bankruptcy amidst allegations of swindling and fraud, the ex-BHS chairman Sir Phillip Green has effectively blamed Goldman for clearing the sale to a person like Chappell. 

If the first was not scandalous enough, the second would put even the most unscrupulous corporates to shame. The Libyan Investment Authority (LIA), the country's sovereign wealth fund (SWF), has initiated a $ 1bn suit for damages on Goldman at London. It accuses Goldman of exploiting its limited experience in 2008 to sell nine risky derivative trades that ultimately lost the SWF $ 1.2 bn, by using "undue" influence over LIA's own employees, including delivering the services of prostitutes and providing luxurious hospitality. Goldman is accused of using one of its executives, Youssef Kabbaj, to lobby and dine LIA officials concerned to purchase the products. The description of the trial here is downright lurid and despicable. 

These come as Goldman is recovering from its role in raising upto $3 bn money for 1MDB, the Malaysian state fund at the center of a corruption scandal involving the country's Prime Minister. Goldman apparently received $300 m for this and $200 m for the LIA purchases.