Friday 30 July 2010

Democracy or 'Sham'ocracy

How does the Democracy or shall we say 'Sham'ocracy works in most of the West (USA & UK primarily)

Well, this is how it works:

1. 40-60% of eligible voters vote to elect politicians
2. The politicians are financed by big corporates, businessmen and bankers on wall street
3. Whoever gets the biggest backing has the highest cash to splash
4. Whoever splashes more has the best chance of getting elected
5. Once elected, the politicians have to return the favours of their cash-sponsers
6. They do that in a very transparant and democratic way by killing the regulation and loosening the rules

So, what is the problem?

1. Well, the rich gets richer while the poor stays poorer
2. The poor are taxed to subsidise the rich
3. Equitable distribution of wealth is thrown out of window in the mirage of for example 'the great american dream'
4. Life's value is measured just in money's worth. Quality of Life can be thrown in the bin
5. Natural resources are exploited in the name of quarterly growth

So, what is the solution?

1. Banning all political donations in cash/kind
2. Having a democracy tax which funds the elections
3. Voting to be made 'compulsory' for all eligible people
4. Putting the best resources behind regulation
5. Equitable or near-equitable society should be the the central aim of the state
6. All the utilities should be state-owned but privatised only to run and manage efficiently
7. State should have permanent and thriving presence in Media (ex. BBC in UK)


Unless this happens, it is safe to say, we live in 'Sham'ocracy where the government is nothing but the mouth-piece of their paymasters (corporates, big businessmen and bankers)

That is why, it is no surprise when David Cameron visits US, top on his agenda is protecting BP. When Kraft was cutting jobs after taking over Cadbury in UK, the government said, we don't interfere in the private sector business!!!

That is why, it is no surprise when David Cameron visits India, he take a huge delegation of 400 people (almost all of them are big corporate guys, rich businessmen and banks).

That is why, it is no surprise when in India, the UK chancellor George Osborne spends most of his time in Mumbai, selling the financial services to the Indians. Forget the 'big-talk' on banking regulation at home.

So, you see, what we in West call Democracy is actually 'Sham'ocracy.

Regards,

Pradeep Kabra

Wednesday 28 July 2010

RE: BBC does business a dramatic disservice

Dear Luke,

In your article, you mention that BBC does business a dramatic disservice. The fact is, if BBC stops broadcasting a program like Dragon's Den or The Apprentice, then will private channels not JUMP at the same 'trash'? Your argument is muddled up. It is not clear if you are against BBC or you are criticizing BBC, if yes, then on who's behalf? I'm perfectly happy with the ad-free high-quality television and educational content which BBC provides. Your assertion that BBC 'acting as a spending empire that extorts money from taxpayers' is utter non-sense. Just look at the state of television in USA. All trash. 30% of ads and hardly any educational.

Coming to the specific criticisms of Dragon's Den, I agree. But instead of suggesting constructive improvements to the format of Dragon's Den, you are blindly criticizing BBC.

Regards,

Pradeep Kabra

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BBC does business a dramatic disservice
Luke Johnson The entrepreneur
The BBC has always regarded business with suspicion. As an institution funded by a regressive poll tax, it struggles mightily with the whole concept of the profit motive, or indeed the very concept of organisations having to actually generate revenues to pay the bills – rather than just acting as a spending empire that extorts money from taxpayers. For the BBC, the assumption is that business is ruthless, domineering and egotistical. And so the grotesque programme
Dragon’s Den fits their in-house prejudices perfectly.
Dragon’s Den is a cartoon masquerading as factual television. It has more in common with broadcast wrestling than the real world of investing. The very idea that genuine venture capital takes place in such a ludicrous way is a farce. It is obvious that many misguided projects are encouraged to present because they provide a few cheap laughs. Does it serve the cause of enterprise to have multimillionaires humiliate inventors, and cackle like schoolboys while treading on people’s dreams? But the BBC – despite being a public service broadcaster – doesn’t care. It all feeds the ratings monster, even if it does a disservice to innovation and the private sector.
Having chaired a rival broadcaster for six years, I understand well that television is a mass medium that is obliged to use broad brushstrokes. But in the case of Dragon’s Den, entrepreneurship has been dumbed down to the status of staged entertainment. This is a tragedy. Britain needs entrepreneurs who are positive role models, who inspire others, and who help create jobs and accelerate our recovery from the recession. The BBC gives us the bullying of The Apprentice (another idea formatted from elsewhere) and the superficiality of Dragon’s Den.
Perhaps in 2005, when Dragon’s Den was first shown in Britain, there was a degree of novelty and even a modest element of authenticity about it, even if it was a derivative format copied from Japan. But now in its eighth series, the concept has been milked dry and has descended to the level of caricature. The “Dragons” participate for the publicity, the producers want tears and jokes. The amount the investors risk is small change to them, but in return the show buys them plenty of exposure. As Simon Woodroffe, one of the original Dragons, said: “The thing to remember is that when you walk up the stairs [to pitch an idea] it’s not five people thinking ‘How am I going to be able to make an investment here?’ They’re actually thinking ‘Am I going to be the star of this next little piece?’”
Real angel investing is not a game. It is a vital source of funding for early stage companies that may represent the next wave of industry. It succeeds when it involves rigorous due diligence, conscientious research and professionalism. It involves long-term backing and collaboration, not macho bidding contests based on a two-minute pitch. It is a shame such a serious matter is debased by this sort of fake drama, much of it cooked up for the cameras for prime-time consumption.
It takes little imagination to produce shows like The Apprentice and Dragon’s Den, which pander to popular misconceptions about business and entrepreneurs. I suppose the patronising behaviour and casual cruelty are meant to toughen up candidates for the rigours of the market and the workplace. In reality they display a distorted picture closer to slapstick comedy than a genuine 21st century corporation.
As long as the audience and participants realise the programme is an exploitative sham, then I suppose it is merely a missed opportunity. But I do wonder why they bother. The entire purpose of the BBC is to deliver public goods in the form of high quality transmissions that are edifying and uplifting. After all, the BBC does not come cheap. Prosecutions of licence fee evaders undertaken by the British courts on the BBC’s behalf represent at least 10 per cent of all prosecutions of any kind. Meanwhile, law abiding citizens contribute £3.6bn ($5.6bn, €4.3bn) a year – all to deliver misleading confections like Dragon’s Den. When will the BBC adopt a more constructive and grown-up approach to business and free enterprise? lukej@riskcapitalpartners.co.uk   The writer runs Risk Capital Partners, a private equity firm, and is chairman of the Royal Society of Arts

Re: Banking needs more robust stress tests than these

Dear Mr. Kay,

Thanks for the article in today's FT.

In the last paragraph, you mention lucidly that "Shamefully, the purpose of the stress tests is not to ensure that depositors’ money is safe or that taxpayers will not be called on again. The purpose is to reassure banks and their shareholders that they will not be required to provide significant additional capital."

You end it by saying, "The lesson – perhaps the only lesson – of the stress tests is that Europe’s politicians and regulators have not begun to address, far less resolve, the issues posed by the crisis of 2008"

The true lesson is that Democracy in West is a sham where the election funding is controlled by the corporates and rich few. The only way to resolve it is by a) banning all political donations in cash/kind b) having a democracy tax which funds the elections c) voting to be made 'compulsory' for all eligible people.

Till these things are not resolved, we will see the same shameful situations in different guises across the spectrum.

Regards,

Pradeep Kabra

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Banking needs more robust stress tests than these
by John Kay in Financial Times, 28-Jul-2010

Stress tests should be subject to stress tests. Would the banks that passed the version of the test imposed by Europe’s financial regulators be able to fund themselves adequately if implicit or explicit state guarantees of their non-deposit liabilities were withdrawn? This further test should be applied to each bank individually, and for the group of systemically important banks as a whole. The outcome would indicate how far Europe’s banks have progressed in being able to survive without public subsidy. Not far, I suspect.
The concept of stress tests is derived from the procedures used to ensure the robustness of complex engineering structures. There are three stages. You begin by testing each component in conditions considerably more demanding than it is likely to encounter. Then, you review system design to ensure that, even if several elements break down simultaneously, this does not jeopardise the integrity of the whole structure. Third, and most importantly, you test the total system for outcomes far outside the range of experience. You do not ask, “Will the bridge survive a strong gust of wind?” You ask, “Will it survive a gale worse than any at this site in the last century?”
There is much that the finance sector could learn from this, but no indication it has done so. The adverse scenario of the bank stress tests, far from being outside the range of experience or expectation, is not far from the mean. Sovereign default is not considered, since politicians have decreed it will not happen, although allowance is made for the possibility that pesky markets might not believe that assertion. Any risk manager in a bank who has not considered far more extreme developments than those in the stress tests should be fired.
And that illustrates a problem. One of many adverse consequences of the Basel capital requirements was that banks that held more than the regulatory minimum came under pressure to justify their “surplus” capital. It is easy to imagine the board of a bank feeling reassured when told that their institution is secure against the most adverse scenario postulated by their external regulator – the stress tests are designed to provide precisely that reassurance to capital markets. So the risk manager whose job is in jeopardy today is not the one who fails to insist on more pessimistic assessments than the stress tests: it is the one who does.
Worse, the stress tests are self-referential. Their purpose is to show, not that the bank is sound, but that it meets the requirements for regulatory capital. But one lesson of 2008 was that capital adequacy was almost irrelevant in a crisis. Most institutions met their regulatory capital obligations on the day they failed. Queues formed outside the branches of Northern Rock only weeks after the bank had announced (but before it had implemented) plans to return its “surplus” capital to shareholders.
Depositors were not satisfied by the assurance that the bank was compliant, and they were right. When the Tacoma Narrows Bridge collapsed in 1940, experts said the bridge had satisfied the highest engineering standards even though it had unfortunately fallen down.
Engineers have learned the lesson, but financial regulators have not. Capital adequacy was designed for a world in which a lender of last resort would turn the good but illiquid assets of a solvent bank into cash. But when uncertainty about the value of complex assets and liabilities becomes so great that the bank itself, far less any central bank or external lender, cannot reliably ascertain the true position, capital and cash are very different things.
Shamefully, the purpose of the stress tests is not to ensure that depositors’ money is safe or that taxpayers will not be called on again. The purpose is to reassure banks and their shareholders that they will not be required to provide significant additional capital. The lesson – perhaps the only lesson – of the stress tests is that Europe’s politicians and regulators have not begun to address, far less resolve, the issues posed by the crisis of 2008. johnkay@johnkay.com

Thursday 22 July 2010

Spain's Football Dominance - What Next?

They say, it is easier to reach the top than to maintain it. What can be the possible reasons for that? Well, there can be numerous starting from lack of ambition to tiredness to lack of zeal or enthusiasm to self-contentment to hubris. So what can be done about it? More specifically, what should Spanish football team do to maintain their football dominance after holding aloft European Cup and now World Cup?

Without going into the philosophical solutions, I would say that they should do the following:

a) Make Cecs Fabregas regular in the starting line-up.
b) Encourage their forwards to play like mid-fielders. With players like Xavi, Iniesta and Fabregas who needs forwards anyway?
c) Get rid of Ramos.
d) Send Cruyff or somebody from his line of school to Real Madrid's academy to coach youngsters

Bingo. It wouldn't be far-fetched to see Spain repeating the feat of European Cup & World Cup in the coming four years. Wouldn't that be a fitting end to the careers of gems like Xavi & Iniesta?

Pradeep Kabra

Monday 19 July 2010

Re: Financial Reform

Dear Sir,

You correctly mention that the real work starts now on the financial reform in-spite of the incompleteness of the same.

But the main point is, issue like 'minimum capital requirements' though pending have been left of for Basel standards to decide, what about the other three-fourths of the reform which has not even been considered viz., Housing Loans/Market Reform (read Fannie & Freddie), Insurance Reform & Rating Agency Reform.

It is a pity that while the biggest financial and economic meltdown since 1930s produce so little reforms from a democratic government in US, it also shows the clout of the bankers on CAPITOL HILL!!!

Regards,

Pradeep Kabra

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Financial reform - Editorial in Financial Times, 19-Ju-2010

Dodd-Frank bill is historic, but the work is unfinished
The US financial regulation bill passed by Congress last week is comprehensive and far-reaching. The White House, whose first design proved influential, and the bill’s sponsors are right to call it historic. But few delude themselves that the new law settles much. The real work starts now.
The Dodd-Frank law expands the powers and responsibilities of multiple agencies, but says little about what the new rules will require of financial institutions: so many pages, so little content. In many instances, Congress has told the regulators to balance conflicting objectives but given little guidance about how trade-offs – for instance, between financial safety and availability of credit – should be struck.
Wider discretion was in many cases desirable or inevitable. Rules must fit the circumstances. Nonetheless, it is a hazard and a cause of uncertainty. The regulators must waste no time in staffing up, clarifying their rules and methods, and learning how to co-operate.
Better interaction among regulators will be vital. The complexity of the old organisation chart helped cause the crisis – emerging concerns cut across jurisdictions – but the new one is no simpler. According to most counts (there is room for dispute, which tells you something), the number of agencies has increased. New co-ordination mechanisms are in place, and much depends on them.
The new Financial Stability Oversight Council, the principal co-ordinating body, will be responsible for systemic safety. The Fed will be its main operating arm. These are good innovations, but how the system functions will be for its constituent parts to decide.
Maintaining a sense of urgency as the politicians, for the moment, step aside will be a challenge. The same is true of the reform’s other main innovations: early resolution authority, which will not be tested until a big, complex, troubled firm has to be wound up; the diluted Volcker rule, which curbs banks’ proprietary trading without defining proprietary trading; and derivatives regulation, which is to be tightened through standardisation and exchange trading, but with exemptions of uncertain scope.
Most important, the bill is almost silent on capital requirements. Eyes must turn now to the Basel process, in which national regulators are negotiating that crucial issue. Progress has been slow, and there are indications that the new rules may be too lax. If Basel fails, the innovations of the US law will be undermined, and the whole project rendered somewhat beside the point.

Friday 16 July 2010

Re: Watching Google



As published in Financial Times on 20-Jul-2010

Dear Sir,

In your editorial you mention that "Google is not obviously being evil but it is such a powerful technology company that it has the potential to go astray".

Well, but as Google argues - if they mis-use their trust of their customers, the competition is just a click away unlike how majority of people are all locked in Microsoft's inept operating systems.

Unfortunately, the job of most of the arm-chair observers is just to make these kind of comments. What Google has provided is the vision for so many services which were just unimaginable or available only to elite few.

Firstly, they have come up with Search which was ignored by all the big tech companies. (inspite of their so call huge R&D budgets!!!) Which itself has changed the way we live our lives. Which has taken away the stress from our lives by connecting us to what we seek.

The markets where they have entered late (like email), they have redefined the scope of the status-quo by making the product better. (The concept of Conversation in an email to minimum 1 GB storage!!!)

Finally, where they have purchased the companies to get an entry point (like Google Maps or Youtube), they have left the start-ups intact after providing all the resources to pursue their passion rather than killing them in the big beauracratic machine.

So, before worrying about whether Google is evil, you should be encouraging other companies to behave like Google. Think how our lives were before the Google Search, Google Maps, Gmail, Google Earth, Google Apps, Youtube, Google Books etc.,

Regards,

Pradeep Kabra

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Watching Google - Editorial in Financial Times, 16Jul2010

Regulators need to keep an eye on a powerful company

Google is an innovative company that has produced many benefits for consumers with its free search technology. In turn, it has become a highly profitable enterprise with a strong market share.
It is thus very important to many companies – particularly small businesses – where they appear in Google’s search rankings. They have no way of knowing how Google’s technology works since the company wants to protect its competitive edge.
As a result, Google is coming under increased scrutiny from regulators, with the European Commission already making informal inquiries into the search market. As yet, there is no evidence of Google abusing its market power, but it could do so.
As reported in the Financial Times this week, Google is facing controversy in two areas. The first is “search neutrality”, the suggestion that regulators should oversee its algorithms or set clear rules to ensure that search engines are not systematically biased for editorial or commercial reasons.
This is an impractical and unnecessary idea. As Marissa Mayer, Google’s head of search, argued in the FT, it is better for different search engines to compete vigorously with each other to produce the best and most relevant results. Google may be highly successful in search, but competition is only a free click away.
The second area of concern is Google’s provision of vertical services linked to search – for example, its display of Google Maps when a user looks for an address, or Google comparison shopping data when someone searches for a camera. This affects rival providers in travel and e-commerce.
Barry Diller, chairman of Expedia and InterActiveCorp, protested this week about Google’s $700m acquisition of ITA Software, saying that it would give Google unfair leverage in displaying flight information. Mr Diller wants the deal to be scrutinised carefully by regulators and conditions imposed.
Google’s defence is that it is trying to supply the most useful possible information to users. But the potential for antitrust abuse through the tying of vertical services to search raises clear concerns. European and US regulators should use the ITA deal to examine the issue broadly.
It would be wrong for Google to be hamstrung by regulators simply because its services are superior to rivals, but it needs to be watched with care. Google is not obviously being evil but it is such a powerful technology company that it has the potential to go astray.

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Monday 5 July 2010

Re: Smartphone Subsidies

Dear Lex Team,

You are wrong about your final analysis leading to "uneasy lies the head that wears a crown". Apple is not just developing the cool hardware but also has a support network of more than 200,000 apps. The likes of Nokia, Blackberry, Motorola etc., may reduce the price-gap but they cannot fill the apps-gap.

The only credible source of support operators can have is by embracing Google's android based phones from Chinese / Taiwanese manufacturers with almost 65,000 apps support to get a foot-hold in the market. Funnily, you don't even mention that in your analysis.

Regards,

Pradeep Kabra

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Smartphone subsidies
Published: July 4 2010 20:13 in Financial Times

Kingmakers do not take kindly to becoming mere courtiers, so insurrection is only a matter of time. For years mobile phone operators played a delicate game, balancing the power of phone manufacturers’ brands against their own control of customer relationships and a willingness to subsidise handsets. While the carriers risked becoming a dumb pipe, the highly competitive handset market left them room to make decent returns.

Then Apple strolled in and grabbed the industry’s profits. As shown by queues snaking round the block for the latest iPhone, the devices attract customers. Returns for the operators, however, are less clear cut. Some estimates suggest that AT&T, the US carrier, does not break even on an iPhone customer until the 17th month of a 24-month contract. In private, European mobile executives will admit that they only just break even on iPhone customer contracts. The hope is that users spend freely on data services and stick around once their terms are up.

Apple, meanwhile, has kept the average selling price of an iPhone above $600 since the third quarter of 2008. That’s for a device that contains less than $200 worth of parts (not including manufacturing, software and intellectual property costs), according to estimates by iSuppli, a market research firm.

Operators’ powers are diminished, not destroyed, though. While they will not stop subsidising iPhones, they are waiting for a credible pretender to rally round. And
non-Apple smartphone prices continue to fall. Nokia’s next model, the N8, will cost €370. BlackBerry maker Research in Motion recently reported that its average selling price slipped below $300 in its first quarter to the end of May, from more than $350 a year ago. Apple has already developed tiered pricing, selling older iPhones more cheaply. But when the technological gap to the competition narrows, Apple’s price premium must do likewise, or its terrific rate of growth will slow. Uneasy lies the head that wears a crown.