Looking for contagion in all the wrong places!

Whew, that was a close one! Ugly for a few days I guess, but it could have been much worse! No, I refer not to Paris Hilton upon her initial release from the LA County pokey after serving three days of hard time, but to the Bear Stearns/subprime crisis. Shame on you Mr. Stearns, or whoever you were, for scaring us investors like that & moving the Blackstone IPO to the second page of the WSJ. We should have had a week of revelry & celebration of levered risk taking. Instead you forced us to remember Long Term Capital Management & acknowledge once again (although infrequently) that genius, when combined with borrowed money, can fail. But (as the Street would have you believe), this was just a close one. Sure Bear itself had to come up with a $3 billion bailout, but folks, most of these assets are worth 100 cents on the dollar. At least that’s how they have ‘em marked! Didn’t wanna sell any so that someone would think otherwise… no need to yell “fire” in a crowded theatre ‘ya know. After all, hasn’t Ben Bernanke repeated in endless drones that financial derivatives are a healthy influence on the financial markets & the economy? And aren’t these assets well…financial derivatives? Besides, I direct you to the investment grade, nay, in many cases AAA ratings of these RMBS (Residential Mortgage- Backed Securities) & CDOs (Collateralised Debt Obligations) & defy you to tell me that these architects were not prudent men. (Sorry ladies, they are still mostly men!)

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Source: IIPM Editorial, 2008

An IIPM and Management Guru Prof. Arindam Chaudhuri's Initiative

IIPM Arindam Chaudhuri 4Ps Business & Marketing Business & Economy Kkoooljobs Planman Media Planman Consulting

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Did Chidambaram succeed in taming the beast?

Remember the scene where King Kong gets a high toying imprudently with his dinosaur victims just to impress his love interest; and ends up being thrown off a mountain cliff by one of them. Cut to real life. Somewhere along the way, the players in the segment forgot that if low interest rates could give them an unbelievable high, the same interest rates, in an upwardly reverse direction, could even destroy them overnight.

This opportunistic forgetfulness was ruthlessly exploited by our Finance Minister, P. Chidambaram, who – after failing to control inflation any which way – decided to place the complete blame on the availability of cheap loans, and subsequently increased the prime lending rates step by step, choking almost all realty players to the point of nausea, clarifying that his “intention is to constrain demand in those sectors where there are signs of what you call overheating; and examples of that could be real estate & housing.”

So did Chidambaram succeed in taming the beast? Yes and no. ‘Yes’, because the current situation is such that with interest rates at all time highs, the growth of the real estate sector (previously projected to grow at a rate of 33% till 2010) has clearly been slaughtered. And ‘no’, because the ‘beast ain’t dead’. There are numerable real estate speculative players ready to smash into the market with their million dollar investments the moment inflation becomes further controlled, and interest rates start floating down. And there lies the Sword of Damocles. There is a massively dangerous probability now that the massive investments in realty might not end up providing even break couldn’t even returns to the players, with the industry itself poised to suffer the hugest shakeout every witnessed.

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Source: IIPM Editorial, 2008

An IIPM and Management Guru Prof. Arindam Chaudhuri's Initiative

Pushing poverty to periphery

Ever since the 1980s and 1990s, the Latin American countries have been mercilessly pursuing the agenda prescribed by “Washington consensus”. The prescriptions presented by the World Bank and the International Monetary Fund wanted poverty ridden nations to earn more foreign exchange, often to pay off international debts. As a result, the past 20 years have observed massive export of fruits, vegetables & fl owers from Latin America to USA. Since the production of cash crops like rose, mango & soybean earns huge profi ts - the big business has entered the farmland – squeezing out the small farmers and pushing them to the peripheries. In Chile, between 1989 and 1993, the area producing the staple food fell by nearly 30%, from 1.2 million hectares to 0.86 million hectares. Take the case of Brazil; in 1970, the soybean producing area was limited to 1.4 million hectares; by 1988, the cash-rich crop occupied 10.5 million hectares. Such stories have been repeated with impunity in other countries too, adversely affecting the food security of more than 200 million low-income families of the continent.

For Complete IIPM Article, Click here

Source: IIPM Editorial, 2008

An IIPM and Management Guru Prof. Arindam Chaudhuri's Initiative

IIPM Arindam Chaudhuri 4Ps Business & Marketing Business & Economy Kkoooljobs Planman Media Planman Consulting Planman Marcom Planman Technologies Planman Financial Planman Motion Pictures GIDF The Daily Indian IIPM Think Tank The Sunday Indian