Duplicitous protectionism

The Groundhog is supposed to be the harbinger of spring. Once the groundhog is sighted on Groundhog Day people rejoice, since spring is round the corner and the dreary winter is almost over. Likewise, in case of a forest fire, the rhino is rumored to run out of the forest as though its own tail were on fire, and this sort of gives a cue to other animals to grab their coats and run! Then again, before Mt. Vesuvius erupted incinerating Pompeii, the legend goes that dogs all over the town howled, and acted crazy. Precursors, forebears, harbingers, whatever.

You might wonder why I am saying these things. Because I feel that we should have read the signs long ago. Remember how Mumbai and Maharashtra was held to ransom a few months back on the whole North Indian v/s Maharashtrian story? Well, now, with the global economic meltdown, British are out on the streets protesting and urging the government to provide them with right of way when it comes to jobs in their own country. Now, the US House wants to ban American companies that employ people on H1B visas. The bailout has fine print that reads - 'Buy American'. Why? because they want food cooked by the family to be eaten by family first before being given to the poor. Curb internal unemployment. Encourage indigenous industry first and prevent internal enterprise from being devoured by cheaper Eastern-world substitutes. Are they right? Who knows? One may argue that American tax payers' money had better be used to encourage American industry. But this argument never surfaced when the world was busy buying American debt. People call this 'Protectionist policies' when they are the victims. But the same people call this phenomenon 'protection of self interests' while they act as the enforcers of such policies. Duplicity? Indeed..............

Parallels exist everywhere. It is up to the informed, aware individuals to decide which way to go. Why not let the market decide which way to go, since history has proven time and time again that markets are by and far the most righteous, and fair entities in the game called life. Let the markets decide whether to 'buy American'. Let 'American' be competent enough to compete on the world stage unaided. Let the market decide whether a Jha or a Jadhav gets an opportunity. Let each compete on merit. This is the only way we can achieve overall development of our core competence.

The Audacity of greed

'These are extraordinary times and they call for swift and extraordinary action' Man of the moment, Barack Obama made this statement this morning at the White House, while discussing the need for energy independence. America is now on the threshold of being the leader of energy thrift going forward. As a person watching the economic crisis from the sidelines, albeit apprehensive, that the rapidly unfolding mess, which shows no signs of having been completely unraveled, I can only watch, and watch with hope that the measures being taken by various economic superpowers to try and extricate the world from depressed gloom might actually work.

But every now and then, there are reports of how the top management of big firms squandered precious money, and how these excesses would have practically gone unnoticed, had it not been for the economic crisis.

Topping the list is John Thain - Merill Lynch CEO, who spent $1.2 million to redecorate his new office. His splurges include - $2,700 for six wall sconces, $5,000 for a mirror in his private dining room, $11,000 for fabric for a "Roman Shade”, $13,000 for a chandelier in the private dining room, $15,000 for a sofa, $16,000 for a "custom coffee table", $18,000 for a “George IV Desk", $25,000 for a "mahogany pedestal table", $28,000 for four pairs of curtains, $35,000 for something called a "commode on legs", $37,000 for six chairs in his private dining room, $68,000 for a "19th Century Credenza" in his office, $87,000 for a pair of guest chairs, $87,000 for an area rug in Thain's conference room and another area rug for $44,000, $230,000 to his driver for one year’s work, $800,000 to hire celebrity designer Michael Smith, who is currently redesigning the White House for the Obama family for just $100,000.

He apparently signed off on a check for $3000 for labor for replacing the light bulbs on those sconces! It is appalling, since Thain (ex-director of NYSE and former Goldman Sachs employee) was the man appointed to turn Merill's futures around. Yup, turnaround alright! From bad to non-existent! Hurried bonuses for top executives, not disclosing the full measure of the rot to Bank of America before the buyout, and grossly stupid excesses define the Bank of America - Merill Lynch union!

This is just one case. Just before the Street came crashing down, at the start of 2007, Todd Thomson was ousted as head of wealth management at Citigroup since tough times called for cost-cutting and Todd's excesses came out into the open! Apparently the office boardroom, which was almost exclusively used by Thomson, had marble flooring and polished wood cabinets. His main office had a house for Flipper, which is fine, except that it was a tropical fish-tank. The office took on a more Forrester Creations look with Persian rugs and a giant wood-burning fireplace. Mr Thomson also ruffled angry feathers with his use of the corporate jet, relegating other executives to 'cheaper' transport, (which I am sure would have been nothing short of First Class on some high priced airline) for the return leg of a visit to China so he could travel alone with CNBC's Mario Bartiromo. Excesses indeed!!!

Next - AIG. CDS took AIG under. And while AIG went sputtering, gasping for help, 70 employees had been rewarded with a week-long stay at the luxury St Regis Resort in California. The bill? $440,000. And look at the audacity of greed (good title for a new book... I stake my claim on that title) , a week later, it came out into the open that the company was planning another trip – but executives cancelled that one.

Finally (hopefully) - Bear Stearns. This story just is the crown jewel of the excesses saga. Jimmy Cayne, long standing chairman of Bear Stearns, wanted to be Tiger Woods one day! He stressed more on Golf practice, and seldom ever came to work on Fridays. When I hear about investment banking jobs from my friends, I get the picture of 20 hour workdays, ears stuck to the phone, fingers glued to the blackberry, divorces, what not! But 'let the company go to hell while I play golf', seems like a fun occupation for earning 8 figure salaries! Even working days called for golf. Manhattan traffic? well, there's no one up in the sky! Helicopter rides to the green - well, golf was an addiction indeed. Nero fiddled while Rome burnt. Well, Cayne putted when BS went under. Apparently when two of his flagship hedge funds toppled, Mr Cayne was very much on course, I mean the Golf course! And when BS finally said goodbye, he was at Detroit at the North American Bridge Championship. Much like the case of old man Thain. While Bank of America implored Congress for additional taxpayer bailout, with Ken Lewis working overtime to resolve the mess, each day discovering new black holes, which Mr Thain had never mentioned, Thain was busy skiing in Aspen Colorado!

India is seeing its worst disgrace ever. Satyam, one of India's largest IT services provider has been embroiled in a dirty fraud. Latest news says 2 PWC partners in India have been put behind bars along with the perpetrators - B Ramalinga Raju and his brother Rama Raju. The fraud? Siphoning funds from the publicly listed Satyam (shareholders' money) into Ramalinga Raju's son's firm Maytas, while falsely depicting augmented cash and reduced debts. Sounds Thainy to you? Very much indeed, except that Mr Raju unfortunately has a prison loo at his disposal.

Extraordinary times bring out extraordinary stories indeed.....

India's Madoff - Made off with the millions - but how???

Satyam is a rude shock. In ways more than one. There are some key questions everyone wants to ask. Some key points that Indians need to ponder. This whole fiasco can be described in a few short stages. Satyam, a listed IT company wanted to acquire huge stake in Maytas, which is owned by the Satyam Chairman's sons, without so much as a shareholder consent. After investors raise hue and cry, the deal is called off, but an even bigger can of worms is opened, after a startling confessional by Mr Raju, about massive fraud in their books, causes India's fourth largest IT major to collapse like a pack of cards.

The key points to ponder here are first, how did seemingly independent directors approve unanimously the Satyam - Maytas deal? Did everybody forget that every shareholder whether he holds a million shares or just one share, is still an integral part of the investing body and has a right therefore, to know what is happening to his money? Second- what was the role of PWC? It is indeed one of the big 4 and it has a massive reputation and an even bigger credibility to live up to. Was it condoning the massive fraud? If not, then how did Satyam (whoever may be involved - CEO or CFO or Chairman or anybody) cook up such a fairy tale balance sheet. And manage to pull it off for not one or two years but 10 years??? Most importantly, how did auditors find evidences for the non-existant Rs. 5040 CRORES and the non-existent accrued interest of Rs 376 crores and the non-existant debt of Rs 490 crores????? And, how did they not find evidences for a liability of Rs.1230 crores?

We can consider this scam to be the worst in years, almost to the scale of the Madoff swindle! And, somethings need to be addressed and acted upon very fast. First, we would need to understand how such dubious figures were concocted. ICAI would need to rework the accounting rules to prevent frauds of this scale. Extreme freedom to capitalism leads to greed, as it happened in the US in the run up to the credit crisis, and extreme regulation will lead to a contrived economy like that of China or erstwhile USSR. Clearly self - regulation with independent directors need not necessarily imply a clear, transparently governed corporate entity. A certain degree of government interference is needed. In the case of Satyam, the FIIs dumped shares to express disapproval, and hence the Satyam-Maytas deal fell through. But is the retail investor and indeed the FII as concerned in case of all other listed firms? Case in point Sterlite's attempt, in September 2008, to transfer the high-quality aluminum business and merchant power to Malco, in return for the low-quality, high cost, copper Konkola mines, going through without shareholder approval. Does that mean that only Satyam lost out for not having been smart enough???? Morbid indeed. And finally, what does this bode for Indian IT? And indeed for India, since although this scam is compared to Enron in US, its impact will be far more debilitating to India than Enron was for the US, since IT is India's primary key to growth and economic success.

Here is my summary of the whole Satyam story so far - Satyam Saga.

Of frauds and scandals - Wrong thing at a wrong time

It wasn't a premonition that made me write about Satyam yesterday. But it is a demolition that has made me write today. Satyam, one of India's strong IT firms has reported fraud. Fraud of the first kind. Reported cash where there was none, and reported under exaggerated spending figures. Wait, it got worse. This has not been a trend of the past year or two, but of the past 10 YEARS! And the worst part is - PWC audited them and Satyam was ranked one of the top 50 companies of all time in corporate governance. Well, a rude shock indeed.

When the world is reeling under a credit crisis, stock markets are spiralling to hitherto unknown depths, the mayhem is spreading to other sectors after affecting manufacturing and housing, unemployment in the West keeps augmenting, general investor sentiment is to hoard cash under the mattresses, the world needs some strands of hay to cling on to! Unfortunately, now, since freely flowing credit has dried up, all the skeletons are coming out of the closet, much like the bones on a riverbed can be seen during a hot summer as the river dries up! First - Bernie Madoff - a classic 'iski topi uske sar ' story. Remorseless profiteering, using unfair means. Now, Satyam, whose woes began with a crazy diversification of stockholders' money into a family enterprise finally leading up to the opening of the ugliest can of worms India has ever seen since Harshad Mehta.

This has loads of implications and repercussions. India has a rather strongly regulated banking sector. So, India was spared the debilitating effects of the credit crisis the world now faces. IT and IT services are India's main USP. But India is still a young nation. We haven't even reached a 3 digit figure for years after independence. So, facing fraud in the sector that in a way differentiates India from other emerging markets is, tough and sad to say the least. Investor and client sentiment would decidedly begin to spiral down. Where can India then move to find its elusive economic stronghold?

So much for India. A bigger repercussion according to me, is the dent on the credibility of the Big 4, at least in India. Auditors are historically feared by all firms, big or small. Now, if a huge auditor has not noticed anomalies for not one, but 10 years, its like the 'Dark Ages' all over again. Who do we believe? Madoff has sparked off fire on the SEC in the US. Will Satyam cause ICAI to re-visit its processes? Must SEBI also stop resting on its laurels and begin to ensure that the prices of stocks are truly aligned to the core competence of the listed firms? But then again, will an over-reliance on external governance result in contrived growth on account of controls based on extreme caution and suspicion? Will this eventually turn the whole world RED?????

Terrorism in India - It is a management case study

2008 was a bloody year. Literally as well. Carnage everywhere. The mayhem in Iraq and Afghanistan continued undeterred, while the world continued to burn elsewhere as well. South Ossetia, DR Congo, Zimbabwe, Pakistan, Tibet, Israel, Sri Lanka, India (all over - Jaipur, Delhi, Mumbai, Guwahati) and now Palestine. The color of the flame however was the same - a violent yellow, with splashes of blood red everywhere.

I wrote a lot during the Mumbai carnage. A lot is an understatement. Well, when your manager asks you and your team to please work from home (since people are their most valuable capital), TV is on a terrorism overdrive, Gtalk conversations revolve only around the 'dastardly' acts of violence inflicted on Maximum city, anxious clients send emails asking us to be safe and please not worry about work deadlines and going out is ruled out, since for family, we are the only one of the kind, annnnnd, the only tool at your disposal to vent out the thoughts stacked up inside your mind is something.blogspot.com, you, tend to write. And write I did, like here.

The thoughts ranged from anger to frustration to outrageously enraged to plain stumped. Now that the dust has settled and the Mumbai terror attacks have formed the topic of discussion for Indian diplomats and foreign ones with an Indian interest, all that is left is retrospection and a push for urgent action.

Why do we need immediate action after Mumbai? India shining. Over the last decade, India was a glorious investment destination for people across the world. As recession began to hit the big boys of the world economy, many looked to the east for support. India-China. But soon, the hyphenation with Pakistan (India-Pakistan, a dreaded term from which India had managed to slowly but surely move away), sort of managed to preponderate over the hyphenation with China. I had an opportunity to speak to a person who invests in real estate in the US. With the real estate bubble bursting with disastrous effects in the US, he looked to invest in Indian housing. But one statement he made was, 'How can India expect investment in the country when the country's own peaceful existence is perennially threatened?' Ouch! On that score, our nefarious neighbors with hostile 'non-state actors' seem to have dealt a massive blow. A recent article in the economist underlined this fact, and this sorry event has effectively dented international confidence in India. Do I feel bad? Yes. Can I blame the international community? No. How many invest in Rwanda? Or Zimbabwe? Or Sudan? Unless India gets serious about internal security, we cannot aspire to become the world leaders, torch-bearers who can and will bring the world out of economic gloom. Also, India has historically been a patient nation. We have put up with multiple insurgencies by our neighbors (a whole post was dedicated to our 'honorable neighbors' here). But this time, with the terror attack reaching horrendously evil limits, everyone is scared. What happened in Mumbai can happen anywhere. Suspicion will abound, since every commuter with a big bag sitting next to me in a subway, will be looked at with a million thoughts and images in my mind. People are scared. Real scared. They are more disgusted with the failing system that failed to avert this attack, than with the terrorists.

What kind of action can be taken? US has imposed a 46 year trade embargo on Cuba, because Castro overthrew the America-backed dictator Batista. Can the world community do the same to Pak? Will that help? Well, for a country that has always been sending defence ammunition meant for a war on terror, to the perpetrators of terror, how long will it take to find another means of propping up the already failed economy? Like the filmy dialogues by our Hindi movie villains - 'I wasn't born a criminal, Samaj ne mujhe aise banaya', a trade embargo could perhaps send Pakistan further into the clutches of terror. When Mumbai happened, the youth urged for war. A surgical war even. That was the anger translated into a wish for immediate action. Look at Israel and Hamas. I for one feel that the Israel-Hamas conflict is akin to India-Pak. Nefarious, meddling neighbors, perpetrators of crime and terror, disturbing peace in the region, making the everyday man worry whether he'd be alive the next day. Too many similarities right? The recent conflict - Israel has launched an all out war against Hamas. Is Israel really to blame? Granted Hamas was elected to power in Gaza. But the elected government had resorted to trouble making. Rockets in the backyard everyday, killing a handful of Israelis almost daily. Israel, has historically never been a calm and patient country. But nevertheless they put up with the shelling and killing for a while. At one point, like the protagonist of a Premchand novel, one would want to just pick up a stick and hit back. And hit they did, BIG TIME! But what happens? A personal evil agenda, of a handful of terrorists (in this case Hamas) who operate from the cushy comforts of their safe havens kills hundreds. The retaliatory effect is disastrous. Is war, no matter how surgical, an answer? I think, No. Terror is a new enemy, and we need to think out of the box to cure this canker, before the 'eye for an eye' strategy renders the world blind.

India has chosen the diplomatic route against Pakistan. Piling pressure through US, UK, UN. This pressure has so far only resulted in eyewash. There are hints of imminent war. Only hints. Since only God knows the effect of war between two nuclear powered nations in a precarious place like the Asian sub-continent, whose Middle eastern part has been ravaged by war and violence for ages. But can Satyagraha help against barbarians? I don't know. I, for one have always felt that Gandhiji won independence for India, because the British were still civil and cultured. But this time, the enemy is evil, and barbaric. Another kind of a fight is needed here.

But one thing we ought to notice in this whole carnage story, is the fact that only Israel or USA or Russia can actually launch an all out offensive against another country. Why? They have the political and economic power in whatever way that may be, to face the world after their 'job' is done. So, like I'd written in one of my earlier posts, there are only two things that we can do, in the immediate future. Beef up internal security - cameras, spot checks, tight intelligence, civilian alertness, breed suspicion. Yup! Breed suspicion. It's better to be suspicious, than dead! Second, build the economy and the political system to a level of strength, so strong, that like the world fears action against Israel or China, for the numerous ills they may harbor, we Indians become a true force to reckon with, and we don't need the intercession of any other country into our 'personal affairs'.

Perhaps what happened in Mumbai, can actually influence the thinking millions in India and across the world to perhaps put on their thinking caps and find a solution that could really work and in Pranab Mukherjee's words produce 'tangible results'... What say?

2008 : The year that was

It is almost new year and for many, this is a year better, best forgotten. The world has been hit by one of the worst ever economic crises since decades, with no clear sight in view, about when the mood will begin to be bullish again. However, this has been a year that can actually be remembered for some good reasons as well. So while we do indeed have the bad news, we do have the good news as well.

The start of the year, for Indians began with a slump in GDP. Perhaps we should have taken a hint from that piece of news, but we were quick to reassure all and sundry that everything was fine. The months went on, and as America sneezed, everyone in Asia began slowly catching the bug.

Britney Spears went through an awful year swinging in and out of insanity.

The American Presidential election became prime time watch for people all over the world. Lipstick, pit bulls, war veterans and the bridge to nowhere became commonplace topics to talk about.

The Indian embassy in Afghanistan was bombed and 44 were killed and another 140 innocent civilians were injured. Terrorism still showed that it had the upper hand in the world.

Madonna divorced Guy Ritchie and paid a fortune in settlements!

The phenomenon called the Olympics happened. In China. People had finally awakened to China. The arrangement and the organization was phenomenal. The gross disregard for human rights was totally condoned. But this was China. How could anyone care?!? India as usual went in with a teeny tiny contingent, in gross discord. Not even a uniform dress code!

But who cared about Ms Mirza? We won one GOLD in shooting courtesy Abhinav Bindra and two bronzes. Boxing and wrestling - Vijender Kumar and Sushil Kumar, respectively. Consistency was missing, since Rajvardhan Rathore, failed to impress.

Consistency showed elsewhere, since Nadal won French open and an Olympic Gold. AND ALSO WIMBLEDON. In matches that can thrill generations of YouTube watchers, history was written. Federer displayed chinks in his armor, but still went on to win the doubles gold at the Olympics.

The Marriott in Islamabad was bombed my suspected Al Qaeda operatives with a truckload of RDX, killing foreign nationals, and destroying the building. PoK was shook by a massive earthquake that killed thousands. Zardari became President. (I don't know whether I can say elected, since democracy and Pakistan don't sound good together). Musharraf had to run for his life, (expected).

THE DARK KNIGHT RELEASED. A cult film by any standards, setting a new threshold for villainy in the late great Heath Ledger. A terribly underrated actor, who starred in Brokeback mountain and A Knight's tale, The Joker was a new high for him. Unfortunately another form of going high, killed him, and the world lost a fine actor.

Barack Obama became President. Racial prejudices went to the dogs. Analysts, bloggers, people all wondered whether America would be able to take a wise well-informed decision, and no one was ready to bet either way. The economy by election day was teetering on the edge and no one knew which way the scales would tip.

Michael Jackson became Mikaeel.

The world lost Lehman Brothers. Merill Lynch went to Bank of America. Bear Stearns was gobbled up by JPMC. AIG almost went kaput, only to be rescued by the government.700 billion dollars was earmarked as a TARP bailout fund. We still don't know how that will be spent. American auto manufacturers are now paying the price for not having been prudent by going green and small. They now beseech the American Congress to bail them out.

Lewis Hamilton won the F1 World Championship. I don't want to speak much on that, since I still feel that was unfair.

Mumbai was attacked by terrorists who actually ran amok wielding AK-47 weapons and killing innocent people in a train station, and in key five star hotels in Mumbai's posh South Mumbai area. This set into action a whole host of events right from restructuring by the government to key steps to up the security in the country.

Vishwanathan Anand retained the World Champion crown. Yay!!!

Thwarting appeals by separatists to boycott elections, a 62% voter turnout in J&K showed the triumph of democracy. I kinda feel proud of that. In spite of all kinds of nonsense, Indians still have the power to elect their own leaders.

Israelis launched an all out yet retaliatory attack on Hamas in the Gaza strip, in one of the bloodiest attacks of all time.

Ugandan rebels are being fatally tackled in DR Congo. Zimbabwe is going through an economic breakdown with a terrible attack of cholera debilitating the country. Almost all of Africa is going through a humanitarian crisis.

A student was accidentally shot dead by police in Greece, and riots are still on in Athens. I guess the simmering dissent just needed one tiny burst of the bubble to just erupt like a volcano. A youth was killed in Bangalore by army personnel in a case of mistaken identity. Nothing happened.

India beat the Brits in the test series that comprised an almost lost test match as well. Australia lost the Boxing Day test to South Africa in a thrilling encounter.

Bittersweet year? I guess. A great year for Obama, sport in general, and a terrible year for the economy, Africa, Mumbai (thanks to BSE and the terror attacks). How will next year be? Who knows! But what else can we do, except look to the new year with hope and anticipation for a new beginning. Happy New Year everyone......

Boxing Week 2008

It's Boxing Week. Well, all along, I thought that Boxing Day (day after Christmas) held some historical significance in terms of the sport called Boxing, and hence is celebrated as such! Only later did I learn that Boxing day is when Christmas presents are to be unopened and kept / exchanged / returned. The 'boxes' represent the 'Boxing day'. Simple? Oh yeah! This whole week is Boxing week. All malls, shopping places run deals, good deals. Loads of discounts, since this week traditionally invites shoppers in hordes! There have been stories about stampedes outside malls on Boxing day, that apparently even killed a store employee! Now, people spend a lot before Christmas. They spend to buy presents for everyone. And Boxing week is like a bonanza, more like a ritualistic shopping expedition, as a means to add cheer to the white holidays. Basically, Boxing week is like shopping week, in a greater part of the Western World.

This year though, the story has been slightly different. Given the economic slowdown, analysts, economists, retailers have all been speculating on how the mood would be this year. Given the fact that people need to spend in order to boost the economy, the economy watchdogs were actually 'watching'. They wanted to see where the consumer would go, whether he would head to the shop or whether he would hide money under the mattresses. To lure customers almost all major shops advertised 50 - 70% discounts. They advertised freebies, and what not! Just to make the consumer come out and spend.

This time, with loads of people being laid off, mounting debt, lack of free funds to spend coupled with a general sense of uncertainty over where the economy is heading and when the bear would hibernate giving way to the bull, people were not really in a mood to splurge. No stampedes at Wal-Mart, only marginal queues. To make the crowds look bigger, some cash registers were closed off. Many people said that they had exhausted their budgets buying Christmas presents and so, did not wish to spend more in Boxing week. Some were prudent to keep aside buying a much wanted item like a pair of shoes or a bag for Boxing week, just because of the favorable deals. But that's it. No splurge shopping. Some were restrained because they did not feel right shopping when so many people were being laid off or were facing the brunt of the economic slowdown. The only contrasting report however was about Amazon reporting 73 deals per second on day 2 of Boxing week. Heartening to know. But a conspiracy theorist inside me asks whether this was a media byte to boost consumer confidence.

While some actually took pains to go and buy something, some others chose to window shop, for sake of the ritual. So Boxing Day actually took on the significance I first thought it to hold - Boxing... Only this time, fighting the urge to splurge in favor of a bit of prudence......