Lumuhuku

Arbitary Obsessionist's Blog : Ambition is redundant. In life, mission is everything.

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700 Billion Dollars Bailout Rejected. Fortunately…

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Wall Street thought that the bailout being rejected, was bad. Really bad. Dow tanked 777 points in a single session. The biggest loss ever in a day. Even President Bush was very disappointed.

rejectedI am not. This gives Americans another chance to have a look at the bailouts. Take a look at what is wrong with their system and bailouts. I have always advocated that it is better for the markets and the ‘stupid’ organizations to correct themselves. Only when these idiots pay for their mistakes, will other better organizations rise to take their place. Even though the bailout plan promised relief in the short term, its sustainability over the long term can be seriously questioned.

 

So why actually did the votes did not come in motions favor?

The bill went down 228-205.

The reasons were simple. There are a host of concerns about the bailout package – from the burden it would leave on future taxpayers to fears that it “could permanently and fundamentally change the role of government in the American free enterprise system”

According to today’s New York Times,

“Supporters of the bailout proposal had argued that it was necessary to avoid a collapse of the economic system, a calamity that would drag down not just Wall Street investment houses but possibly the savings and portfolios of millions of Americans. Opponents said the bill was cobbled together in too much haste and might amount to throwing good money from taxpayers after bad investments from Wall Street gamblers.”

“We need to put something back together that works” a grim-faced Treasury Secretary Henry Paulson said. But all sides did agree that the effort to bolster beleaguered financial markets, potentially the biggest government intervention since the Great Depression of 1929, could not be abandoned.

Why did the US Government kept lobbying for a bailout?

The legislation the administration promoted would have allowed the government to buy bad mortgages and other sour assets held by troubled banks and other financial institutions. Getting those debts off their books should bolster those companies’ balance sheets, making them more inclined to lend and ease one of the biggest choke points in a national credit crisis. If the plan worked, the thinking went, it would help lift a major weight off the national economy, which is already sputtering. But what if the plan did not work? Jesus knows best…

Leave Jesus, even Paulson knows that this time, it is really not going to be easy.

“We need to work as quickly as possible,” he said gravely. “We need to get something done.”

Time for a NEWer DEAL ?

Now when he invested $5 billion of his own money in Goldman Sachs, even Warren Buffet got a great deal. So why not the average American taxpayer? I think that the mission of this bailout or rescue should be to use the financial collapse to institute genuine reforms. Since the problem in the markets is a reflection of the larger problem in the economy, why not fix the economy? Is it not the time for a “NEWer DEAL“?

The financial organization’s generation is changing. The old is dying, and the new cannot yet be born. In the interim, steps need to be taken to support the birth of new ones rather than trying to save the old at the expense of newer ones.

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$ 700,000,000,000 ! ! !

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Yes you read it right. A staggering $ 700 billion bailout package. The biggest ever in history.

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The Treasury Department and Federal Reserve have planned to buy troubled mortgage securities in “wholesale”, from banks and other financial firms. Now this seems a much better way of bailing out distressed organizations in a more systematic way, rather than randomly helping them out and ‘not’ helping them out [..Read Lehman Brothers..].

Systematic does sound very prudent. But here the price tag is very very steep. So why such a large amount? Treasury Secretary Hank Paulson said at a press conference –

“This needs to be big enough to make a real difference and get at the heart of the problem.”

So is this all that needs to be done. No say a few of the highly reputed economists. According to them, it might need more than $ 1 trillion to solve the current crisis!

Once again I ask that why should government (and after all, the taxpayers) even be contemplating such action? The clearest explanation is probably that of Paul McCulley, a managing director of the money-management firm PIMCo.

When a debt-fueled investment bubble bursts, financial institutions that make their living off borrowed money (banks, investment banks, hedge funds) tend to want to reduce their leverage — their ratio of debt to equity. That’s perfectly rational. But when everybody does it at the same time, big trouble ensues. Not all leveraged lenders can shed assets and the associated debt at the same time without driving down asset prices, which has the paradoxical impact of increasing leverage by driving down lenders’ net worth. Basically, if all lenders de-leverage at once, the financial system implodes — and everybody, not just the bankers, suffers. To halt this, somebody has to leverage up, not down, and acquire assets, not sell them. The government is the institution in by far the best position to do so. The Federal Reserve System can play this role on a short-term basis — halting panics by lending dollars in exchange for momentarily hard-to-sell assets.

But it is widely agreed that this is a very bad policy in the long run. “The Fed is the guardian of the currency. That’s its job. Its job is not to subsidize people who made credit mistakes.” So who pays for Mortgage brokers, investment bankers, house flippers and other sharpies getting rich & causing this mess? You pay! Yes you, the American tax payer. But there may be a silver lining in the dark clouds. If the government buys assets when everybody’s panicked and sells them when markets have calmed down again, it could even turn a profit.

A grim-faced President Bush acknowledged risks to taxpayers in what would be the most sweeping government intervention to rescue failing financial institutions since the Great Depression. But he declared,

“The risk of not acting would be far higher. This is a pivotal moment for America’s economy. In our nation’s history, there have been moments that require us to come together across party lines to address major challenges. This is such a moment.”

And I think he is right (atleast this time. NOTE : I still do not, ‘convincingly’ support bailouts)

Now a very serious question is that will these institutions who receive the proposed 700 billion dollar “bail out” be required to pay back what they have received? No announcements have been made regarding this. Lets see if any are made in future.  😉

And will top level people in these institutions stop getting the jaw dropping “perks” or will this continue even after the bailout?

So here is my take…

The reality is that this $ 700 Billion bailout does not and cannot protect the taxpayer. You must have heard a lot from the officials that these bailouts will eventually help save the people. I ask how? The bailout bill only promises to take the taxpayer into consideration, nothing else. There wont be any guarantee that the institutions will survive even after the bailouts. Then what will happen? Nobody seems to have the answer. The whole $ 700 billion seems to be a dumping ground for all the mistakes made by those idiots at the top. The mistakes were so stupid that they cant be corrected. How can such big institutions with such legacies and missions and visions in place make such mistakes? Seems they were all drugged.

So, finally I ask and try to tell you

Who, really, is going to come up with the $700 billion?

American taxpayers will come up with the money, although if you are bullish on America in the long run, there is reason to hope that the tab will be less than $700 billion. After the Treasury buys up those troubled mortgages, it will try to resell them to investors. The Treasury’s involvement in the crisis and the speed with which Congress is responding could generate long-range optimism and raise the value of those mortgages, although it is impossible to say by how much. So it would not be correct to think of the federal government as simply writing a check for $700 billion. It is just committing itself to spend that much, if necessary. But the bottom line is, yes, this bailout could cost American taxpayers a lot of money.

So is it fair to say that Americans who are neither rich nor reckless are being asked to rescue people who are? What is in this package for responsible homeowners of modest means who might be forced out of their homes, perhaps for reasons beyond their control?

Yes, you could argue that people who cannot tell soybean futures from puts, calls and options are being asked to clean up the costly mess left by Wall Street. To make the bailout palatable to the public, it is being described as far better than inaction, which administration officials and members of Congress say could imperil the retirement savings and other investments of Americans who are anything but rich.

Americans, Keep praying. I am with you.

A New Political Party – The ConAm Party

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After witnessing the Indian politics for the last few months, I am pretty sure that just about anything can happen here. And I mean ‘anything’. We always knew that ministers do take money (here, at least) to switch loyalties. But to show it, in full live broadcast, to the entire nation? Pathetic!! I don’t know who all were involved, but does it matter? The so-called intelligentsia of the Indian society does not even go for voting. We idiots don’t even have an opinion to voice. We always have excuse of being unbiased. But please, this is the place to show your bias. Show your opinions or get people like today’s politician again in the future elections. And by the way, who all do go to vote? It’s the poor class. These are the ones who will give vote to whosoever gives them a blanket or food to eat then and there. They have their own set of problems.

And I must admit that even I am a part of the problem, as I am not bringing in anything substantial for the solution.

So for the sake of emptying my head and heart’s chronic guilt of staying out of politics, I suggest the establishment of a new Indian political party, which I think can be labeled as ‘above average’. But unfortunately, the average in India has hit the nadir. But still…

I call it The ConAm Party.

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What does ConAm stand for? It stands for Controlled Ambition. There is no point in saying that we are going to do this and that and blah blah…. We all know our system’s limitations, red tapes involved and the unfortunate and vast availability of an unbiased population.

There is no paperwork involved if you want to join my party, and you don’t even have to stop being a supporter of any of the present parties, be it Congress, BJP or whatever. Here I take the liberty in selecting my candidates at will. I may take them from present ones or from those outside the field of politics too. But I will make an effort to take them from political arena itself. My party will have its own set of agendas, most of which would be to uplift the poor and start reforms in the needed field.

So lets take up the major agendas.

 

More vibrant and aggressive approach for energy self sufficiency

We will open energy and power sector to much more FDIs to promote competition in the sector and much cheaper energy rates. We shall take every step to double the power capacity within the next 5 years. We swear to reduce dependence on fossil fuels to less than 30% within 8 years. 30% power would be sourced from hydroelectric power, as they already have a head start and have a historical presence here in India. 20% would be derived from Nuclear power. Rest 20% would come from renewable sources like wind, solar, tidal and geothermal energy and companies operating in the renewable energy sectors would be on a 10-year tax holiday.

Absolutely no subsidy will be provided in fuel prices for vehicles priced above Rupees 6 lakhs.

All logistics related vehicles shall be run on CNG and not liquid fuel. This will be achieved within 5 years

 

More practical tax policies

The tax rates for individuals would be kept at a flat 10%, with arbitrary cess levied as and when required. For corporates, the rate of taxation would be capped at 15%. Certain industries like oil and gas, power, capital goods should be taxed at lower rates as this would help in providing the end consumers with goods and services at a better price.

 

Strong education policy

Education would be made free till class 12th and private institutes offering the education should be adequately compensated by the government. Higher educations should be subsidized and loans may be provided at negligible rate of interests. Research works in enterprising fields would be adequately funded

 

Reduction in all types of reservations

The level of caste-based reservation would be capped at 10%. More reservations should be introduced for chronic poors, but even it should be capped at 10%. Government will establish monetary institutes for the purpose of providing cheap loans to poor with longer repayment periods.

 

Turbo charging the agricultural sector

We have not been able to increase our foodgrain outputs as fast as our population. This needs to be addressed. And addressed fast. We will make efforts to help the sector adopt better practices of using GM crops and provide better irrigation resources. This will eventually help the economy by providing self-reliance in foodgrains and later on, it will help India become an exporter of foodgrains.

 

Make abortion legal

 

Cutting red-tapism in infrastructure development and establishment of Higher Order Infrastructure Support Fund (HOISF)

Delays in all grants of permissions, licenses and tenders shall be reduced. HOISF shall be funded from our foreign exchange reserves as well as a cess of 1% shall be levied on income tax from the individuals, from time to time.

Question arises that how will we, as government going to fund all our policies. SWF is the answer. Yes Sovereign Wealth Funds. Indian government has been avoiding it for the last few years. But it does not make sense to park all our foreign reserves in low yield investment vehicles. Part of the current reserves of above 300 billion dollars can be used to invest in equities, which have a better yield potential.

All this does seem to be an agenda for an economy that is entirely capitalist in nature. But the point is, that we are not. We need to take into account that more than 600 million Indians need to be taken care of. These are from the lower section of the society. So we need to be ready to make some exceptions for humanitarian reasons. For example, if a natural disaster hits a part of the country, which is not developing fast enough, it might be cheaper to let everyone die, but you have to put life ahead of money at every point.

The ConAm Party would be committed to change its policy recommendation whenever the need arises.

 

Lets now take an attempt at populating the ministries, if our party does make it to power. Mind you, being a politician is not mandatory but recommended.

Another relaxation would be that a person who has already occupied a more powerful ministry may be allotted to a lower ranked ministry.

Though not much in our control, our party vehemently proposes the name of Mr. Abdul Kalam for the post of President of India.

 

Prime Minister

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Unanimously it would be Narendra Modi. His meteoric rise as the chief minister of Gujarat has laid the foundation of him becoming the CEO (read PM) of India. His greatest asset is that he is uncompromising on his principles. Under his aegis, Gujarat has started registering double-digit GDP growth rates, making it one of the most prosperous states of India. He always keeps friends and foes at an arms length when they try to come in the path of Gujarat’s progress. His leadership qualities were proved when he single handedly won the last Gujarat elections, when everyone from media to oppositions and even his own party had written him off. If he does make it as the PM, Moditva is going to rock the country!

 

Minister of Finance

P A Chidambram is our choice as he has been in the midst of Indian economy for a decade and so, and hasn’t aged yet. So I would stick with experience.

 

Minister of Planning

In 1991 reforms, it was because of him that Indian economy turned around from the brink of disaster. It was his vision and plans that have made India reach where it is today. Manmohan Singh is the most suitable candidate to plan for Indian future.

 

Minister of Railways

Never has been Indian railways had it such good. I keep Lalu Prasad Yadav as the railway minister for his unconventional approach in managing such a large organization and his knack of adopting latest technological advances and for ‘magically’ creating profit out of thin air.

 

Minister of Defense

Praful Patel would have been good in any ministry, but the defense needs him. Why? Indian defense desperately needs a new lease of life as it needs latest technologies and facilities for fighting the mind battles of the future. Only Mr. Praful seems to have the knack of streamlining the operational management of the organization he is involved with (referring to the formation of Indian Aviation Company, created out of the merger of Indian Airlines and Air India).

 

Minister of External Affairs

She is a leader who can talk people into giving in. No other candidate seems better suited. Sonia Gandhi is my choice.

 

Minister of Youth Affairs

Priyanka Gandhi. She is so sophisticated and cute!!

 

Minister of Urban Development and Renewal

Having converted Hyderabad to Cyberabad and having a passion for development, Chandra Babu Naidu is my candidate for infusing new life in urban development. I respect him a lot, but recently his alliances with Behenji have not impressed me too much.

 

Minister of Education

People having passion for spreading education don’t seem to be available here. So no recommendations from me.

 

Minister of Agriculture

I have not seen anyone as manipulative as Mayawati. The way she handles the administrative personnel is just too dark and remarkable. If she does get into agriculture, she would make the government work more for the farmers, which is the need of the hour. Secondly, she has the so-called-passion for working for the reserved classes, which would be abundantly available in agriculture.

 

Minister of Small-Scale & Rural Industries

The way he helped AMUL become a billion dollar cooperative society leaves me with no choice but to nominate Verghese Kurien as the minister for the said ministry.

 

Minister of Commerce & Industries

He has one of the most brilliant combinations of concern for growth of the industries and concern for the growth of the people affected by those industries. No one has it better than Ratan Tata.

 

Minister of Environment & Forests

We need a visionary and that too fast. I elect R. K. Pachauria before it is too late.

 

Minister of Health & Family Welfare

Being at the helm of McKnisey’s global operations for years and having a remarkable ability to mobilize support from the elite class of the society for a cause, Rajat Gupta is the man. He has a burning desire to serve India, which has already been shown by his educational and health related ventures. No. Nobody else comes to my mind.

 

Minister of Labour & Employment

Of course Amartya Sen!

 

Minister of Culture & Tourism

If anyone can promote India like a pro, it is Shah Rukh Khan. And we can even save money by making him the brand ambassador of India’s cultural and tourism campaign!

 

Minister of Sports

Jagmohan Dalmiya was the man who made BCCI a force to reckon with in world’s sporting map. He has the rare knack of mobilizing and generating huge sums of money for his organization. And India’s different sports (leave cricket out of this) are badly in need of funding. He is the man we need.

 

Minister of Human Resource Development

I lack options here too.

If thirty or forty million people join The ConAm Party, all major candidates would have to start paying attention to us. At the very least, pseudo-voters would become voters and be more opinionated. That seems like an excellent dream.

So are you in?