Monday, September 29, 2008

'Credit crunch, what credit crunch?'

Listening to the car dealer on TV reporting massive reduction in sales due to lack of credit and Arnold seeking 2 billion loan from Fed does not support this sentiment. But is it all that bad? Is the sky really going to fall lacking a 700 billion bonus from tax payer to the bankers? Probably not. What is the basis for me to say this? I am no expert in the complex matters of finance and do not have any credibility to question the financial acumen of the best and brightest like Paulson and Bernanke. But hey, this is a free country and every one can have their opinion. In my opinion, the present credit freeze is the result of bankers trying to over correct their excesses of last 5 years. It is like the cat refusing to drink cold milk after burned once while sipping it hot. For years, they lend to any warm body and now they don't want to lend to any one who is "sub prime". They are hoarding cash fearing that there are few safe hands these days they can trust. Aren't they lending to their "prime" customers? How are they able to do that if there is truly a cash shortage?

I wanted to test out my opinion with a real world credit exercise. I tried to get banks to lend to me in this "credit-freeze" environment. Like many of you, I still keep getting balance transfer or cash advance check in the mails from my credit card companies. I almost always shred them but decided to cash out some money before the cash completely "dried up". I decided to cash out a large sum from JP Morgan Chase. I got immediate approval and pulled money into my checking account with 0% APR for nine months. During the height of 700 billion bail out plan negotiation in the capitol hills, I pulled out another sum from BofA credit card with 0% APR for a year!!! Now that we established that banks still lend to credit worthy customers (I have a FICO score north of 700 but I am an average middle class person who is among 95% of Americans who will get tax cut under president Obama), let us explore what is happening at the home mortgage business which is the root cause of the current mess. My friend in LA just got funding for home purchase with less than 20% down payment and a 30-year fixed loan at 6.5%. Not bad in the days of credit freeze. He too probably has a good FICO score. What about small business owners? I know a gas station owner who got a large loan albeit large amount of paper work. But the point is that banks do have cash and they are still lending to credit worthy customers. They are not lending to each other probably because they are protecting their cash from one another just like the kids protecting their favorite toys from their friends afraid that they might break it! But when the price is right, they will lend again. How long they can hunker down with the cash without doing their primary business of lending?

Now that bailout plan got a second life in Congress, you would think Banks will start lending more freely? Absolutely not, at least for next few years. Once bitten, twice shy! They will hoard all that cash until next batch of whiz kids from HBS (Harward Business School) come up with innovative things they can trade. It will neither be dot com nor CDOs. But it will be some thing quite mind bending stuff. More complex and logic defying than CDOs and CDSs. According to some reports, the wealth of world's High Net Worth Individuals is in excess of 40 trillion dollars! They not only need a place to park their cash but investments that they can buy and sell for a profit. An American, even with a FICO score below 600, is a better borrower than any one else in the world. Because only in America, you will see a bailout package of this scope and ramification gets introduced to the law makers, gets debated, gets defeated after angry calls to Congressman's office and then finally getting passed after local business owners call and plead and president signs into law within hours of House adopting the motion. All in a matter of a fortnight! Americans have the audacity to do mind bending, logic defying stuff. Be it dot com or it Subprime or borrowing almost a trillion dollar more to pay off some bad loans. That too when the treasury is running half a trillion deficit already. And the world wonder in amazement in her triumphs and tribulations and buy her treasury bills like a clock work. I love this country :)

The Credit Cruch:Where Is It Happening? TIME article

My previous post on 'Defending Subprime lending - case for democratic economy'

Monday, September 8, 2008

What is common between Thai Yellow Curry and North Kerala Yellow Curry?

Or you could ask why the gorgeous looking air hostesses of Malaysian and Singapore airlines wear colorful Lungis. Ever since I ate Thai yellow curry from a neighborhood Thai house for the first time in 1999, I was perplexed by its likeness to North Kerala Thenga Curry and Thanjavur Kulambu (vegetables or sea foods cooked with coconut milk and spices to thick yellow or red gravy). I knew there was some material connection between the lungi clad waitress at the Thai house and the Lungi clad waitress at the local Tea shop in my home town in Northern Kerala, but couldn’t figure out what. After years of sitting on this, I finally decided to dig deep. The boring lessons from school on Chola, Chera and Pandya dynasties of ancient India started resurfacing.

Well, the answer to the mystery might be King Rajendra Chola of Chola dynasty who expanded the Chola kingdom’s influence to include most of South India, part of North India (Bihar and Bengal), Sri Lanka, Maldives, Malay Archipelago (Malay Archipelago constitutes the territories of Indonesia, the Philippines, Singapore, Brunei, Malaysia, East Timor, and most of Papua New Guinea) and part of Burma and Thailand. Around 1130 AD (or CE to be politically correct), all these geographic entities were ruled by or under the subordination of the great expansionist and navigator Rajendra Chola.

After this new found information, I stopped wondering why people in Bangladesh wear colorful Lungis just like south Indians. I don’t wonder how Kerala Porotta (bread made of flour and forms circular flakes) is almost the same as the Malaysian porotta stacked next to it in an Indian store. Who would have thought of putting fish in Sambar? Well, I had the opportunity of trying it out during a Malaysian stop over! It is hard to guess if Malay people decided to put fish in Sambar or south Indians decided to replace fish with Brinjal and Okra!

Rajendra Chola expanded the trade route between South India all the way to China. Iron utensils were imported from China almost 1000 years before Walmart did it! Cheena Chatti (deep skillet made of iron) was used by my mother till it was replaced by the non-stick craze of the last 15 years. Trust me; the cheena chatti was the best non-stick ever after it aged a little. Cheena vala (shore operated lift net used for fishing) is part and parcel of every day portraits of Kochi, Kerala. Cheena/Cheeni means China if you don’t know that already. World has always been flat I guess! But the modernity didn’t know until Friedman told it that way. Well, never too late.

The map of Rajendra Chola ruled or subordinated territories. He had established active trade with Mainland China through Malay Archipelago.