Virtual Banks

Professor Jayanth Varma has posted his Financial Express oped on his blog, in which he tells us that a CDO is just a small bank, while a bank is a really big CDO:

In 2007, when the first problems emerged in CDOs, people thought that these relatively recent innovations were the cause of the problem. Pretty soon, we realised that a CDO is simply a bank that is small enough to fail and conversely that a bank is only a CDO that is too big to fail.

Both banks and CDOs are pools of assets financed by liabilities with various levels of seniority and subordination. As the assets suffer losses, the equity and junior debt get wiped out first, and ultimately (absent a bailout) even the senior tranches would be affected. In retrospect, both banks and CDOs had too thin layers of equity.

This is actually an incredibly strong insight. We are so used to thinking of a bank as an organisation and a CDO as an exotic security that it seems like a revelation when you realise that actually both have the same sort of balance sheets.

So if CDO’s weren’t the problem, what was? Bad credit practices in general. That said practices were probably caused by too much cheap money sloshing around is left unsaid.

It is becoming clear that what the US is witnessing is an old-fashioned banking crisis in which loans go bad and therefore banks become insolvent and need to be bailed out. The whole focus on securitisation was a red herring. The main reason why securitisation hogged the limelight in the early stages was because the stringent accounting requirements for securities made losses there visible early.

Potential losses on loans could be hidden and ignored for several quarters until they actually began to default. Losses on securities had to be recognised the moment the market started thinking that they may default sometime in the future. Securitised assets were thus the canary in the mine that warned us of problems lying ahead.

So basically, the exotic instruments were symptoms and not the disease. I’d add here that securitising mortgages into CDOs rather than pure pass-through certificates probably created an extra level of complexity, though.

Ajay Shah often talks about how financing through exchange driven markets (whether for bonds or equity) is preferable to financing through banks which are forced to deal with much more illiquid levels of risk. If you accept that as a basic assumption, then if a CDO is a virtual bank, it represents a throwback in the evolution of finance. Oh dear.

The problem is that investment banks were still able to create and sell CDOs rather than selling a simple package of pass-through certificates on mortgage-backed-securities. Hopefully, this is a generational thing that will die out soon – now that every chhappar in the world is getting an MBA, a CFA, and at least a basic knowledge of financial instruments, the power that investment banks have over purchasers of securities may dissipate once this glut of finance professionals starts trickling into treasury and fund management offices where they can do their own structuring, dammit.

Of course, the stranglehold that I-banks have over issuing securities is unlikely to go away. So we should have strong regulations to ensure that they only sell vanilla products and the customers do their own structuring.

Before I forget, do read the whole thing, especially for the last few paras, where Prof Varma talks about why we should embrace securitisation and the advantages it has given to American consumers.

Tribhanga Here, There and Everywhere

So about two years ago I had linked to the blog of a guy called Anil Menon, where I had got a whole bunch of fundaes which I used to make questions for my KQA quiz. This year, I found out that Anil Menon is actually a sci-fi writer. Here is an interview of Anil Menon by Vandana Singh.

I found the blog because I had been searching for more information on the Tribhanga pose, which it provided in great detail. If you didn’t read that post when I first linked to it in 2007, read it now. It’s brilliant.

The tribhanga is a pose in which the body twists or flexes thrice – on the leg, the waist, and the upper body. Because this pose comes more naturally to women than men, Chola sculptors used it in their statues of Parvati to emphasise her feminity, something I learnt in V Ramachandran’s Rieth lecture on the neurological basis for art appreciation. I found the Reith lecture (and then decided to set a question on the funda) in a link from Ravages, who had been photographing the Chola bronzes. I can’t find the original photos he had posted then, but here’s one he posted more recently: 

Parvati

And here is a photo of a lady in Raffles City mall who is checking her iPhone while standing in tribhanga:
Tribhanga

Her face is obscured, so there are fortunately no privacy issues. It’s also a happy coincidence that I got this snap – I was practicing manual focus on the awesome 50 mm f/1.8 lens while waiting for a friend to join me at lunch, and didn’t notice that I had got this tribhanga snap until I came home and transferred my pics.

Incidentally, the Wii Fit – in sharp contrast to Anil Menon – insists that the tribhanga is a terrible thing and that standing in this pose is the road to ruined posture, upper body weakness, and spinal injury. In a shocking display of Nipponese hypocrisy, the animations for the yoga and stength exercises show the trainers standing with their bodies flexed before the routine actually starts.

The Logical Extreme

Supporting freedom of speech and expression is a bit of a spectrum. On one end there is the complete commitment to free speech, consequences to anybody be damned. On the other end there is North Korea.

In between, there’s the hypocritical commitment to free speech in Indian politics where Shashi Tharoor will criticise Modi banning Jaswant Sinha’s book but say nothing about Congress government bans on Nine Hours to Rama, The Satanic Verses, and James Laine’s books. There’re also the Hindutvawadis who are all for free speech when it comes to Taslima Nasreen and the Danish Muhammad cartoons, but suddenly do an about face when it comes to MF Hussain and the poor chap in Vadodara.

But even if you’re not committed to free speech at a fundamental or ideological level, there’s a very good selfish reason to support it, or to speak up for any poor bastard who’s getting thulped for having caused offense: if people who are actually offensive and obnoxious can get away with it, people who’re entirely innocent don’t have anything to worry about. If Muslims can depict Hindu gods any way they like even if they are blatantly hurtful or derogatory, Hindus can also depcit gods in any manner, even if these are not traditional and a little edgy. Conversely, if offended Hindus can get away with hounding Muslims, they’ll soon start going after offensive Hindus too. And apparently we have already slipped down that particular slope:

Dr Subodh Kerkar, an artist based in the holiday resort state of Goa, had announced the exhibition of his sketches, which depicts Lord Ganesh in different form including the one holding Oscar award.

I have been receiving phone calls which threatens me with dire consequences. They told me that they will chop off my fingers for indulging in such act, Dr Kerkar told daijiworld from his gallery at Calangute, a beach village in North Goa.

The series of calls for the painter started when Sanatan Saustha, a hard core Hindu organization through its mouthpiece, Sanatan Prabhat carried the sketches appealing `Hindus to call up Dr Kerkar and express their anguish.

The paintings means no offence to any religion. They are my ex-pression of creativity, Dr Kerkar said. The painter said that he himself is a devotee of Lord Ganesh and has always been inspired by him.

(daijiworld)

He got into trouble for painting Ganesh with an Oscar. At this rate Tantra T-shirts are doomed.

Once upon a time, being violent to members of your religion for not being pious enough was something that the Dukhtaran-e-Millat used to do in Kashmir. It’s tragic that now we Hindus are sinking to that level.

Of Chinese love for cute things, of shanghainese men and of Chinese babies & nappies

Wanted to post this for a long time now; but travel, viral infection and lack of photographic evidence delayed the same. Since the travel is not going to slowdown, I decided to go ahead and post this and add photographs later.

Let me start with the Chinese love for all cute things – before which I may add that the Chinese people themselves are very cute and endearing for their Barbie doll personalities; specially the women. There is something about the Chinese and their love for soft toys, baby doll dresses, cute clips, hair bands, bling bags, cartoon character car seat covers – the list is endless. While this by itself is not surprising, what stands out is the fact that it’s not just the teenagers who are hooked onto the cute stuff but even their moms. So it’s normal to see a 40 something Chinese lady with a cute pink teddy bear hanging from her mobile phone (which may also be pink) and driving a car which has tweety car seat cushions and her office cubicle will be full of cute little soft toys. Also she would be wearing a baby doll dress with purple mascara or in some cases purple highlights to the hair. Her laptop bag may again be a very girly bag with some cartoon character and she may wear pink or violet sandals. Now, before you get me wrong, I must highlight the point I am trying to make here – The 40 something Chinese woman can carry all this off! Can you ever imagine the average 40 something Indian woman in a baby doll dress with stuff she would buy for her kids? (While our 40 something heroes are in some cases able to carry off a college boy look complete with pink tees, actresses at that age are only offered “maa/ bhabhi” roles). And then you hear people saying how it’s not easy to determine the age of the Chinese – that because they really don’t age; mentally at least.

Now having spoken about the women let me dwell on the average Shanghainese man. He is the perfect husband/ boyfriend every woman dreams of having – It is said that the average Shanghainese man treats his woman like royalty bringing her breakfast in bed, to carrying all her bags (yes including her most feminine handbags) to taking care of the kid. In fact, it is said that the men in rest of China make fun of the Shanghainese men for being so effeminate. But, nothing seems to faze the Shanghainese guy and all over the city, one can see the guy following the girl obediently or walking next to her carrying her LV/ D & G/ Prada handbag (fake one in most cases). I have been told that in some cases this royal treatment is also meted out to the girlfriend/ wife’s parents and the Shanghainese man excels at not just cooking but other household chores too. Now if only Indian men were to take some inspiration from the Shanghainese men (ok, except the handbag carrying part as that can be really effeminate).

And this brings me to the most intriguing thing about China – the aversion to use nappies for babies! The first time I saw a Chinese kid moving around I thought that this kid must belong to such a poor family that he has to wear torn clothes. But it’s only when I saw almost every kid roams around with no nappy and a slit in his trousers/ pants to facilitate parents to help them pee/ poo that I realized that this is the norm here. Unfortunately I don’t have a photograph right now, but will soon be posting one as in this case the adage “A picture is a thousand words” does hold true. I would say one of the most difficult jobs in China would be that of the marketing head of these diaper manufacturing companies. I have also heard expat friends with babies receiving “torn” clothes as gifts as the baby clothes in most local places here come with a slit! Can you imagine how lazy must be the person who invented this slit in the first place!

(Disclaimer – the writer is NOT looking to have a Shanghainese boyfriend/ husband)

Super Saturday

This Independence Day, I achieved two long-standing dreams.

The first was at the Landmark Quiz Chennai. We (me, Skimpy and Kodhi) won it.

The three of us have been taking part in the Landmark or Odyssey quizzes since 2004. We’d do our August 15/ January 26 pilgrimage to Chennai and just miss qualifying, or qualify and then come last. This year, we qualified. We didn’t get knocked out. And we were on brilliant form, cracking questions throughout the quiz and peacefully winning.

We then went into the all-India finals, and ended up losing by one question, but so it goes. No Enthu Da is now established as a quiz team. We have a reputation. Another couple of years like this, and we could start getting name recognition like QED or Mama Machaan Mapillai. Sooner or later, we’ll win the national round too.

That was dream one. The second dream got fulfilled just after the Chennai round, when the three of us were interviewed by the Chennai local news channel.

Reporter: How does it feel to win?

Kodhi: One of the things in life’s to-do list has been checked off.

Reporter: So have you been quizzing lots before this?

Wimp: Yes, we’ve been coming here and trying to win for five years now.

Reporter: So how do you feel on Independence Day? What does Independence Day mean to you?

Me: Freedom is awesome! It’s great that we have freedom and now we should help other countries with freedom too. To the north you have China being high-handed so we should support free Tibet.

Why was this fulfilling a dream? Well, the news channel is a joint venture between NDTV and The Hindu.

Abusing The Hindu in The New Indian Express is one thing. Expressing pro-Tibet opinions on a Hindu owned media outlet is one of the greatest hacks I’ve ever pulled. Now, as with the Landmark Quiz, it’s time to raise the game – the new goals are to win the national Landmark, and to somehow write an anti-China or anti-CPM oped in The Hindu itself.

Solitude

Language… has created the word “loneliness” to express the pain of being alone. And it has created the word “solitude” to express the glory of being alone. ~Paul Johannes Tillich, The Eternal Now
My house in Bombay is in the centre of action with a children’s garden, wedding hall and some popular south Indian restaurants in the neighbourhood. Unsurprisingly, for a city that never sleeps, there is never any time when there is no traffic and no noise. Even at 1 am I could walk down 20 steps to find the road side pau bhaji wala and juice centres; all doing roaring business and buzzing with people, energy and activity. Dadar station is the closest “fast” station on the western line to my house. There would be very few places in the world as crowded and chaotic as Dadar station. People visiting Bombay for the first time tend to get overwhelmed at the sight of the crowds running like their life depends on the last local; particularly at the big stations like Churchgate, VT, Dadar, etc. For Bombaites it’s a way of life – we know it no other way. Most of us have taken the last train home and also spent times painting the town red till 6 am such that we reach home when the doodhwala arrives.
So when I got to Shanghai and realized I could live on either side of the river – Puxi, which in energy and spirit reminds me of Bombay or Pudong, which is the quieter commercial and residential area; i surprised myself by choosing to live in Pudong. Not because I wanted to be close to work (as I travel 45 mins to work one way) but because I wanted to experience what one rarely gets in Bombay – SOLITUDE! I live in an area called Jinqiao which seems completely surreal to me – my building apartment stands in the middle of long alleys with trees on both sides; shops are so in descript one would barely notice them and though there are lot of people who live here, one never gets to see them. There is a Carrefour and community centre at a 10 minute walking distance – this place is frequented by people of so many different nationalities – it seems like a complete melting pot where the world has come together. It’s a congregation of a different kind and seems quite unreal.
A friend from Puxi recently visited me and she was so shocked at the tranquillity and stillness of the surroundings. She asked me how come I don’t feel scared living alone in such a quiet area. That’s when I realized that though initially the solitude had seemed very new to me; I had come to embrace it and like it in more ways than one. There are no screeching, honking, music blasting cars here. I have neighbours but never feel their presence. Of course there is no shaadi ka band bajaa which I am so used to (since I have a marriage hall right next to my house back home). The only time I remember hearing sound in my surroundings was when the Chinese New Year was being celebrated with fireworks. Otherwise the serenity and calmness is lovely – it’s quite something to be able to hear the sound of rain with no other sounds to dilute the effect. I wish I could walk into my balcony and have a sea or beach view – what I have instead is an artificial lake and villas for a view. This quietude has had amazing effect on me; making me reflect, introspect and even change a lot. I am getting so used to this that today when I speak to family and friends back home and can hear the loud traffic in the back ground, I find that disturbing enough for me to tell them to speak to me when they are in a quieter place. Truly such peace and quiet is difficult (and expensive) to get in Bombay – and that makes me value this even more!

Incorporating Heritage

Neel has a blogpost which talks about IIT-D designed board games that incorporate elements from traditional Indian stories into their design. He also laments that most Indian design and architecture does very little to showcase heritage, and picks on malls, airports and railways stations as being the worst offenders. I had some scattered thoughts about this which were too long for a comment, so here they are:

  1. One of the big problems with incorporating heritage into any venture these days is that you put yourself at grave risk of Rajan Zed issuing press releases that you are offending Hindu sentiments. In fact going by past experience it could be not just Rajan Zed but Rajput associations, Jain associations, Sikh associations, ad nauseum.
  2. Railway stations – depends on what you’re defining as heritage. When the British were building stations, they they built gorgeous facades which mixed up Mughal design elements (arches and domes), continental European decoration (the gargoyles at the station formerly known as Victoria Terminus), pre-Mughal construction (red sandstone), and some stuff which was entirely fresh from the architects’ perspective. I think that railway stations in princely states may also incorporate local architecture. It’s probably construction in post-independence India that gave us the horrible concrete blocks with no aesthetic appeal – the same applies to most of the airports.
  3. Airports – we seem to have moved from a situation where there was one single design of ugly concrete blocks being used for every airport to a situation where one single design of curved beams and glass walls is being used. Personally, I find the new one more attractive; but Neel’s point about it not having many Indian elements is valid. Delhi’s airport has made an effort with interior decoration for Terminal 1D, but this The Delhi Walla blogpost seems to suggest that it’s half-hearted.
  4. Malls – yes, these are the most egregrious offenders when it comes to cookie-cutter design and absolute lack of architectural imagination. I think that this is because somewhere there is a design handbook for malls which lays down points on laying out a mall to maximise retail sales which is being followed religiously without either any attempt to run local experiments to see what works better or imagination by architects on how to make it look cooler. [rant done] But even if architects did want to come up with cooler designs, would builders and tenants pay for them? Hm.

Another thing about heritage is that it’s desirable, but so are many other things (whether on pure functionality or for the wow-it’s-so-cool factor). So some of these are:

  1. Is it functional, innovative, valuable? Neel cribs about airports, but the fact that Delhi’s new airport has inline baggage scanning delights me so much that I hardly notice the lack of heritage design elements.
  2. Is it aesthetically pleasing? Everyone’s taste on what looks good will be different, so this is difficult to measure. But as an example, look at Jet Airways’ long-haul business and first class. Not much in the way of Indian design, but incredibly innovative and good-looking.
  3. Is it unique? This ties in with the crib about all malls and airports looking like each other. On the one hand, using a standard design brings down costs and I think China has built dozens of new airports just by reusing the same design over and over. Delhi’s new airport terminal might be standard curved beams and glass, but that standard design allows it to function on natural light throughout the day and not turn on electric lights until night – which has its own functional and aesthetic appeal. Of course, poor construction of that design is probably what led to the same terminal being flooded during the rains.
  4. Is it designed by Indians or an Indian company or even for Indian consumers? Even if it doesn’t reference existing heritage, if it’s iconic enough it could eventually become Indian heritage – like the Bombay Gothic buildings (good) or the Ambassador (bad). I know that Jagadguru has said that nationalism is the superset of religious fundamentalism which is itself the superset of terrorism, but I still think it is awesome if my national heritage is added to.

Another thing is that heritage doesn’t automatically provide quality. Air India paints Rajsthani chabutras on its aircraft windows but sucks as an airline. There have been so many animated movies about Krishna (Cartoon Network is running five this Janamashtami), but the dialogue and storytelling is usually terrible. 

So heritage is awesome, but only when the companies using it already have the capability to create great products; and also when designers and developers have the space to use their imagination.