Saving for Marriages

April 8, 2012

I am at Kanchipuram today. This is due to dire circumstance and not by choice. My car is being serviced (this involves spare parts from Europe and so will take a month), and so I couldn’t drive back. The driver is on holiday for Easter (hey, Happy Easter, everyone!) and so he can’t drive me to Chennai and back in another car. And I could take the bus except I am not very enamoured of taking a bus to T-Nagar and then an auto to Velachery in the April heat.

All right, that last bit is laziness, not dire circumstance. Be that as it may – due to a combination of laziness and dire circumstance – I am spending this Sunday at the guesthouse in Kanchipuram instead of my flat in Chennai. This also meant that after a very long time, I read the Hindu Business Line, and specifically its Sunday personal finance agony aunt column.

The letter in today’s column featured a goal which features almost every Sunday:

For my daughter’s graduation, I would require Rs 10 lakh in 2021 and Rs 10 lakh for her post graduation. I wish to create a corpus of Rs 12 lakh for her marriage by 2030. For her marriage, we have 30 sovereigns of gold and 2 kg silver.

(The Hindu Business Line: Investment World)

Before I get to the financial matters, let me address the language. As an editor and grammar-bigot, there are two things about this which make my eye twitch:

  1. It uses ‘would’ instead of ‘will’. This appalling misuse is clearly notrestricted to North Indians.
  2. It uses ‘marriage’ instead of ‘wedding’.

Using ‘marriage’ instead of ‘wedding’ actually makes me twitch twice as much, because I have no way of realising which the letter writer actually meant. Did he want to have twelve lakh rupees to spend on her wedding? Or did he plan to give her twelve lakh rupees as a sort of nest egg to accompany her through married life?

If he did mean wedding, that makes me twitch for another, non-grammatical reason. I wish that just one Sunday, somebody would write in to the personal finance advice column and proudly announce that they were saving purely for retirement and that if their kids wanted a big fat wedding they had better pay for it themselves or elope.

This whole saving up so you can afford a big wedding thing must be one of the leading causes of misery in India. So much present consumption foregone, and all it accomplishes is to put the bride and groom through even more stress. Haakthoo.

6 Comments | Consumerism, Finance, Language | Permalink
Posted by Aadisht

Victorian Ladies and Financial Ninjitsu

May 30, 2010

Samtaben’s post has led to a massive comment discssion about financial independence for women. Oddly enough, I had recently been reflecting on financial independence and financial awareness among the women characters of late 1700s to early 1900s literature (English, that is). They are personal finance ninjas!

These women couldn’t inherit much property, and they couldn’t work either. This lack of financial independence led to acute financial awareness. They know how much their net worth is (and also how much the net worth of an eligible bachelor is). In Pride and Prejudice, we’re told Bingley’s annual income a mere fourteen paragraphs into the book. By contrast, The Diary of Bridget Jones doesn’t mention income or net worth at all in hard figures – it’s only alluded to in descriptions of where Bridget’s parents live, Mark Darcy’s job, and so forth. And then the rest of Pride and Prejudice goes on to talk about various quirks of inheritance, the income of various men, and so on and so forth. (And yes, there will be a blogpost or column at some point about how the book is about Goldman Sachs). In Vanity Fair, Becky Sharp knows exactly how indebted she is and how long she can keep her creditors at bay.And so on up to Saki in the early twentieth century, where there are so many female characters who talk about the interest rates on various bonds.

Then the Edwardian era starts, and we get PG Wodehouse and people start marrying for love instead of money. Money problems are now resolved by unleashing entrepreneurship – health farms, onion soup bars, buying rubber estates in Malaya – with the seed capital arranged through stealing diamond necklaces, holding pigs to ransom or simple blackmail. But there’s a sudden crashing of financial awareness – none of the characters is bothered about how much something yields. There’s a blissful unconcern for the mechanics of finance. Then again, there’s blissful unconcern for pretty much everything in Wodehouse, so perhaps I should go and reread Somerset Maugham and make sure this is the case throughout the era.

The Gift of the Magi (to be fair, it’s American) is written in 1906 and is a sort of turning point of financial awareness. Della knows that she’s broke, but has no idea of how much her hair is worth until she goes to get it appraised. On the other hand, she’s sort of financially independent – she doesn’t work, but she does run the household accounts herself. (Incidentally, I can’t read that story without rolling my eyes at that couple and the poor communication in their relationship. Here is xkcd’s much funnier take on the story.)

The odd thing is that while the women in Victorian literature is hyper-aware of what investments yield, my own relatives are not quite as keyed in. My (alive) grandma is paranoid about her cashflow and how she handles her accounts, but is clueless about investments. My aunts are better off in that they know about investments, but stick to fixed deposits and (sigh!) property. Actually, I now recall that this is not strictly true. In my childhood, my bua would not give me presents for my birthday as she didn’t know what I wanted, and she didn’t give me cash as she was afraid I would blow it all on riotous living. So she gave me US-64 units, and the Unit Trust of India blew it all on riotous living. But that is a separate matter. She was aware of mutual funds, is the point. However, she was the exception – my mum and other aunts usually stay away from financial securities, and park their money in the nearest available fixed deposit. Any shares were bought by the menfolk on behalf of the ladies, with the ladies usually not even aware of what they owned or what they were getting.

I was discussing this with Nilanjana Roy back when I was in Delhi last month, and she said that the financial ninjitsu was pretty common in Real Life India as well, because women would come into a marriage with nothing but their dowry. (I was a couple of beers down at this point, and they were the first beers of 2010, so I may not be repeating her words with great accuracy.) So this is weird. Is my family atypical in not having women who monitor their net worth madly, or is this an artifact of being Arya Samajis and so not putting dowry?

Beloved readers, put fundaes in the comments! What is your experience of financial awareness, and that of the women around you? Does it match Samtaben’s worries that women without financial independence have no financial awareness either? Does it match the Bronte sister’s characterisation of financially dependent women being acutely financially aware? Or are you in the happy position of being a financially aware and independent lady?

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Where is all the Rubber Going?

May 14, 2010

In the past year, the price of natural rubber has more than doubled. This, in what is supposedly a great recession. This is being blamed mostly on demand from China.

What the hell are the Chinese doing with all the rubber they’re buying? Auto sales are down globally, so making tires is pointless. So is mine output, so making conveyor belts is ruled out. Condoms just don’t use that much rubber. Neither do gasket rings and suchlike.

It’s possible that Chinese companies have decided in the face of all logic to build up stocks in the face of falling demand. But I’m worried that they’re putting the rubber to far more nefarious uses. Specifically, that they’re building giant armoured robots to more successfully persuade the United States to hand over the Pacific states when they default on their sovereign debt.

Be afraid. Be very afraid.

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Posted by Aadisht

Twenty First Century Land Purchases

April 26, 2010

This is pretty interesting. The state of New York is practically broke, but the city of New York is merely deeply indebted. To ease its fiscal crisis, the state of New York is transferring an island from joint administration to the sole administration of New York City:

After more than a year of negotiations, New York City has reached a deal to take control of Governors Island from the state, moving a prime 172-acre piece of waterfront real estate into the hands of a land-starved city and closer to an ambitious redevelopment, city and state officials announced on Sunday.

…

These agreements represent a reversal from 35 years ago, when a city on the verge of bankruptcy parted with a number of its assets and relied on the state to shore up its finances.

Raymond Horton, a professor at Columbia Business School who ran a commission that studied New York City’s finances during the fiscal crisis of the 1970s, said that by taking over properties like Governors Island, Mr. Bloomberg achieved a milestone that had eluded many of his predecessors.

“What tips the balance here is the state’s fiscal crisis,” Mr. Horton said. “The state is in a dire situation. The city is much better managed at this moment. That makes possible something that was not when the two governments’ finances were in similar condition.”

(New York Times)

This is not something very novel though. Throughout the nineteenth century countries that were broke or defeated in war would sell their territories, or give them up against war reparations, or sign long or perpetual leases. Some notable examples are:

  • New York City itself! After the Dutch lost the Anglo-Dutch war, they allowed the British to keep New York in return for the island of Run in the East Indies, which at the time was the only place in the world where nutmeg used to grow. Talk about excessive discount rates.
  • The Guantanamo Bay Naval Base, which Cuba handed over to America as a perpetual lease back in 1903.
  • Hong Kong, which the Chinese empire leased to Great Britain for 99 years in 1900.
  • Alaska, which the Russians sold to America for 7.2 million dollars.
  • Almost a third of the continental United States, when the Thomas Jefferson administration paid Napoleon 15 million dollars in the Louisiana Purchase. They had offered him 10 million dollars just for New Orleans, but Napoleon had wars to fight and was desperate for cash, so he threw in pretty much the middle third of the United States. The extra 5 million dollars kept Napoleon’s armies going successfully until the Russian front in 1812, when famine decimated his army. On the other hand, Napoleon thought that by giving all that land to the US, he would make life even more difficult for Great Britain, which was hostile to America at that point of time. While Napoleon’s forces were being thulped at Moscow, America and Britain were actually fighting the War of 1812 which ended in a stalemate, so maybe this worked. Incidentally, the financing for the Louisiana Purchase was a fascinating piece of structuring.

Sadly Purchase, New York does not seem to fit this category.

Anyhow, it looks like the twenty-first century is going to see the return of grossly broke countries selling off their territory to keep up with the payments. The first inkling that it’s making a comeback came when two German MPs demanded that Greece sell off its islands (oh, and the Acropolis) if they wanted a bailout. It didn’t happen, but considering that Greece will probably default on its debt again soon, we may see this idea being taken up again. Portugal, Italy and Spain are also headed towards default, so we may soon witness the spectacle of Mediterranean beaches and slopes of Alpine mountains up for auction. It will be awesome.

The fiscal situation of the PIGS countries now is of course tiny compared to the fiscal situation of the United States a few years down the line. With the demographic bulge of the Baby Boom coming into Medicare and Social Security payout ages, the chances of the United States defaulting on its debt are beginning to look likely. The USA too may have to start selling its territory. Fortunately, it has a lot of empty territory to sell. Especially Michigan, which is rapidly depopulating.

The only thing is that selling something only works if there’s a buyer. That would involve either handing the territory over to whoever was holding the US debt and furious about the default, or someone with a shitload of cash.

The major holder of US debt is… the US government. Right, the major holder of US debt that is in a position to demand payments pronto is Japan, followed by China. Out of these, China is in a better position to throw its weight around.

Naturally, the prospect of China occupying Idaho or Nevada may not thrill the Americans, and they would be under pressure to sell to someone with a shitload of cash instead. Extrapolating from current trends, that would be… Apple. Steve Jobs has always been megalomaniac enough to want to own a country, but until now, it never looked like he actually would.

iDaho, iOwa, and iLlinois are on their way. We’re doomed.

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The SEBI-IRDA Fight

April 26, 2010

As a free market fundamentalist, it is embarrassing for me to admit that a regulator is doing a good job where the market has failed. However I am so pleased about how SEBI has taken on IRDA that I shall suppress my instincts and praise a regulator to the skies. Since this will mean unleashing my inner financial regulation geek, I shall do this in an easy question and answer format, so that even Nilu can understand what I am talking about.

Shortly before everyone’s attention was occupied by Shashi-Lalit-Sunanda and Sania-Shoaib, the SEBI had released an order barring insurers from issuing ULIPs. This got the insurers and the IRDA into a tizzy. Personally, I think this was awesome.

Wait, what does that even mean?

The SEBI (Security and Exchanges Board of India) is the semi-independent regulator of everything to do with financial markets in India. It sets the rules under which stock markets, commodity exchanges, and mutual funds operate. Technically, it regulates debt securities as well; but as Percy Mistry and Ajay Shah keep lamenting, India has no debt market to speak of.

A ULIP, or Unit Linked Insurance Product is a life insurance policy that doesn’t just give you life insurance cover but invests part of your premium payments into securities. It (claims to) therefore work as a savings and investment plan as well as a life insurance policy.

A ULIP is also pure evil. It is to consumer finance what the Chili’s Smokehouse Bacon Triple Cheese Big Mouth Burger with Jalapeno ranch dressing is to food. Actually, it’s worse, because the burger at least tastes decent. Compared to a normal life insurance policy, a ULIP gives you far less cover for the same premium – sometimes ten to twenty times less. As for the promise of investment, they deduct so much money for “administrative charges” that you might not even make the money you put in for six years at a time. There are other issues with ULIPs that make them terrible products, but that would make the post too long. If you’re interested, Deepak Shenoy has a post about how awful they are. Unfortunately, because the sales commissions on ULIPs are so high – that’s where the “administrative charges” go – insurance salespeople will keep trying to pitch you a ULIP unless you know what you’re looking for and actively demand traditional life insurance plans.

This year, the SEBI decided that enough was enough, and told insurance companies to stop coming up with new ULIPs unless SEBI approved them first.

It’s supposed to do that, right?

Ah, that’s the interesting bit. See, insurance companies are actually not regulated by SEBI, but by IRDA – the Insurance Regulatory and Development Authority. IRDA was very pissed off that SEBI is encroaching on its turf.

SEBI’s position was that since the investment portion of ULIP premiums is going into mutual funds run by the ULIPs, it needs to approve the mutual funds first. Specifically, it wanted to bring the administrative charges of ULIP funds into line with those that apply to regular mutual funds (it did a big overhaul of how mutual funds could deduct loads and charges last year).

So the situation was that two semi-independent regulators under the Ministry of Finance were fighting over who was in charge. Ajay Shah has a blogpost about how this is the outcome of not having overall financial regulators. I am far ruder than Ajay Shah, so I will make I-told-you-so noises about how this is what happens when the Finance Ministry doesn’t implement the Percy Mistry report – the one that, you know, it asked Percy Mistry to write.

What happened next?

There was a media circus about Sania Mirza and Shoaib Akhtar getting married.

No, no, I mean about the SEBI-IRDA smackdown.

Oh. Pranab Mukherjee told them to take it to the courts and get it sorted out over there. Professor Jayanth Varma was absolutely delighted about this, because past history shows that courts resolve disputes much faster than bureaucracy does. The BJP was much less delighted about this, and Arun Jaitley demanded to know why it was being taken to the courts and not being resolved by the Finance Minister himself. But now that they’ve got phone wiretaps to stall parliament over, we probably won’t hear anything about that again. It’s certainly disappeared from Google News search results.

Whatever happens next will happen in court now. But SEBI has a decent case.

Hee hee. You’re actually supporting a regulator.

Oddly enough, yes. Then again, I’m pretty gleeful about IRDA being pwned. So it evens out. I should also point out that IRDA represents a lot of what is wrong with regulation, both Indian and in general. It’s far more concerned about the welfare of insurance companies than insurance consumers, and about a month ago was actually running newspaper ads about the benefits of ULIPs. IRDA, not SEBI, should have cracked down on insurance companies about excessive charges and transparency.

On a less dogmatic and free market fundamentalist note, I like regulators who are heavily involved with creating the start conditions and rules of their market, and then creating a set of rules so good that the market can run by itself with minimal interference. I dislike the other extreme of regulation, where the regulator keeps getting involved with every little thing the market players do – think of a cricket match where the umpire doesn’t just call no balls and wides, but tells the bowler how to do the run up before every ball. Over the past few years, SEBI has been moving to the space where it only addresses the rules. The RBI and IRDA are still very much in the micromanaging space.

So I think this particular spat is very exciting in that it will provide an impetus to move to the regulatory model I like.

Confession: I bought a ULIP myself six years ago. In my defence, I was a filthy undergrad at the time and knew no better. I exited it this March. Fortunately stock prices are so high right now (unreasonably so, in my opinion) that I was able to get back all the money I’d put in and then some. My mum had also bought a ULIP a couple of years after me, and that still hadn’t broken even the last time we’d checked.

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You Don’t Fuck With Surtr’s Own Country

April 24, 2010

Last year, when Iceland’s Landsbanki collapsed, Great Britain invoked the Anti-Terrorism, Crime and Security Act to freeze all Icesave accounts opened by British depositors. Thus, while the British government was happy to bail out Northern Rock, it decided to give Iceland the shaft.

Perfidious Albion’s treachery was not to go unpunished for long! Six months later, Eyjafjallajokull erupted; and shut down European airspace. In what seems like divine justice, the United Kingdom was worst affected. British airports opened after six days of being shut down, well after continental Europe and Ireland.

If it is in fact divine justice, the divinity responsible is probably Surtr, the Norse fire-demon who is inspired by Icelandic volcanic activity. But even if you wish to stick with a rationalist view that does not rely on gods, demons or others, the English made a terrible mistake when they decided to screw Iceland, a country that is legendarily badass, as we can see in the old Icelandic sagas.

The Saga of Cormac the Skald, for instance, has this description of what Cormac did when someone showed insufficient politeness when offering him a black pudding:

Now, in the autumn, Narfi’s work it was to slaughter the sheep. Once, when Cormac came to Tunga, he saw Steingerd in the kitchen. Narfi stood by the kettle, and when they had finished the boiling, he took up a black-pudding and thrust it under Cormac’s nose, crying:

“Cormac, how would ye relish one?
Kettle-worms I call them.”

…

And in the evening when Cormac made ready to go home he saw Narfi, and bethought him of those churlish words. “I think, Narfi,” said he, “I am more like to knock thee down, than thou to rule my coming and going.” And with that struck him an axe- hammer-blow…

That’s right, he hit Narfi with an axe-hammer-blow for dissing a sausage. When vengeance is involved, things get even worse, as we see in Egil’s Saga:

Kveldulf had in his hand a battle-axe; but when he got on board, he bade his men go along the outer way by the gunwale and cut the tent from its forks, while he himself rushed aft to the stern-castle. And it is said that he then had a fit of shape-strength, as had also several of his comrades. They slew all that came in their way, the same did Skallagrim where he boarded the ship; nor did father and son stay hands till the ship was cleared. When Kveldulf came aft to the stern-castle, he brandished high his battle-axe, and smote Hallvard right through helm and head, so that the axe sank in even to the shaft; then he snatched it back towards him so forcibly that he whirled Hallvard aloft, and slung him overboard. Skallagrim cleared the forecastle, slaying Sigtrygg. Many men plunged into the sea; but Skallagrim’s men took one of the boats, and rowed after and slew all that were swimming.

They didn’t kill everyone. They kept a couple of people alive to go back to the king with this song:

‘For a noble warrior slain
Vengeance now on king is ta’en:
Wolf and eagle tread as prey
Princes born to sovereign sway.
Hallvard’s body cloven through
Headlong in the billows flew;
Wounds of wight once swift to fare
Swooping vulture’s beak doth tear.’

You get the picture. The impression conveyed is that when the Bride told Sofie Fatale that she was allowing her to keep her wicked life, she was merely scratching the surface of threatening messages.

With heritage like this, volcanic eruptions are only the beginning. When the British treated the Icelanders like terrorists, perhaps they did not realise that this could become a self-fulfilling epithet. With their economy in shambles, the Icelanders may now turn to the way of their forefathers and return to setting out in longboats and go a-viking on the British coast. Taking the names of Thor and Tyr, their depredations shall make Brown and Darling pay. Lindisfarne!

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Customer Financed Projects

October 3, 2009

In F Scott Fitzgerald’s Tender is the Night, the main characters are an American couple called the Divers who are Page 3 People in the 1920s. They live on a hillside Villa over the French Riviera, where they throw parties for American tourists and expats. Unfortunately up to the 1920s Riviera hotels were open only in the winters and there would be no tourists in the summer. So they convince one particular hotel owner to keep his hotel open in the summer as well, so that the stream of guests for their parties never dries up. Eventually the hotel starts getting so many guests that the owner doesn’t even need the support of the Divers to make the summer season profitable.

When I read this, I was reminded of what the Adanis have done while constructing the Mundra port. The Adani steel plant isn’t viable without the port, so the steel company has become a part investor in the port project and is financing the rail link between the port and the existing Indian Railways network. Once the rail link is completed, Adani steel will benefit of course, but so will everyone else who wants to use the port (and of course so does the port).

Project finance epiphanies aside, Tender is the Night is one of the most disturbing books about adultery and breaking down marriages I’ve ever read. Now if only it wasn’t so indulgent of its main characters.

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Vot a Big… Castle!

April 30, 2009

This Dealbreaker story is awesome. Citi has very few profitable divisions right now, and the people who run them are demanding massive bonuses to stay on and ensure that they stay profitable. But after all the outrage over the AIG bonuses, Vikram Pandit is pre-emptively going to Obama to ask for permission.

The political palatability of giving out the bonuses is, alas, very low because one of the people doing the demanding owns a castle. Seriously. An actual 1000 year old castle outside Hanover.

You might be asking yourself what an investment banker does with a castle. In these times it’s excellent risk management. After all battlements are more reliable than presidents when a mob shows up with pitchforks.

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Dare I Make a Microbrewery Joke?

September 27, 2008

Yesterday, Skimpy forwarded me this link, and immediately changed his tagline to “2 dollars. Why didn’t I bid for Lehman Brothers?”. This sparked the following conversation.

me: Look at it this wat
*way
$2 = 93 rupees
3:26 PM
with that you could buy a hummus and pita bread
and have some change left over
would you be happier owning Lehman?

Karthik: 11 11

me: or having hummus and pita bread

Karthik: hummus

The original inspiration for using Lebanese fast food as a standard store of value came from this profound post by Kunal. Please read it.

Later on in that conversation, I brought up employee buyouts. But things quickly took a scatalogical and American-beer-bashing turn:

me: you know
4:30 PM
at two dollars, why didn’t the employees buy Lehman?

Karthik: agreer
would’ve beenfight to split the cost da
4:31 PM
2K people together put together 2$ => each guy pays 0.1 cent
how do they pay that to each other?
jai

me: in beer
4:32 PM
Karthik: dei you don’t even get half a glass of beer for 2$
so what? each guy contributes a drop or what?

me: or they can deduct it from their PF

Karthik: 11

me: axshully
American beer is piss

Karthik: 11

me: each Lehman Europe banker contributes one drop of piss

Karthik: hahahaha
that’s tough too
just one dro

me: sells it to Dick Fuld as Budweiser

It’s not that tough. They can use droppers or something.

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