It is all fake!

Have you heard of an organization making 15,000 Crore profit with a capital base of 5 Crores?

If not welcome to the world of deceit.

The immediate question that must have come to your mind is how can a company make 15,000 Crore profit with just an investment of 5 Crores? Well, if the company is RBI (Reserve Bank of India), it surely can.

Any commercial organization produces goods and services and then sells them to the buyers in the open market. In this case RBI produces bank notes in its security presses at a cost of 4.5 Rupees for every 1000 rupee note and then gives this note to the banking system.

The banking system in turn lends this money to people like you and me and charges interest on such lending. It in turn pays the RBI for the money it has borrowed. Thus RBI is able to generate profit all most out of thin air.

What are the consequences of such operations? Well anytime the banking system requires more money to lend, RBI prints some more. This is very much in line with international practices. Even the Federal Reserve has been doing this and its chairman Ben Bernanke is called Helicopter Ben for dropping tons of currency where ever he sees a troubled bank or financial institution.

In terms of plain economics, when the supply of money increases in the system, there will be more money chasing less products and services. Prices will rise till an equilibrium is reached. Therefore the real cause of inflation is not rise in oil prices but rise in money supply in the system.

Which brings me to the headline. When you produce something out of thin air, without any asset to back it up, the currency can at best be termed fake!

Personal and Impersonal Crimes

In a recent conversation with one of my friends from the Mumbai Police, I asked him are we over policed or under policed? His reply is something that we all must ponder upon.

He said we are mis-policed. According to him there are two broad types of crime, personal and impersonal. Therefore when some one picks your pocket, he is committing an impersonal crime, the thief does not know you neither is he aware of the amount of money that you are carrying. For him you are a random target he has chosen based on some social engineering skills that he possess. Same is the case with vehicle theft. The car thief is not targeting you because he wants to take some revenge, his decision is based purely on the logistics of stealing the vehicle and its apparent market value. He said that the stolen vehicles are often stripped at the scrap shops and as these scrap shops fall in the police beat, the officers of the local police station may be on the take. Even if a stolen vehicle is recovered, no one is interested in taking it back. As the stolen vehicle has to be in police possession as case property till the time a judgment is passed in favor of the vehicle owner or the insurance company, the condition of the vehicle becomes such that it is practically useless for anyone. While in the police custody, the vehicle is often stripped for essential spares leaving it in a run down condition. Given the delays in deciding the case one way or another, by the time the case is over, the vehicle is just scrap.

So I asked him what would make it possible for the police to get interested in tracking and recovering stolen vehicles given the fact that such vehicles are being used in terror related crimes?

He pointed out that a vehicle which is owned by a person residing at Borivili may be stolen at Colaba and may end up in Dombivili (for those not familiar with Bombay topography, each of these places are about 60 to 90 kilometers apart forming a triangle of sorts). This leads to multiple police stations being involved in solving the crime. As such crimes generally have very low detection rates they do not really reflect on the success record of the police station or its officers. Add to this the fact that three police stations would need to coordinate to successfully solve this crime, the chances become far more remote.

He pointed out that on an average around 7 to 8 vehicles are stolen in Bombay everyday. Estimating a value of about 3 Lacs per vehicle that translates to 24 Lacs per day and about 90 Crores per year. The insurance companies are paying off these claims every year. If the insurance companies were to institute a reward of even half this amount payable directly to the police officers who recovered the vehicles, it would translate into a saving of around 45 crores to the insurance companies and a direct reward of 45 crores to the detecting officers. He was confident that if such a scheme is implemented the vehicle thefts will fall to almost nil and the detection rate will be almost 100%.

Therefore the thing to keep in mind for protecting your asset is to remain ever vigilant and installing anti-theft devices in your vehicle. Similarly, it would help if people were discreet about their wealth and avoided showing off in public. Otherwise you may too become target of an impersonal crime.

As for his remark on being mis-policed, he clarified that the seniors of the force were busy fighting amongst each other. This was leading to turf wars and camps amongst the juniors of the force. More time was being wasted on these things rather than on detecting and preventing crime. The politicians in no way helped the cause as they were responsible for starting the whole internal fight by taking sides and hoisting chosen officers in chosen posts.

Sensitive issues like housing, medical, leave and other personnel issues were being sidelined. The alarming rise in HIV+ cases pointed to a deep malaise in the force. In adequate training coupled with extremely poor infrastructure was leading to extremely low morale in the force. And he was in complete sync with the recent supreme court observation that 'Even God can not help this country'

Credit-card debts may lead to plastic meltdown

Credit counsellors and financial analysts in the US and the UK are seeing evidence every day that credit card debts are increasing. Soaring fuel costs, rising food prices and climbing energy bills are all being kept at bay with credit cards. Shortfalls on mortgage repayments are also being made up with cash from credit cards. Many of these debt soaked consumers were already struggling to make their minimum monthly repayments.

More than $1 trillion is held on credit cards in America. In the UK, debts of more than pounds 50 billion have been run up on the plastic. Across the world, somewhere between $2-3 trillion is owed on credit cards.

Up to now, the credit crisis has passed by without plastic going into meltdown. Statistics have shown steady levels of arrears and suggested that many consumers have been successfully paying off part of their balances. Now there are increasing signs that this last breakwater, shoring up the economies of the western world, is about to crack under ever-increasing strains.

“Credit cards are definitely going to be one of the next big problems,’’ said Steve Nuttall, head of the financial-services research group at polling company YouGov. “Our research shows that everything started to fall off a cliff in about March or April and that should begin to show up in bad-debt charges by the end of the year.’’

The US Federal Reserve has also been warning credit-card lenders not to push their luck. The regulators are fearful that the economy could crack if consumers start being hit with higher fees and steep interest rate rises. The problem may be even sharper in Britain.

Analysts always say that “the markets get it right’’. Current market prices suggest that over 20% of the money owed on British credit cards is unlikely to be paid back. That would be almost three times higher than the previous record for bad credit-card debts, eclipsing the problems witnessed in the last housing crisis of the early 1990s.

“We are already hearing stories about people using their credit cards to keep up with their mortgage payments,’’ said Peter Crook, chief executive of Provident Financial, the doorto-door moneylender. “If that’s what’s happening, it’s a big red warning sign.’’ The recent Bank of England credit-conditions survey revealed that banks were surprised by the level of bad debts run up on their credit cards in the second quarter of the year. Demand for credit cards also increased as banks tightened their lending criteria across the board.

The UK’s debt-strapped consumers currently owe a staggering pounds 56 billion on credit cards. According to figures from Apacs, the payments network that supports the British banking system, this could climb to pounds 160 billion if those 31m cards are used to the max. The figure takes account of all the measures already taken by credit-card issuers to clamp down on borrowers by rejecting card applications and cutting credit limits.

YouGov’s research suggests that 15% of the British public is now behind on at least one bill of some kind or another. Of those in trouble, 38% say they are behind with utility bills or council tax, while 31% cite credit cards as their big problem.

Problems in credit-card debts have the potential to send a new wave of panic through global financial markets. Roughly $600 billion of debts run up on credit cards world over swill through the global financial system. Credit-card debts were packaged up and sold on by banks during the boom years, just like mortgages and car loans. THE SUNDAY TIMES

Bad Karma catching up with MNC and Private Banks

A news report today in leading newspapers in Mumbai talks about CitiBank planning to sell its swank headquarters in BKC.

It is a typical case of bad karma catching up with the bank.

For years, Citibank and similar foreign and private banks lobbied with the mandarins in the law making institutions to offer products and services whose cost was way prohibitive for the common man.

They set up honey traps by offering easy credit through credit cards, personal unsecured loans and other such instruments where the interest rates were portrayed to be unregulated by the central bank. They charged interest in the region of 35 to 85% all in the name of unsecured credit.

These bank employed bright kids fresh off the MBA mill to sell these products and services. These kids were offered heavy salaries and pushed into achieving sales targets for the bank’s dubious products. To recover the small loans issued to masses, these banks hired dubious agencies purely on commission basis thus transferring the cost of their entire operation on the poor borrower.

Stories of mental, physical and financial harassment abound. Bank managers and officials ruthlessly went around first distributing money and then recovering these small loans.

Small borrowers, people who borrow 40,000 to 50,000 rupees (1000 to 1250 US Dollar) could be easily browbeaten into submission. Armed with a central bank looking the other way and legislators not bothered about the rape of the common man, these banks systematically looted the common man. Many were driven to commit suicide, many marriages went bad and many people’s families were destroyed.

All this has created a lot of ill will amongst the people and it is now translating to these very same banks facing collapse for deeds done by the managers who were supposed to make the bank grow. The sub-prime crisis in United States and its fall out on the world financial system is having its echo here in India too. These banks are now left holding the baby.

Soon these bank managers who were getting fancy salaries and perks will be also laid off. Banks like CitiBank will have no option but to cut all the flab. With share prices of the bank falling to 16$ from a high of 65$, it has already seen an erosion of 75% of its value. There is more to come from where all this came from and boy am I happy!

It is the bank’s bad karma that is catching up with them.

Time to switch to 10 Hours a Day 4 Days a Week Work Pattern

With rising fuel prices many organziations world over are thinking of switching to a 10 hour per day and 4 days per week routine.

Maybe it is time for India to do that too.

By compressing the working hours into 4 days, organizations can completely cut off the consumption of petrol and diesel. Government offices can remain closed during the weekend starting from Friday.

By changing the working hours, the stress on the public transport system will get more evenly divided. With the banks and other commercial establishments like the Stock Exchanges working only partially anyway, their working days and hours need not change. Therefore you will have government staff reporting to work at 8 a.m. instead of 9 and leaving at 6 p.m. instead of 5.

It will require some changes in the way the public transport system works but I am sure it will be well worth the saving that will ensue. There will be other benefits too, like cleaner environment with their being less pollution, better utilization of available resources, community development due to more time being available with people etc.

But the saving will come only if the burden does not shift from the corporations and governments to the individual. In the end if the individual ends up consuming the same amount of petroleum resources then no purpose would have been served.

But it is definitely an option worth pondering.

Are you ready to shred some money?

In 1976 when my father quit the Indian Navy to join Britannia Sea Foods, his salary was 1200 per month.

We moved to Malad, a suburb of Mumbai and bought a flat for 39,000 having an carpet area of 450 square feet. This worked out to 85 rupees to a square foot. In terms of his salary it worked out to approximately 3 years of salary spent towards owning a house.

Out of this 1200 rupees, my mother saved 600 every month after meeting all expenses of sending three children to school. We never had a shortage of anything in the house.

As we grew, prices and salaries began to rise.

Today it is common to meet a fresh graduate who is earning 20,000 a month doing a call center job in Malad. Property prices are in the region of 6000 to 9000 rupees per square foot. If he was to buy a similar property that my father purchased he would have to shell out 44,21,250 ruppes for the same house. In terms of salary this would translate to 18 years of salary going towards purchasing the property. Thus if price parity was to be maintained the call center employee should be receiving a salary of 120000 or property prices should not have exceeded 7,20,000 in 2008. Neither of this is true.

Therefore it can be safely concluded that either the property prices are in a bubble or salaries are much below par. We all know at if a call center employee was to receive a salary of 1,20,000 per month, then the job would not have been outsourced to India in the first place.

In the above calculation I have taken a median price of 7500 and multiplied it with 590 square feet (adding 31% for super built up factor which builders charge for now a days).

Even if I consider that the call center employee was married and had an earning partner with an equal earning capacity, it would still take 9 years of their combined salary to pay for the same house.

Why has this happened?

It would be interesting to read this article on www.inflationinindia.com to find your answer.

And after that you should be ready to shred all the cash that you have because RBI is not going to do it for you!

Mumbai is in Danger

Whether you call it Bombay or Mumbai, recent reports suggest that by 2018 most of the city will be under water on a daily basis as and when there is a high tide.

Earlier this scenario had been predicted for the year 2090 but recent measurements of increase in sea level from global warming effect suggest that the flooding will happen much sooner than expected.

Wanton destruction of mangroves, reclamation of land and thoughtless development will ensure that most of the prime property will be under water in the next 10 years or so.

High tide measurements suggest that water levels during high tides have risen rapidly by 30 cm in just 3 years. If this trend continues Mumbai (Bombay) will be under water every day beginning as early as 2012. Strom water drains that are designed to take water away from the city are already flowing in the reverse direction. And if it rains, water will continue to remain on land flooding it because storm water drains will need to be closed to prevent sea water entering the island city.

But the powers that be will continue to sleep over this problem till it becomes impossible to manage. Vinod Khanna's of the world will continue to buy property at 1,28,000 per square feet oblivious of the fact that the building they are buying property in is soon going to be marooned.

Politicians will continue to flout all environmental protection laws to fill their own pockets.

And then one day, all will be lost under water.

But we will continue to live till that day in collective amnesia of the impeding problem. We will find comfort in the fact that there are almost 20 million of us who are facing the same problem and someone will definitely do something before the issue becomes unmanageable.

Well good luck to all of us.