| Page 4 of Page 13

Inequality can still be fair

March 7, 2013 Prasad Ajinkya2 Comments

I know Mahul through CrazyEngineers (CE), and was in touch with him recently with regards to changing the link to my blog (was getting a fair amount of 404s!). During this time, I chanced upon one interesting post he had written on Inequality and Fairness.

In fact, to a certain degree, I agree with Ayn Rand’s theory of objectivism, and agree with the concept of the free market in principle. I am the firmest believer that people should not be given anything for free, because it acts as a deterrent to motivation to work hard, which, at the end of the day, is what creates value in a society. In principle, everyone should have an equal opportunity to succeed in a free market, and whatever product holds the greatest value should be the one to succeed.

Here’s an excerpt from the post, I (go on, read the rest of his post in the link I provided, then come back and read this counter post!).

In real life, there are no ideals. There are no whites and blacks … there are 50 shades of grey :-)

People do not get equal opportunities, because those opportunities are the fruits of their predecessors. Mr. Anil Ambani is living in such an abode, because of the efforts of his father (who came from very humble beginnings). How he managed to get there is a different story … but lets not write-off those efforts which ensured that his children get better opportunities than the common man.

The beggar on the street is getting no opportunities not only because of his circumstances, but also because of his lineage.

In a real free market however, this is hardly the case. Because the humble 5 rupee lemon soda, though holds more value, is significantly less likely to succeed.

The humble 5 rupee lemon soda does not come with an international FDA approval. Pepsi, Coca-Cola and other pesticides do :-)

Sometimes, it’s the overheads which have to be set off. It might be true that the concentrate costs INR 1 to produce, however if you add the advertising, marketing, inventory and distribution costs on top of it … not to mention the corporate salaries … then INR 10 does not seem that high. What’s more important that people are willing to purchase it at that price point.

As a service/commodity provider, I would always go for value based pricing! Which is what a true real free market would behave like. However, we are in no real free market … there is a regulatory body and the price is capped at the Maximum Retail Price (MRP).

Life is not fair, people are not equal.

Your efforts will pay dividends for your descendants … and other people will say that they are lucky and life is not fair :-).

Indian politics: A conundrum of choice

October 21, 2012February 4, 2017 Prasad AjinkyaLeave a comment

This can also be titled, why I do not bother to vote any more. But lets keep that aside for the moment.

Here’s the thing, there are basically only two major national parties (yes there are others who claim to be national parties, but who are we kidding). The Congress and the NDA. There are other small time players which keep on switching sides as they see fit.

Over the past 15 years of my conscious life, I have seen the rules of both the parties (sadly more of Congress and less of NDA … but that really does not matter).

Both the parties have proved that they are corrupt and have some really royal scams to their names when they were in power. Both the parties have similar agenda. Both the parties hardly live upto expectations (however there are some exceptions to these, but they will never make it to the top of the pyramid).

Another facet in this conundrum is the fact that the Constitution of India mandates that all political parties declare themselves as upholding the socialist values of the country (at least on paper that is!). I don’t know how Mamtadi has a communist party which is against the constitution, but when have politicians really adhered to rules? So lets not bark up this wrong tree.

The point here is that the constitution more or less forces all parties to uphold the same ideological values (if any!!). Add to it that many MLAs switch sides to get something more for themselves from these two parties.

So at the end of the day, instead of debating on ideological differences, we end up seeing a simple mud-slinging campaigns between the two parties. Look they swindled x thousand crores and look how corrupt they are. At the end of the day the party going to rule is going to swindle. And that’s the sad moot point.

To the common man, it really does not make any difference whether Congress or NDA are the ruling party. All initiatives taken are so miniscule in nature that they end up being money making schemes for the ruling party (and in some cases for the opposing party as well).

So I hope the conundrum is pretty clear here … which party to vote for? The end result is the same. Choice is just an illusion.

Equity Release: Debt Instrument

July 30, 2012May 6, 2018 Prasad AjinkyaLeave a comment

Just when you think, what will these crazy bankers think of next … and boom comes the latest financial instrument ready to stupefy you … with its sheer ingenuity and innovativeness.

This latest debt instrument I came to know recently from a friend in UK is the equity release. Lets take a case of a country home in the UK which has a bit of mortgage attached and the owner wishes to make some new purchases. The first condition of this instrument is that the owner has to be above 55 years of age and the value of the house needs to be higher than the mortgage value. This difference is called the Equity of the house … now private financial institutions will provide these house owners with a method to slowly sell their house for a part payment on that equity value.

What’s so great about this opportunity is that the house owners are not on the streets trying to sell the house directly. Take for example, this equity release from Age Partnership, the ownership will be transferred only after a long long time … until when the house owner has access to a ready pool of funds. With the minimum age requirement of 55, and the average age in UK rising to 78, this means that the house owner has typically a good 20-25 years access to this pool of funds, which otherwise would only be made accessible post the sale of the house.

Thus, finances which would have opened up very later … and mostly by the inheritors, are now suddenly available to the house owner itself. This is great news for elder citizens who are having a hard time trying to maintain a lifestyle. This instrument clearly benefits both the institution and the individuals … a win-win instrument. I wonder, does this idea seem as good as those CDO’s back in 2008.

PS – The problem of all such financial instruments is the same – lack of regulation. With this, we can be sure to see the same … without any overseeing authority to stop malpractice, rogue institutions will realize the loopholes in the system (or lack of one), and exploit this. Any system without regulation is bound to the same problems. So the CDO statement back there really is not fair, but it’s always a risk to consider!

Europe Debt Crisis and Economics

July 25, 2012May 6, 2018 Prasad AjinkyaLeave a comment

Today I was sitting with the Pristine content team and trying to figure out why are we going to see the biggest financial recession ever. Bigger than the one we faced in the year 2008. Definitely bigger than the Great Depression of 1929 that the United States had faced.

So, what’s the problem with have Debt management in first world countries? Well, a lot of the growth in such countries is fueled by increase in the GDP (which is primarily a factor of how much the citizens can consume). Linked with consumerism is the problem of having a limited income. So most organizations think how do I maximize the share of this limited income?

The correct way is to maximize the pocket share, or the mind share within this limited expendable income that an individual has. Apart from that, there are other ways … ways such as Credit! So do not pay me the entire amount now, pay me in instalments … 30 days free trial (which loosely translates into a 30 day credit period), and so on. Credit cards enable us to do that, loans, overdraft accounts … essentially all these instruments help a consumer to spend MORE. At the end of the day when this expenditure has to be met with payments, either the person defaults (in which case this debt is bad debts!) or the person raises another loan to pay off that loan.

What banks do at the other side is that when they recognize such bad debts, they try to sell such debts as forward cash liabilities to other banks. Based on these you have a new instrument which is called a Credit Derivative .. you will remember the CDO crisis of 2007-2008. The culprit is debt or lack of Debt Management.

The problem stems from the fact that Debt management in the first developed countries was not done in a proper fashion. Typically, countries in Europe such as UK, Germany, etc are so developed that a lot of individuals are running in the negative all the time.

But things are changing, in fact I am informed that the debt management in such countries is now being managed by third party agencies, for example, click here for UK debt management. The good part about having such agencies is that individuals can now de-risk themselves. So much so that the UK government is hoping to lean on the taxpayers to lend the government money to pull themselves out from the Euro-Debt crisis.

Interestingly enough, what can be done to reduce future debt crisis is to start cash utilization and stop unnecessary usage of the credit instruments. A reality check on consumerism also needs to be done, which is threatening to take the economies of most developed countries down. In the short run consumerism is definitely a helpful boost in the arm for the country’s economy, but in the longer run it has to be curbed.

Credit Cards in India

June 26, 2012December 19, 2013 Prasad AjinkyaLeave a comment

With the e-commerce sector in India booming, a lot of foreign investors are looking to invest as PE funds in Indian e-commerce ventures. Unlike the Indian outsourcing story, wherein the business is a case of derived demand, the e-commerce stories are catering to the domestic market. With different reports sizing this industry around 5000+ Crores in INR per annum, this is one of the moments in the India Shining dream. One of the major factors in driving this has been the credit card and personal finance industry in India.

The ease with which private banks are issuing credit cards is a testament to the process orientation of this industry. What unnerves me about this is that the same ease is shown when the same credit card user switches to a different card. Over a period of time, users wake up to this and start becoming consumers … demanding better deals on their cards and switching without a moment’s hesitation. What this results into is an easy way out to avoid paying one credit card and get access to another card. Yes … a credit card fraud. The first world nations have already faced this threat and have put up centralized agencies to monitor credit scores.

In the UK, you can do a credit check for free … and that too online. The thing is that such organizations have superior processes powered by reliable and cutting edge technology. Nowadays, I am reading about Credit Cards with Digital Displays. In fact, in the UK the industry is so mature that nation level reporting can be done to find out the country’s credit risk. There are 30 million UK credit card customers holding 66 million cards. Out of these, 62% of all UK adults had at least one credit card. What is great about this is that the government is keenly following this industry and has mandated to the credit card industry to clean-up all malpractices.

India, is still far behind it n these matters … we do have the Credit Information Bureau (India) Limited, but I tried getting a report online and I could not. I had to first make a payment of INR 470, at which I balked. I mean, shouldn’t this data be made available for free? At least to the user on whom its about!

The Credit Card industry in India needs to mature and fast! Otherwise the boon which is fuelling the start-up boom can suddenly become the bane of financial institutions. Proablems such as credit fraud and CIBIL look-ups for all credit related transactions should be institutionalized across the country. Private banks need to stop running after numbers and start working on how to reduce churn. Business analysts need to figure better predictive models for detecting possible frauds (ala Minority Report).

The credit card industry in India is still in the nascent phase, with rural areas still vastly unexplored, there is a huge scope of growth and this industry does require the support of the country to grow. Personal finance will increase personal funding … which will fuel the country’s GDP … reducing the Balance of Payments (BoP) … increasing the Rupee value. An aggressive consumerist movement can give this economy a shot in the arm, and the credit card industry is just winding up for that!