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Friday, May 01, 2009

Comments to discuss, 1 May 2009

Readings of the day

Comment by Anonymous:

It has now become somewhat clear to any reader that thinks beyond the print a bit, that Satyam was a black-money laundering machine for various Hyderabad politicians.

Question: could there be other companies doing the same? Software is notoriously hard to audit. no export invoices etc. all vaporware (software). Maybe wireless telephony (eg airtel, spice etc) could be in the same boat?

Signs of a thaw?

Comment by JD:

For recovery of the financial markets, there are events that would lead the credit spreads e.g. willingness of banks to repay TARP. They do have to be used carefully. While Goldman pretends eagerness for financial freedom, it is only asking to repay what it doesn't like. See comment in barrons on TLGP for more details.

India in the Great Recession

Comment by Anonymous:

thanks for the link on NYTIMES about the "great election". So True. Also, it must be pointed out, that having a demographically "young" country is very stupid to live in if you are a thinking person.

All movies are teeny bopper dandy dating oriented. All "news" is hype. There is no national "dialogue" at all. Period. Just a dinner at McD! This is the electorate. And their doting parents obsessed with their offspring are too tired to do anything else.

In short India is braindead. Except where passing stodgy exams to get "great" 12 hour jobs crunching spreadsheets in an MNC with chance to go abroad.

Fallout of hostility towards bonuses to AIG employees

Comment by Duke Nukem

Besides the FDIC bond guarantees, banks in general have been 'bailed' out via AIG. The govt. effectively gave them a new counterparty instead of AIG for free!

AIG financial products group were in the business of 'insuring' (via CDS) tranches of ABS CDOs that banks held and needed to reduce regulatory capital requirements. Sure they didn't pump money directly to the rest - and the cost of this 'bailout' will only be known once the CDS portfolio in AIG matures.

Now if they didn't capitalize, or left AIG insolvent, imagine what happens then when you have major banks looking for capital at the same time - further killing the interbank market - and this just after the Lehman episode.

To me this is a bail-out of the financial sector, but one which was needed to prevent a general economic meltdown which would then hurt households.

But naturally I think it is right to be disgruntled when you have people at Goldman Sachs offering to repay TARP funds, saying they didn't need them at the time and acting like everything would have also been cool for them if AIG was not 'bailed' out.


  1. Well, anon has posted a fire-brand of an issue regarding black money laundering!

    I have long suspected cellular operators in India might be engaged in this based on my personal experiences with e-recharges and whatnot.

    And if Price Waterhouse (no less!) could NOT be bothered about checking a SIMPLE bank balance not to mention fraud in revenues, taxes, interest (payed and received) in Satyam's books,....

    THEN i feel that given the culture of business in India (read "Black Money"), and given the opportunity presented by cellular telephony: (highly technical, while also being a pure "service"...hard-to- audit deliverables) it is mostly 90% CERTAIN that major Indian cell carriers will be doing this.

    Doing this (laundering black to white)is beneficial to the CEOs of these "mega corporates" in two ways:
    1) it brings return commission of at least 25% (as the ex- honorable Mr. Natwar Singh laid bare in TOI years ago!) for this service rendered.

    2) it brings political FAVOUR big time! politicians are widely suspected to be rife with (black?) money and yet no qualifications to back up the money.

    RESULT: You combine money and power.... = explosive corruption. Meanwhile the CEOs will appear on covers of glossy maagz as masters of the (indian) universe!

    Jay Hind.

  2. afterhought:

    I forgot to mention a THIRD benefit to the "mega corporate":

    3) if the actual "laundering" takes place in Revenue line item, then the erstwhile "master of universe" CEO gets to show HIGHER gross margin, and BOOST his/her SHARE PRICE.....!

    as a wise man once said: "you get your Money for nothing and your chicks for free!" Good to do biz in India for the chosen few!

  3. I had always wondered why Indian movies have such a juvenile depiction of men and women. Demographics strikes again!

  4. yes krsh. i also find it hard to understand/reconcile how such low "arpu"'s (Rs 300 per month!)for the major cell carriers translates into proper business?

    Then these carriers are providing "schemes" like lifetime validity, 1 year validity! So...satyam had inflated "employee headcount" because that was closely scrutinized software industry metric to "cover" the (now disclosed FAKE) revenues, likewise, these cell subscribers may be having bloated "subscriber" base!

    In such a capital intensive business. How can have lifetime validity (subject to 10 rupee "topup" every 6 months)?! Hmmm.....i am scared.

  5. Folks, consider the local DVD rental store. They want Rs.2,000 as a deposit and then they give DVD rentals at some absurdly low price for life.

    Now what's going on really is that you bear the credit risk of this store; in some months, it could be gone and the "lifetime" promise is violated.

    In similar fashion, the buyer of a lifetime service plan from a mobile phone company is actually taking a credit bet on that company. Fair enough.

    But what motivates you to then take the next step further, and suggest malfeasance?


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