Great article on advisors and fund managers

An article by Michael Lewis that will make most employees of most financial firms squirm. The most interesting firm in the story is Dimensional Fund Advisors.

A revolution in payments could be in the pipeline

Imagine being able to pay a taxi driver by `sending him an SMS'. A lot of people have cell phones, so person -> person and person -> establishment payments can be achieved with very low frictions, once mobile phones are properly in harness for the purpose of payments. I believe the cost of production of an SMS in India is now roughly Rs.0.02, so perhaps a P2P payment can get done for a flat cost of Rs.0.04. That makes it viable when buying something worth Rs.5 or Rs.10. (Rs. 10 is roughly $0.25 at the present exchange rate).

At the simplest, a payment could go hit a bank account. But when you have a prepaid phone, a payment could dip into the cash that's been deposited with the mobile phone vendor. And, once the mobile phone vendor has got some of your history of payments, he might be willing to take some credit risk and let your account balance go negative, thus giving you credit. This credit could get securitised and sold off on the bond market just as is the case with credit cards. All this could be merely a relationship between the customer and the mobile phone company, backed by bulk investors for securitisation paper, without a role for a bank.

Hence, this will be opposed by banks, who will substantially lose their role and revenues from payments. Poorly run banking regulators will be defensive about banks and will try to come in the way. How this political economy plays out is of critical importance, in judging whether this new technological opportunity will be properly harnessed.

A press release from GSM Association shows new work and focus on this subject. The GSM Association (GSMA) is the global trade association representing more than 700 GSM mobile phone operators across 218 countries and territories of the world. In addition, more than 200 manufacturers and suppliers support the Association's initiatives as key partners. I was very happy to see Indian telecom vendors playing a role in this thinking. I guess India is very big on the global scale in the world of mobile phones (In October there were 217 million mobile phones in the country, with growth of 8 million a month).

Leslie D'Monte has an article in Business Standard about these developments.

OTC equity derivatives in India, and their applications

An article by Rajesh Abraham in Business Standard talks about Nifty-linked bonds being sold by financial firms. These kinds of products are best achieved when an OTC equity derivatives market is available.

You should also read Jayanth Varma on this subject.

Phrase watch

In 1973, Erica Jong wrote a book titled Fear of flying. The instant success of the book made the phrase famous and recognisable: Google shows 981,000 occurences.

In 2000, Guillermo Calvo and Carmen Reinhart used Fear of floating as the title of a paper. The paper was very influential, and the phrase `fear of floating' along with the acronym FoF have gone mainstream in international economics. Google shows 58,900 occurences - roughly one-sixteenth of `fear of flying'.

At Suman Bery's seminar on MIFC a few months ago, I thought I came up with the phrase `fear of finance' on the fly, but googling shows 143,000 occurences - even more than `fear of floating'. All three phrases have a nice f sound, but I guess `fear of finance' is a more mainstream issue than `fear of floating'.

Another mainstream, and evocative, phrase is fog of war for which which google reports 972,000 hits. The wikipedia entry says it goes all the way back to Clausewitz.

Now I have seen a new phrase fog of finance trying to make its way. Right now google shows 1600 hits. I'm not that enthusiastic about it. I use `fear of floating', `fog of war', and `fear of finance' in my ordinary speech, but I don't yet feel the same about `fog of finance'.

First research meeting of the NIPFP-DEA Research Program on Capital Flows and their Consequences

The program is up on the website.

If you read this blog, you must be a

13th Finance Commission

Vijay Kelkar will head the 13th Finance Commission, and Business Standard has an interesting edit framing the issues that 13FC faces. You might like to see Kelkar's FRBM Implementation Task Force report, and this feature on him in Economic Times. In a timely piece in Economic Times, Amaresh Bagchi and Satya Poddar argue in favour of a lower GST rate than that proposed in the FRBM Task Force report.