Archive for December 31st, 2007

Growth and Development- what have we learnt?

December 31, 2007

This Blog started with pointing to the evidence on growth and development and since then I have tried to cover a wide variety of issues.

I came across 2 pieces on growth and development. One is the transcript of reviewof Dani Rodrik’s latest book and second is a superb piece from Charles Kenny.

Dani Rodrik provides some ideas on how we have moved towards understanding what drives growth. He is quite critical of the way development agenda was handled initially and without understanding the context policies, suggestions etc were given.

Charles Kenny says we haven’t learnt anything in the last 60 years and much of the literature is the same as it was in 1960s :-) Reminds me of Avinash Dixit.

Understanding Credit Rating Agencies’ moves

December 31, 2007

Any financial crisis the credit rating agencies (CRA) are usually found wanting. They are equally blamed for any crisis whether it was the Enron crisis or the recent sub-prime crisis.

The allegation usually is that the rating accorded by the agencies usually are behind times and act after the crisis actually takes place i.e. they don’t downgrade a company/asset quickly enough. If they are following the company/asset they should be the first one to know of the ills. If they downgrade the company after everyone knows there is a problem there is not much sense to have a CRA.

What is the purpose of a CRA? It is to reduce information asymmetry. In other words, they help demystify the various financial statements by using their various analysts and experts and help the investors in making a decision whether to take an exposure (loan, equity etc) in the company.

So instead of reading through the various documents, you see what a CRA has to say and decide. So they have a pretty important role to play, but have failed when it matters the most. It has been pointed time and again that they only give ratings to please their clients.

It is actually preposterous that they get most of their income from the companies they rate, so there is no real incentive to issue a negative rating. I mean why should I pay you if you give me a thumbs down?

I was just thinking, why do CRA then downgrade companies immediately when times are bad? Well, a downgrade means, a company can raise its hands and say “Hey, I am making losses/bankrupt and the CRA also says so”.  Meaning I cannot pay up and don’t bother me. So, a CRA helps the company either ways :-)

Will Cricket India ever learn?

December 31, 2007

The weekend was bitterly disappointing. The first test match against the Australia in a much-hyped series ended in 4 days with a thumping victory for the hosts.

It was so sick to see the famed batting line up fold up yet again to an attack which didn’t have the usual tormentors – Mcgrath, Gillespie, etc. The bowling line up just had one experienced campaigner- Brett Lee. He usually bowls 150 km/h plus, but he also bowled pretty slow and still was very effective.

Usually Indian team complains on foreign tours are- weather conditions and pitch. This time they couldn’t as both the wicket (very low and slow) and weather (hot and humid – touching 50 degrees) was just what we see in India. I agree if the wicket was supporting swing etc but it was so much like playing in India.

Another is the experience bit. Why take people who have so much experience and have played earlier in Australia as well? It was as good as seeing a local side. No one was ready to stick it out. What is the point of having such stalwarts in the team if they make the same mistake over and over again? They should have atleast tried to better the first innings debacle. But no, they only did worse.

The batting was so slow that it would have put a sloth to shame. They can’t play pace, swing and now it seems spin as well. One should have seen them play Brad Hogg. Well, less said the better. They were playing as if some terror has broken loose. There was nothing in the wicket at all. The Aussie bowlers simply bowled an off stump line and we kept obliging.

Most would say it was just one test match and not much should be drawn from one loss. I don’t agree. It was too humiliating the way we batted. To loose by 337 runs in ideal conditions is just not done.  It is not a one day match where things are beyond your control. It is a 5 day test match where you can rectify your mistakes. But no, we just never learn.

No one barring Ganguly was ready to fight it out. I hate to say this- to see Sachin falling to Brett Lee in second innings was like seeing a debutant fall to an experienced campaigner. I mean most know if a bowler sets the fielding to encourage you to hook and bowls few shortpitch to begin with, the next ball is more likely to be a yorker or a simple outside the off stump ball. But Sachin obliged by slashing the ball and giving a catch to the wicketkeeper. He is in good form and should make Aussies pay.

Most were expecting this is the best chance India has to try and beat Australia. I am sure most must be eating their words.

Some were even doubting that our bowling wouldn’t be able to get out Australia twice in the test match, which is a necessary condition for winning a test match. So the best way was to bat out the Aussies. But I think the opposite happened- bowlers were the only saving grace in the match.

I don’t know whenever we expect something from Indian cricket team they disappoint the most. No one expected them to do wonders in the WC 2003 but they reached finals; in WC 2007 when all did, they went out in round one. Similarly the previous Australian series in 2003-04, they came out against all odds and almost one the series. And the twenty-20 triumph was least expected.

Even if the Indian team wins all the matches now (don’t take that seriously as 4-0 looks highly likely), this loss is another big big failure for the batting line-up to deliver when it matters. Highly disappointing.

Assorted Links

December 31, 2007

1.MR asks and answers- Why is New Zealand poorer than Australia?

2. WSJ Blog says analysts expect Fed to tighten rates in 2008. It also points after US (see this econbrowser post), home prices fall in UK.

3. Mankiw has become an editor of the Brookings Papers on Economic Activity. Watch out for the papers presented at the conferences. Mankiw also has an assignment for all.

4. Rodrik and Mankiw seem to be loggerheads again. Watch out.

5. TTR on Mao, the Management guru

6. ET has some interesting pieces today:

  • it says using forex for infrastructure is a risky strategy.
  • about 60 new car models are going to be launched in India. God save the Indian public who is already facing numerous jams to commute.
  • In India elite colleges prefer to be elite, and the elite colleges in US are offering their lectures etc online.
  • Brad de long offers 3 solutions for 3 crises

7. Here is some more from BS:

  • a terrific article on how bloggers are helping understanding Indian IPR.
  • AV Rajwade says finance now needs a flight to simplicity. I agree completely.
  • Anjuli Bhargava updates on Air-Deccan. Sad that the much-hyped low cost airline had to go this way.
  • Subir Gokarn says inclusiveness and inequality are different.

Follow

Get every new post delivered to your Inbox.

Join 1,178 other followers