Archive for December 31st, 2013

Wishing all a very happy new year and ME’s Annual report 2013

December 31, 2013

Wishing all the viewers a very happy new year. Hope 2014 is a great year for all of you.

Here is ME’s 2013 Annual Report (courtesy wordpress.com):

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Comparing Cricket Australia’s decision with US Dept of Justice..

December 31, 2013

Well, few econs have stuck to a single task ever since the crisis started. One such person is Prof Simon Johnson of MIT who has been after this too big to fail approach of banks. He has written several articles asking banks to be broken up and facing sever penalties for the losses they have brought to public.

So, in this recent article he compares  Cricket Australia’s decision to penalise Michael Clarke with US Dept of Justice to penalise JP Morgan. It is really nice to see an American Prof following cricket!!:

When an athlete breaks the rules, it is easy to figure out whether the relevant disciplinary body really wants to discourage repeat offenses. Suspending a player from the sport – as happens in soccer in the case of dangerous fouls – is a real punishment, not only for the individual but also for the team.

Consider the case of Michael Clarke, the captain of the Australian cricket team, who recently threatened bodily harm to an opposing player. Despite public hand-wringing, Cricket Australia (the governing body) imposed only a small fine (that is, small relative to Clarke’s annual salary). Whether or not this was appropriate, Cricket Australia was making it clear that such behavior merited only a symbolic punishment.

The recent $13 billion settlement between the US Department of Justice and JPMorgan Chase (JPM), one of the world’s largest international banks, should be viewed the same way. To the uninitiated, the fine appears significant (which explains all the attention-grabbing headlines), and it certainly has made America’s financial regulators look busy and serious. But, just like Cricket Australia, the message is clear: There will be no change to business as usual.

He points how both pay some really low penalty:

A $13 billion “fine” for a company the size of JPM is about as painful as Clarke’s fine is for him – not painful at all. Clarke earns about $6 million (Australian dollars) per year; in addition to an annual retainer, he receives a $14,000 match fee for every international test match, along with other tour fees and bonuses. He was fined 20% of the international match fee ($2,800), or about 0.05% of his annual salary. For anyone with an annual income of $50,000 (which is close to the median for US households), this would be equivalent to a fine of $25.

JPM has a total balance sheet of around $4 trillion, measured using international accounting standards. As management told shareholders after the settlement was announced, “the Firm is appropriately reserved for all of these matters,” meaning that there would be no material impact on earnings. And, predictably, “the Firm did not admit any violations of law.”

In fact, while Clark’s paltry fine presumably at least comes out of his own pocket, the penalty levied on JPM is to be paid largely by its shareholders. And, because there is no market for corporate control over megabanks (because protections provided by regulators prevent hostile takeovers or effective shareholder activism), frustration on the part of JPM’s investors cannot result in a change of management.

But, again, JPM’s shareholders have little cause for concern. Marianne Lake, JP Morgan’s chief financial officer, has suggested that about $7 billion of the fine is likely to be tax deductible, that is, treated as a form of necessary and usual business expense. The bank was taxed at an effective rate of 31.3% in the first nine months of 2013, according to the Wall Street Journal, implying a tax break worth around $2.2 billion (which could end up higher).

Fine to be tax deductible!! Really?

Nice bit..

RBI should push for growth and get the government to work on lowering inflation…

December 31, 2013

Prof. Ashoka Mody of Princeton University chips in and joins several others who have been making the same points. Traditionally Govt. looks at growth and central bank at inflation. It is time to switch roles — let Govt look at inflation (much is food prices anyways) and let RBI look at growth by cutting rates (as all that is needed is lowering rates)…

One should expect such articles as RBI decided to play bogey by not raising rates amidst record high inflation.

Prof. Modi actually says RBI should do much for growth and should have allowed Rupee to depreciate:

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For goodness’ sake, this Italian is ruining Germany..

December 31, 2013

Says ECB chief Mario Draghi in this year end interview with Der Spiegel.

He respond to this often criticism of Germans on ECB policies:

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