Archive for November 7th, 2016

The Deutsche Bank Downfall: How a Pillar of German Banking Lost Its Way

November 7, 2016

The plot of the story is so so familiar to those who have followed banking history. It is ironic that a bank as old as Deutsche Bank (146 years) which should know history became its own victim.

Ullrich Fichtner, Hauke Goos and Martin Hesse of Spiegel in a long article explain what went wrong with the institution. In one word it was just “greed” which eventually took over all the culture and trust created by the bank:

Greed, provincialism, cowardice, unfocused aggression, mania, egoism, immaturity, mendacity, incompetence, weakness, pride, blundering, decadence, arrogance, a need for admiration, naiveté: If you are looking for words that explain the fall of Deutsche Bank, you can choose freely and justifiably from among the above list.

The bank, 146 years after its founding, has become the target for all manner of pejoratives, and not just from outside observers. All of the above terms were used in interviews held during months of reporting into the causes of the downfall of Germany’s largest financial institution. They popped up over the course of several hours of interviews with four Deutsche Bank CEOs, three former and one current. And they were uttered in interviews with eight additional senior bank managers and board members conducted over the course of several years, from the 1990s until today, and in meetings with captains of industry who know the bank well and during encounters with major stakeholders. More than anything, the disparaging words come up frequently in interviews with those who have worked or still work at the bank as customer service advisors, as branch managers or in positions lower down on the food chain.

What we have found in the course of these myriad interviews — combined with the hours spent analyzing bank balance sheets, thousands of pages of files, committee meeting minutes and archive material — is that the collapse of Deutsche Bank is the result of years, decades, of failed leadership, culminating in the complete loss of control of the company by top managers during the period between 1994 and 2012.

It is a story about how Hilmar Kopper, Rolf E. Breuer and Josef Ackermann, the leaders of Deutsche Bank during those fateful years, essentially turned over the bank to a hastily assembled group of Anglo-American investment bankers before Anshu Jain, the prince of these traders, rose to the top and spent three more years sailing the bank full-speed-ahead into the shoals.

It is also a story of how these bank heads, along with numerous other members of the management and supervisory boards, stood aside as Jain and the many other new investment banking heroes modified the staid German financial institution to serve their own purposes — essentially looting it and robbing it of its very soul — without leaving behind a better, stronger bank.

The subject is vast and convoluted, given the many aspects and paradoxes that come with the decline of such a large financial institution. One of those is the fact that, even as Deutsche Bank is rapidly losing value, it is still seen today as the largest systemic risk for the global finance world. Every detail in the sequence of its decline is controversial, partially because the financial world still considers it normal that nobody take responsibility for anything but themselves. All of them are most concerned with painting their own role in the best light possible and presenting the decisions they made as the only ones possible at the time.

But their claims must be examined critically. When looking back at past decisions, one can easily seem like a know-it-all, but it’s just as inappropriate to fall prey to historical relativism. When a bank like Deutsche, once an icon of respectability and solidity, transforms into a caricature of “The Wolf of Wall Street,” something must have gone wrong and someone must have been responsible.

And there are people who deserve blame: management board spokesmen (the bank’s equivalent to a CEO before a true CEO leadership model was introduced in the 2000s), members of senior management and advisory board members over the course of several years. Their leadership failures were not primarily the result of professional incompetence, since the people involved were and are extremely well educated, often proven professionals with significant amounts of experience. The source of their mistakes lies elsewhere, in cultural factors and psychological disposition.

Well, even if it is inappropriate to fall to historical relativism for answers, it provides most of the answers..

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A case of a Mumbai pub row as decor hurts religious sentiments…

November 7, 2016

Be very careful while mixing commerce with religion. It usually backfires and in a spectacular way.

Last week, Christians filed a complaint against a pub in Mumbai due to latter’s decor:

The Watchdog Foundation, an organisation claiming to represent Christian interests, has filed a police complaint against the owner of Goregaon Social, a pub in suburban Mumbai, on the grounds that the establishment’s interior decoration is blasphemous. The Archdiocese of Bombay also issued an official press statement on Wednesday condemning the restaurant for hurting religious sentiments.

According to a statement by the Watchdog Foundation, Goregaon Social – which opened in August – has interiors with “outrageous depiction of various Saints and religious items from the Holy Book Bible, which is nothing short of blasphemy to Christianity”. The list of decor elements in the pub includes stain glass images depicting “Jesus holding a leather bag”, “Moses holding a computer tablet” and “St Anthony wearing glasses”.

“The bar area has a backdrop of a Tabernacle set up…the seating arrangement in the bar is that of church pews. Even the messages inscribed on the benches are from the Holy Bible,” the press statement said. In their police complaint, made on Tuesday night, Watchdog Foundation has demanded the arrest of the pub’s owner for outraging religious sentiments under Section 295A of the Indian Penal Code.

The Church’s official press release, meanwhile, demands that the pub be closed down and a its operational licences be cancelled till the interior decoration is changed. “How did the BMC give permission for these interiors? It is a clear violation of our laws and it is upsetting that our community is taken for granted like this,” said Father Warner D’Souza, a spokesperson for the Catholic Church.

Here is another angry article which says the community has been educed to a set of clichés and motifs by Bollywood, people unfamiliar with them, and more recently for social-media-fluff anthropologists..

What Is Driving Rural Inflation at a Higher Rate?

November 7, 2016

Tulsi Lingareddy of EPW Research Foundation analyses rural inflation in India:

The detailed exploration of trends in inflation along with the changing consumption patterns in rural and urban areas have suggested that while inflation in both the areas has moderated considerably during the past two years or so, the decline in rural areas has been slower than in urban areas particularly for fuel and light, clothing and footwear and miscellaneous groups.

Significant differences in the weighting diagrams of the two (rural and urban) consumption baskets accompanied by their divergent price movements have resulted in to a relatively higher inflation in rural areas in case of fuel and light group and transport and communication subgroup (in the miscellaneous group).

The higher rural inflation in clothing and footwear, household goods and services, recreation and amusement and health subgroups (in miscellaneous group) could be on account of two main reasons. First, prevailing rural infrastructure bottlenecks are apparently adding to marketing costs and trade margins (supply chain inefficiencies) while meeting the rising rural demand for these items. Second, the low pricing benefits emerging from e-commerce retailing has not percolated to rural areas due to inadequate logistics support.

 

 

World Bank and India relationship over the years..

November 7, 2016

Nagesh Prabhu author of Reflective Shadows: Political Economy of World Bank Lending to India, has a post on the topic.

The focus is usually on IMF but World Bank has been as  big a partner in India’s journey:

It is undeniable that India has been one of the main partners in the world economic operations and the World Bank (also known as the Bank). America, being the largest contributor to the funds of the Bank, has enormous influence in the functioning of the Bretton Woods Institutions (BWIs). The Bank has played a major role in transforming the Indian economy and the country’s emergence as a credit worthy nation. Like India-US relations, the journey of India and the Bank also had its ups and downs.

It is noted that the current situation evolved from skepticism to friendship with many a blips in between. Today, the relationship has matured, but the experience is worth recording. Both India and the Bank share the fundamental goal of achieving poverty reduction marked by sustainable growth. India’s relationship with the Bank has undergone different phases with unmistakable imprints of the world of political pulls and pressures.

The relationship strained in 1966 after the Indian economic crisis. The Bank’s diminished role after that lingered briefly in memory. But the timely aid from the Bank (under President Robert McNamara) soon revived and increased many-folds. Though this phase did last longer, mutual trust got some beating on different occasions. While the Indian government accepted the need for reform, suggested by economist Bernard R. Bell, the Bank’s pressure caused resentment in the rank and file of the Indian polity. During this period, the Indian political scenario was also undergoing many upheavals. That had its own reflections on the Banks policies towards India.

The Bank’s presence in every sector was quite visible as well as the achievements. It introduced the structural adjustment policy in India in 1981 when loans were sought from BWIs owing to the second oil crisis and severe droughts across the country.

……

While during the seventies and eighties, the Bank paid more emphasis on project and sector lending, after the nineties the Bank was focused more on the macro economics of India. After setting right a few macro-economic policies, in the mid-1990s, the Bank launched its new assistance strategy – policy-based lending to sub-national governments – to set right lopsided development across states with the national interest. The Bank loans triggered reforms in some reform-oriented states but not to the extent envisaged.

It is really something to see how much intervention Bretton Woods institutions have done in several economies over the years..

Why America always votes in November? Why never on 1st November?

November 7, 2016

Superb piece from Adrija Roychowdhury of Indian Express.

How racism, agriculture and politics determined voting days in America. Despite agri no more being a force, the tradition continues.

There are three things to timings in US elections. First is they are held in November. Second they are held between 2 – 8 Nov. Third, they are never held on first Monday.

 

The first Tuesday after the first Monday in the month of November every four years is auspiciously set aside by Americans as part of a ritual they have been following since January 1845, when the Congress declared it to be the day when America shall vote. The schedule was such that the earliest possible date for election is November 2 and the latest being November 8. The Congress in 1845 had finely plotted out the day as being most convenient for America’s voting population- white, adult males.

As per the explanation given by the Federal Election Commission, November was chosen as the month for voting because majority of America at that point in time was agrarian and by November the harvest season was over; which meant that working people did not require to take a day off for voting. The fact that most people had to travel long distances for the sake of voting also meant that it was necessary that voting took place only once the harvest season was over.

The Congress decided upon Tuesday since the travel time required meant that most people would not be able to reach the voting venue by Monday if they started out on Sunday, which was generally the most favourable day for starting a journey.

The reason for choosing the first Tuesday after the first Monday was two fold- religious and economic. The Federal Election Commission explains it in the following words:

“Why the first Tuesday after the first Monday? Lawmakers wanted to prevent election day from falling on the first of November for two reasons. First, November 1st is All Saints Day, a Holy Day of Obligation for Roman Catholics. Second, most merchants were in the habit of doing their books from the preceding month on the 1st. Apparently, Congress was worried that the economic success or failure of the previous month might prove an undue influence on the vote!”

Interesting bit of history.

What is also interesting is only 8 States have declared the voting day as a holiday:

Over time, the expansion of eligible voter population and a decline in agricultural workers has made a Tuesday in November to be quite an inconvenient time to vote since it is a working day. Only eight states have declared voting day to be a civic holiday while some other states have made provisions for workers to come in late for work in order to accommodate voting. Thirty-four states have made permissible no excuse early voting, wherein a citizen can cast a vote prior to election day. However, why the United States has not officially altered its election day despite the inconvenience it poses for the voters is hard to answer.

Shows how powerful States are in the US set up. They just don’t care for the elections to elect the US President who is easily the most powerful person in the world!


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