Archive for May 30th, 2019

How Vadodara Became a Hotbed of Financial Scams & Rackets?

May 30, 2019

Quint.com in this piece:

Vadodara in Gujarat is also called as ‘Sanskaari Nagari’ or the Cultured city, as much of Gujarat’s history and heritage finds its roots here.

But of late, the city is also shaping up to be a hot bed for scamsters who have allegedly resorted to financial fraud, which in some cases are to the tune of thousands of crores of rupees. These cases pertain to bank frauds where companies have duped loan syndicates and misappropriated the funds and rackets carried out in public works and infra development projects.

Incidentally, it is speculated that big ticket economic frauds have links with national-level political parties, while the other rackets are rooted in corruption and apathy at the civic body level.

The Quint lists out a range of such scams that has its roots in Vadodara.

Quite a few frauds and scams.

Here are some related articles: one, two.

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30 years of Unforgettable Tiananmen…

May 30, 2019

Chris Patten, last British governor of Hong Kong and a former EU commissioner for external affairs, writes on the tragedy:

(more…)

Not just Draghi, but tenure of two more top officials of ECB gets over in 2019..

May 30, 2019

Prof Lucrezia Reichlin of London Business School writes on how change of guard will happen this year at ECB. It is not just Draghi whose term ends on 31-Oct-2019 but Peter Praet whose term ends on 31-May-19 and Benoit Coeuvre whose tenure ends on 31-Dec-19. These three have been key to ECB’s decision making during the European crisis. Under ECB rules, they cannot be reappointed.

Prof Reichlin says the appointments at the central bank are going to be crucial:

A colloquium in honor of Peter Praet, its departing chief economist. Having worked closely with ECB President Mario Draghi through the years after the 2008 financial crisis and subsequent euro crisis, Praet, more than anyone else, has been the one to steer the bank’s governing council toward a common decision in difficult situations. His departure comes after that of Vice President Vítor Constâncio last summer, and he will be followed out by Draghi in October and Benoit Coeuré of the ECB executive board in December.

These important changes in the ECB leadership offer a chance to reflect on the challenges the Bank will face in the coming years. As the eurozone’s only truly federal institution, the ECB has found itself acting as the “institution of last resort” during past crises, picking up the pieces when national governments fail to reach agreement. It has managed this despite its complex governance structure. The ECB governing council comprises 19 national central-bank governors, each representing countries with different interests, as well as the executive board, whose six members are appointed by the European Council following an intense bargaining process

Though Draghi tends to get most of the attention, he made sure to point out at the colloquium that it was Praet whose recommendations have consistently been accepted by the governing council these past eight years. The departing leadership’s success in building a consensus within such a diverse group should not be taken for granted.

The battle over central-bank independence will define the ECB’s next decade. As national governments reflect on Praet’s departure and look ahead to the selection of a new president and executive board, one hopes they will take seriously the task of picking the right women and men for the job.

Hmm..

What is behind the recent global slowdown?

May 30, 2019

Hyun Song Shin, Economic Adviser and Head of Research of the BIS in this speech tries to answer the question. He says the main reason is deep interconnections between trade and finance. With financial sector continuing to bleed, this has affected trade and global growth:

Financing of working capital to sustain manufacturing and trade shines a light on the role of the banking sector. Banks are crucial for the provision of trade financing, and a strong banking sector augments the firms’ own financial resources to meet working capital needs.

Yet the banking sector has been stuck in low gear since the GFC. While post-crisis reforms have increased the resilience of banks by enhancing their loss-absorbing capacity, banks’ lending growth has been disappointingly weak. Above all, the book equity of the banking sector, which serves as the foundation for banks’ lending, has stalled.

Graph 6 shows that book equity growth has slowed drastically since the GFC, reflecting in part the low profitability of the banking sector, as well as continued dividend payouts and share buybacks. As book equity is the foundation for the lending by banks, the slow pace of book equity growth has gone hand in hand with stagnant lending growth.10The sharp break in trend in equity and asset growth since the GFC is a graphic illustration of how, even a full decade after the crisis, the banking sector has not recovered from it. This is not just a story about Europe. The group of 75 large banks depicted in Graph 6 are drawn from around the world.

The weakness of the banking sector shines a light on the unintended side effects of a prolonged period of monetary accommodation that has weighed on bank profitability through negative interest rates and compressed long-term rates. It is commonplace to say that monetary policy is overburdened in the current economic environment, not least from the BIS. But this is a point that is especially relevant for the impact of monetary policy on GVCs and manufacturing activity. Bank lending and corporate balance sheet strength are key to the financial backing underpinning GVCs. While low interest rates in advanced economies have helped bolster consumption and support strong employment growth, the impact on bank lending that bears more directly on GVCs has been arguably less effective. Nor can we say that the impact of monetary policy on corporate leverage has been unambiguously positive. Companies have taken advantage of low long-term interest rates to borrow long-term through capital markets, and have used the proceeds in financial transactions, either in acquisitions or to buy back their own shares. Real investment unrelated to property is more closely tied to the health of the manufacturing sector and has been subdued. More recently, leveraged loans issued by less creditworthy firms have been receiving increasing attention from policymakers as a potential source of financial stress for firms.

Once the growth of manufacturing and trade through more intensive use of GVCs has run its course, relying excessively on manufacturing and goods trade may be setting the global economy up for disappointment. The experience of 2017 serves as a useful lesson. During 2017, manufacturing and trade grew strongly on the back of accommodative credit conditions and a weaker dollar. However, as we have been seeing in more recent months, some of the expansion of activity was vulnerable to a reversal of credit conditions.

These considerations bring us to the importance of the composition of demand and the role of fiscal policy. When the appropriate opportunities for long-term public investment arise, fiscal stimulus – through such investment projects taking advantage of low long-term interest rates – may be one way to reorient the economy towards domestic activity. The important point here is that such a reorientation would aid the rebalancing of the composition of demand as well as its overall size. The issue of fiscal space and long-run sustainability of public debt will then need to be addressed. These issues are beyond the scope of my presentation today, but I am sure they will figure in the discussions at this forum. I look forward to a lively debate.

Hmm..


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