Prof JR Varma has a blog post which debates Uberisation of finance. They key idea here is whether innovations in finance can/should be ahead of regulation. Moreover, should regulation kill or allow innovation?
He quotes from a paper by Pollman and Barry in regulatory arbitrage. The business is done under the assumption that law shall be changed in their favor overtime. In finance we are seeing a surge in technology which also relies on regulatory arbitrage. So, how do we think this will pan out?
Prof Varma points firstly current finance players are fairly tech savvy and know the game. Second and more interestingly is this thing that historically most finance innovations come from criminal enterprise itself!
Now, in another long must read post Bhargavi Zaveri adds more clarity to the debate. She says on the contrary FLSRC would have strengthened the RBI Board. Would it have altered the outcome of demonetisation?
She points how NY’s Bank Street does not have any banks. Infact, it is not even the street where banks were originally localted. It is a street where banks relocated due to yellow fever in NY:
Bank Street in New York City is a quaint little six-block stretch in Greenwich Village (see this 48-second video) with a huge cultural legacy—but no banks. Many cities and towns have a Bank Street and often the street is so named because that’s where most of the banks were originally located. (It is not likely that any Bank Street got its name because of its proximity to a riverbank.) However, New York City’s Bank Street is not where the banks were originally located and it’s not even in the financial district—it’s in Greenwich Village. Why, then, is it called “Bank Street?”
Okay, we cheated in that last paragraph. Manhattan’s banks were not on Bank Street originally but they were indeed there at some point—they moved northward from Wall Street in the late eighteenth and early nineteenth centuries in an effort to escape yellow fever. A post on the Forgotten New York website explains how there were two main waves of the epidemic in the city and that Bank Street was essentially named for the first bank to relocate, not the set of banks that eventually moved there:
Though most neighboring streets are named for local personalities in the Village’s early days (one early burgess, Charles Christopher Amos, had three streets named for him), Bank Street is named for one of the oldest institutions in NYC, the Bank of New York, which opened an office “uptown” after a yellow fever epidemic downtown on Wall Street in 1798 prompted a relocation. Several other banks followed suit in 1822 after a second outbreak.
Some bankers and others had been more foresighted. As noted, one of the first deaths in the scourge of 1798 was a book-keeper in the Bank of New York. “Fearing another visitation of the pestilence, the bank made arrangements with the branch Bank of the United States to purchase two plots of eight city lots each, in Greenwich Village, far away from the city proper, to which they could remove in case of being placed in danger of quarantine. Here two houses were erected in the spring of 1799, and here the banks were removed in September of that year, giving their name, Bank Street, to the little village lane that had been nameless before. The last removal was made in 1822, when the yellow fever raged with unusual virulence, and the plot which had been purchased for $500 was sold in 1843 for $30,000.”
In this 1842 map of lower Manhattan, you can see Bank Street just to the right of the large “E” of the “Hudson River” label. (Here is a 1933 street view.) Of course, Wall Street is in the bottom tip of the island. Bank Street is about 2.7 miles north of Wall Street. Yes, it takes a bit of time to walk from one to the other—but not that long.
There is further discussion on how such a small distance relocation helped banks.
Wow. There is so much to learn and figure about monetary economics other than just inflation rates.
The Moneyness blog which has been a great source of education post 8 Nov 2016 has another post to think about. This one is on size of currency note. The blog says that India reducing size of the new Rs 500 and Rs 2000 note is in line with what practices elsewhere. He also points to this wonderful note which discusses various aspects of note design:
Wishing all Mostly Economics visitors a very happy and a prosperous Diwali. As this blog keeps saying and says it again. This blog is making Diwali (and other wishes) wishes for so many years mainly due to the several visitors. The lamp of the blog continues to be alive and all credit is to all of you. May it continue for many years.
This Diwali one one is really confused about the appeal to ban/don’t use Chinese goods from several quarters. Economics obviously says such demands should be rejected but political economics considerations have some points to be considered. What do visitors think?
How lessons are transplanted from one industry to the other.
This bit is really interesting (HT: CB Blog). Mahindras have launched an app called trringo. The small farmers can just swipe and call a tractor. Just like we do for taxis using ola/uber:
Hailing a ride with your smartphone? That’s old news — ask any Uber, Lyft or Careem customer.
But how about hailing a tractor?
Just as urbanites may find it impractical to own a car but still need a ride once in a while, so, too, in the Indian countryside: To get the most from their land, small-scale farmers may need tractors and other machines from time to time, but they may not be able to afford their own.
Renting can be the answer, but the way it was done in India before was not very appealing to farmers. The process was usually informal and local, run by equipment owners who could be capricious or discriminatory, and prices tended to surge at the times of year every farmer in the area would be doing the same job and need the same equipment.
Mahindra & Mahindra, a major Indian vehicle manufacturer, thought there had to be a better way.
“One of the things that struck us was the toll it took on the self-esteem of the farmer,” said Rajesh Jejurikar, chief executive of the company’s farm-equipment division. “It was, literally, like having to beg for it. He didn’t feel like it was his right.”
So the company came up with a smartphone app, Trringo, which it rolled out in September in the state of Karnataka and will soon be available in other agrarian states like Gujarat, Madhya Pradesh, Maharashtra and Rajasthan.
Right now, a farmer can use the app to specify what is needed and when, and the company will send the requested tractor and a driver from one of about 20 hubs across Karnataka. The machine might belong to Trringo or to a private owner using the service to book rentals.
There is one snag: By recent estimates, only about 9 percent of rural India has mobile internet access. So the company has also set up call centers for farmers to arrange rentals by telephone.
Will be interesting to see how this experiment fares…
Katie Bennett of Oxford University Press has a post on a very interesting initiative taking place in Oslo, Norway.
The idea is to make some efforts to ensure both libraries and books remain relevant even 100 years later:
I want to live to be 100 years old. Yes, that is a bold statement, and I’ll admit this goal may be a bit unrealistic and potentially impossible, but my curiosity pushes me to beat the laws of nature. As a 22-year-old avid reader working for a publishing company, I can’t help but wonder: what will be the future of the printed book? Since the creation of the world wide web by Tim Burners-Lee in 1989 and it’s continual expansion since then, this question has haunted the publishing industry, raising profound questions about the state of the industry and the printed book. After the debut of the Amazon Kindle and the Barnes & Noble Nook, it seemed as if the days of print materials were numbered. Katie Paterson, founder of the Future Library of Norwa project, doesn’t seem to think so, and she’s got a plan to ensure their existence.
A renowned Scottish artist, Paterson is known for her grand-scale artistic ideas and endeavors. On 12 June 12 2014, Paterson began a century-long project as her way of preserving the future of the library and the printed book. Over 1,000 trees have been planted in the Nordmarka forest just outside of Oslo, Norway for the Future Library, called Framtidsbiblioteket in Swedish. These trees, only now just saplings, will grow to full maturity by 2114, ready to be harvested to print the most mysterious literary anthology ever compiled.
For the next 98 years, no one—not even Katie Paterson herself—will be able to read these submissions, and the authors of these works will most likely never experience the public’s reaction to their writings. In fact, most everyone who is currently working on this project with Paterson will never see the results of their efforts, and can only hope that the people to whom they entrust this project will continue their legacy in the ways directed. With hope, their grandchildren might be old enough to purchase a volume of the anthology, but even that’s no guarantee. In a world so consumed with providing a better existence for future generations, how selfless of an endeavor to work on a project the creator will knowingly never be able to enjoy.
Some authors have already begun to submit their anthologies. One can already buy a right to ensure delivery of the anthology when it opens to public in 2114.
The modern world rests on the foundations built by contracts. Contracts, when completed, when partially honoured, when inefficiently designed, lead to different scenarios that can be used to describe situations in the world of economics and sociology. It is for “launching contract theory as a fertile field of basic research” that the Nobel Prize in Economics for 2016 has been awarded to Oliver Hart and Bengt Holmström.
Year 1975. As fate would have it, Holmström, then a professor at Kellog’s Graduate School of Management, was bored. Life had become but a bowl of cereal. Paul Samuelson had already received his Nobel for unifying static and dynamic analysis. There was Kuznets who had had the last word in growth, and Kenneth Arrow who took the system from growth to welfare. In the process, if there were any fluctuations at all, Myrdal and Hayek had already explained them. Milton Friedman had had the last word on most of stabilisation theory and Ohlin broke the trade barriers. Aaaarrrrgh! Was there anything at all left to be analysed?
Frustrated, Holmström went home and idly flipped channels on TV. Lady Luck was watching. Had Holmström decided to watch the many antics of Lucille Ball, she would not have helped him. The world would then be a different place.
An Indian movie was being aired. There were people dancing to a song. And then suddenly came dacoits. The villagers ran helter-skelter and two good-looking young men shot at the dacoits, who were forced to return to their lair to face the wrath of the Sardar. “Kitne aadmi thhey?” asked the Sardar spitefully. How interesting! This guy, who is the principal dacoit, does not really know what his agents face in the field. The main fella has an objective function of dominating the local area with the help of Kalia et al., whose main objective is to bully and snatch food from villagers. How non-optimal! A breach of contract is imminent. Hmmm. How will the principal control his little gang of agents? “Jo darr gaya, samjho marr gaya.” Ouch!
But see how the coin flips (ahem, quite literally too, in the film). There’s this cop, who too is a principal working with the agents. He is not only armless, but also pretty much blind to field issues. But he is smart. He has the objective function spelt out: “Mujhe Gabbar chahiye. Zinda.” He keeps the money part of the contract simple. Half the amount to be paid at the beginning, half once the job is completed. This thakur tests his agents’ capabilities, gives them information over a spiffing cabaret performance to complete the contract, and in the end also uses the verbal promise made by one friend to emotionally fortify the terms of the contract.
“Brilliant!” thought Holmström feverishly. Every situation is basically an outcome of a contract, wisely or unwisely written. Let me put this down into an academic paper. As the thakur would have said, “Loha garam hain. Maar do hathauda.” The rest is history.
🙂 Trust Manasi to keep coming with these superb posts.
The writers of Sholay – duo of Salim Javed were master contract writers. They only contracted with the film producer if they were given due respect as writers and even shared up to 25% of the profit in some of the films. Their names were prominently displayed on the film posters just like those of actors. As they wrote most of Amitabh Bachchan’s blockbuster moves of the 1970s, it was really a big deal for their names to be displayed in the manner. The practice of giving prominence to script writing started with them and ended as well post their split in 1982.
So it is natural that Thakur specified the contract in as clear terms. After all the duo was behind the same. They also must be telling the producers the same thing – either my way or we are not going ahead with the movie. It is a different matter that Holmström actually got a whiff of his new idea from the movie. 🙂
Prof Jayant Varma points how SEBI is overdoing its regulation mandate. It has recently asked all stock advisers/tippers using all possible social mediums (whatsapp, Twitter, FB etc) to be first registered with SEBI before getting into advisory mode.