Archive for the ‘Financial Markets/ Finance’ Category

How to Avoid Getting Sick From Financial Markets

June 21, 2018

Barry Ritholz has a piece which if not now will affect all of us very soon.

Falling stock prices seem to precipitate a broad range of physical and psychological problems. 1  Studies have found a strong correlation between market volatility and health. The number of hospital admissions increasesheart attacks rise. Anxiety, panic disorder and major depression increases significantly; suicides increase substantially. To take an extreme example, during the 1987 Black Monday crash when U.S. markets tumbled almost 23 percent in one day, California’s hospital admissions spiked more than 5 percent.

Perhaps every mutual fund, stock certificate and exchange-traded fund should come with the following notice: “Warning: Investing may be hazardous to your health.”

This is no joke. As my colleague Nick Maggiulli explains, “financial post-traumatic stress disorder” is a genuine threat to individuals. He says we “replay traumatic market moments in our head over and over again and they can come to define how we invest in the future.” There is a sort of “helplessness cycle” that I believe gives rise to dangerous and occasionally fatal emotional responses.

He says one should take cues from behavioral economics to let go off things which are beyond our control:

A helplessness cycle is caused by the illusion of control. It is how most people operate; that moment of realization that they lack control over many important events gives rise to fear and then panic.

Behavioral finance has provided a solution to this problem: Understanding what is and isn’t in your control can go a long way toward avoiding the sorts of emotional reactions that can put people in the hospital.

Easier said that done. The way we are all moving and being pushed into financial world, we are going to be paranoid about slipping value of investments….


Now is the time for banking culture reform

June 20, 2018

The new President of New York Fed – John Williams (earlier President of SF Fed) – in his first speech talks about banking culture:

This brings me back to the issue of culture as a long-term investment that can’t be “fixed” overnight. Several years ago, Rich Lyons, Dean at Berkeley’s Haas School of Business, spoke at the San Francisco Fed and talked about culture in a way that has stuck with me ever since. Transforming a culture is a five- to ten-year project; keeping it that way is an ongoing mission that requires strong leadership and consistent action.

As a leader of a large organization, I’ve taken that message to heart. I’ve found that a culture based on the principle of open and authentic dialogue, that embraces our diverse backgrounds and perspectives delivers better results. I’ve found that well-defined collective values and direction lead to greater collaboration and innovation. Finally, I’ve found that this work is never a finished project, but an ongoing one that constantly evolves.

I started by saying that I feel a sense of urgency in addressing banking culture. So where do I see the priorities for supervision?

As supervisors, we need to ensure that bank management and boards are exerting strong and effective leadership with robust governance. That means holding management and boards of directors to high standards in terms of culture and conduct, even when the numbers look rosy. It means ensuring corporate values are clearly articulated and incentives are squarely align with a bank’s strategic goals. It means identifying, communicating, and mitigating risks in a timely and effective manner. It means that employees feel empowered to raise their hands if they see wrongdoing, and that comprehensive fixes are implemented when something goes wrong. 

Banking culture has become such an important issue in recent years…

Why do eminent bankers usually fall? Case of Chanda Kochar

June 20, 2018

It is still quite unbelievable to read all the drama around Chanda Kochar, ICICI Bank’s CEO. Common sense would suggest that the CEO should have stepped aside until the inquiry was over. But once again it showed common sense is not so common.

Amidst all this one still cannot fathom this happening with Ms Kochar of all people. She was seen as this bright jewel amidst all the bankers and took over ICICI when it was under trouble following the 2008 crisis. Much of her tenure was without much hype and earned huge admiration from all quarters. How quickly all this has unraveled?

It is another case of an eminent banker falling from tall heights:

Kochhar has had a dream career. In 1984, when she joined ICICI as a management trainee, no one would have imagined she would become MD & CEO 25 years later. From a trainee to the CEO & MD to Padma Bhushan to the stain of corruption, Kochhar’s rise as well as fall seem incredible. 

Why does this happen so frequently in banking of all sectors. One could actually be weary each time you see a central banker/banker earning huge praise. You never know how the downfall will come.

Each time it happens, one cannot help but recall John Galbraith’s words:


Gandhiji’s second monkey: The ‘see no evil’ principle of most financial literacy programs

June 13, 2018

Another nice piece by Dhirendra Kumar.

He says so called financial literate people are more likely to fall for financial traps:


Pathalagadi movement and when tribals of Jharkhand open their own bank!

June 5, 2018

Mumbai Paused sent me this story which is quite interesting.

First, rhere is this tribal movement in Jharkhand called Pathalagadi:


How to think like an economist?

June 5, 2018

Nice interview of Bill Dudley, outgoing President of NY Fed:

He speaks on what it means to think like an econ and how econs differ in Wall Street and Policy:


Q: Lawyers sometimes refer to ‘thinking like a lawyer.’ How would you describe what it means to ‘think like an economist?’
The classic joke is that economists are ‘on the one hand…on the other hand.’ Lawyers are advocates for a given point of view and prosecute under a well-defined set of rules of law. I think of lawyers as advocates and economists as almost like a justice balance—where they’re trying to weigh the evidence very carefully to see where the preponderance of the evidence lies.

So economists may be a little bit more open-minded to the facts—not to say that lawyers aren’t, but a lawyer’s job is to do something, to advocate a position, to protect a positon. So they’re starting with a very strong
a priori view. I think economists start with a priori views, in the form of a hypothesis, but if the evidence is inconsistent then they start to change the theory and hypothesis, as opposed to arguing that the evidence is obviously not applicable.

Q: You were an economist on Wall Street before joining the Fed. What differences have you noticed between Wall Street economists and the research-oriented economists here on Liberty Street?
A big difference is that Wall Street economists cover a broad range of topics. When I was at Goldman Sachs we had four people covering the U.S. economy—they covered pretty much the gamut of all the policy issues that might have some economic content. Wall Street economists try to synthesize an abundance of information into material that’s useful for the person who’s trying to figure out the world that we live in. A research economist is trying to push the frontier of knowledge outward, so that’s a very different goal.

At the New York Fed, research economists play a hybrid role. They’re doing research that’s trying to push out that knowledge frontier. But they’re also taking all of their knowledge and analytical ability and applying it to real-world policy problems. In my mind, a good research department in a Federal Reserve Bank consists of people who are top-notch in terms of their academic qualifications and ability, and who are interested in real-world policy problems—which creates a tremendous value for the Bank.

He also discusses about how culture matters so much in finance.


How free was banking in Canada?

May 11, 2018

Brilliant post by Prof George Selgin:


It’s Time to Say Goodbye to Swiss Banking?

May 7, 2018

Claude Baumann a  Swiss banking expert in this piece says Swiss banking does not have the advantages it once had.

The Asian bankers especially those in Singapore are doing a better job:


Meanwhile, a Public Sector Bank opens in US…

May 2, 2018

It is always interesting to learn about different banking systems across the world. There is usually this odd story within the banking systems. For instance, discovering that State of Sikkim has its own quasi central bank was quite a revelation.

Likewise, one thought US only has private banks with even the Regional Federal Reserves having a private element to them. But then it has one public sector bank – Bank of North Dakota. In India, banks are owned by the Central Govt., but in US only States can open their banks. So far, only State of Dakota opened a public bank.

Now the American Samoa Islands (which is a US territory) have got their own Public Bank as well, named as Territorial Bank:


Best investment books for beginners…

May 1, 2018

Yesterday Vicky asked me which economics books should one read? I said this is a difficult question given the vastness of the subject. It is much better to pick a topic within economics and then figure the best books.

For instance, John Kay recommends 5 books on investing for beginners. He also shares key insights on investing and finance.

Why just beginners, most of the 5 books will go in for expert reading as well.


35 years of Diamond-Dybvig model of bank runs

April 26, 2018

Nice interview of Prof Dybvig where he narrates how the model was built and its implications..

Post-Brexit: Pitching for Paris’ attractiveness as an integrated financial centre

April 24, 2018

Rise and fall of financial centres is one of the favorite topics of this blog. As we dabble through daily economics and finance, the slow and shifting trends of financial activity from certain places to another is quite fascinating.

Pre-Brexit, London was comfortably placed as despite maintaining  its own currency Pound, it was the centre of European finance. Post-Brexit, the future of London as a centre of European finance is being discussed.

London’s loss is being seen as Paris’ gain. The European Banking Authority headquarters has shifted from London to Paris. The French authorities have started making pitches to global financial to evaluate Paris.

In a recent speech, Banque de France (Central Bank) Governor, speaks of multipolarity and competition in financial centres:


Sima Kamil: The extraordinary rise of Pakistan’s only female banking CEO

April 19, 2018

Nice story of Sima Kamil who heads Pakistan’s United Bank (why are bank names so similar across countries?).

Sima Kamil is a reluctant role model in Pakistan.

 The 61-year-old chief executive officer walks into a 21st-floor meeting room at United Bank Ltd.’s headquarters in Karachi and right away says she doesn’t want to be viewed as a “token” woman and would prefer to discuss the bank’s strategy. Yet she recognizes that as the only woman heading a private sector lender in Pakistan — and one of the very few women leading companies in the country — she has a responsibility that goes beyond her job.
“It’s a privilege and a burden at the same time,” she says in an interview in a building overlooking the sandstone school her father attended, amid the urban sprawl of the nation’s largest city. “They roll you out. I’ve tried to avoid that and it’s not always easy; some people feel I should do it because it’s part of my duty, so there’s a balance to be struck.’’
Kamil’s rise through the ranks of Pakistan’s intensely male-dominated banking industry in the conservative Islamic republic is nothing short of extraordinary. Her appointment last year was a further milestone in a country that became the first Muslim-majority nation to elect a female premier, yet where about one-fifth of all women marry before they turn 18 and many still face routine domestic violence and repression.
Lots more in the piece.

Meanwhile, a leadership change at the Rothschilds…

April 18, 2018

Via this story:

Alexandre de Rothschild, 37, will replace his father as chairman of the famed Rothschild investment bank, the group said on Tuesday, with Rothschild keen to keep its leading position in France amid growing competition. Last month, Rothschild reported higher annual profit and revenues, buoyed by its advisory work.

However, Rothschild faces increasing competition, with rival Lazard hiring more staff and Perella Weinberg Partners also looking to open an office in Paris.

The official press release is here.

So much of history behind the firm…


Pakistan’s three major banks are up for sale: Why and who are the probable bidders?

April 16, 2018

The talks to buy large private banks are not just exclusive to India (whether Kotak Bank will buy Axis Bank?) but reach across to Pakistan as well.

There is this interesting piece by Farooq Tirmizi on Pakistan’s major banks up for sale. Interestingly, the bidders are those who have  never ran banks:

For the first time in Pakistani history, three perfectly healthy and viable banks are simultaneously up for sale. None of them is a distressed asset being sold by sponsors who had hastily gotten into the banking business and made too many bad loans that they did not have the capital nor the stomach to be able to cover. And none of them is a bloated, nationalized bank filled with a balance sheet of politically motivated bad loans and an employee roster of people who want a paycheck for doing very little. No, these are all banks in rude health, and worthy targets of any financial institution that wants a strong beachhead on their way to conquering the Pakistani financial market.

The problem? Nobody who knows banking wants to buy them, and (most of) the people who want to buy them have little to no experience in banking.

The three banks up for sale are Bank Alfalah (BAFL), Meezan Bank (MEBL), and Faysal Bank (FABL), which are the sixth, eighth and thirteenth largest banks in the country respectively, as measured by total assets. All three are up for sale for more or less the same reasons: the Gulf Arab investors who initially put up the capital to create these banks have held their positions profitably for decades and are now looking for a suitable exit opportunity.

So far Pakistan’s banks were up for sale for three reasons: Badly managed Nationalised bank, small private bank running losses or a foreign bank with lack of growth strategy. But none of these three apply to the three banks:

None of these three situations apply to any of these banks. Meezan Bank is the fastest growing bank in Pakistan and has never had a single year of losses in its entire history. Bank Alfalah grew from almost nothing to become the sixth largest bank in the country and remains an exceptional bank when it comes to its focus on consumer lending. And Faysal Bank has relationships with most major corporations in Pakistan and has been a solid middle-market player.

So why are these institutions up for sale? Each has its own story, though those stories have a few elements in common. How closely those past trajectories will be a consideration for their prospective buyers is not yet known, though if they are prudent, the potential investors would do well to understand just how these banks got to be where they are today.

Read the long story for more details.

Nice to know all this.

Banking on a ‘shithole’: US-led racial capitalism in Haiti began long before Trump

April 13, 2018

Prof. Peter James Hudson in  this post writes on how City Bank (Citibank now) profited from racial ideology and economic policy to secure control of Haiti’s finances and banking.

In nut shell, so badly named shithole countries have been very lucrative for Wall Street players for a long time.


Key lesson from Buffet and Munger duo: Simple makes you money…

April 12, 2018

Another nice post from Dhirendra Kumar of Value Research.

For close to two decades, as technology companies took over the world and started eating up practically every industry, the world’s greatest investors ignored it. For all practical purposes, Warren Buffett and Charlie Munger missed the technology bus. They started to invest in Apple and IBM only recently, after the former has transformed into a consumer durables company and the latter into a business services company. Why did they avoid technology? And more importantly, is there anything that us mere mortals can learn from thi

Even during their early years, Buffett and Munger often said that they did not invest in the stocks of companies whose businesses they did not understand. A simplistic response would be that they missed out on a lot of great investments because of that. Despite always having billions of dollars of investible surplus, they never made a dime out of stocks like Google and Amazon, which delivered more than 20X for investors over these years.

And yet, the duo is pretty sanguine about the opportunity lost. The reason for this is that they are still the most successful investors in the world at this scale. They were successful because they invested in businesses they understand. In hindsight it’s easy to say that they missed out on Amazon and Google. However, they also missed out on, Webvan, Myspace and other expensive failures. Since they did not understand the business, they were just as likely to invest in these duds as they were to invest in Amazon and Google. After all, the great media moghul, Rupert Murdoch, did buy Myspace for US$ 580 million and then sold it four years later for US$ 35 million. To avoid this 94 per cent loss, all Murdoch had to do was learn from Buffett and Munger and not touch businesses he did not understand.

And that’s exactly what we should do too.


No matter what product or service we are buying or using, nothing impresses us more than features, jargon, and complexity. Perhaps the modern technological world has trained our mind to champion most of the new wonders of the world that are too complex to understand. The underlying assumption is that anything that is complex is the best of the lot.

Unfortunately, in personal finance, this idea is fatally wrong. In case of personal finance products, simplicity is not just useful or helpful, it is an absolute necessity. The reason is simple–if an investor does not fully understand a financial product or service, then he or she has no way of telling if it is suitable at all, regardless of how good its seller may claim it is.

Stock investors on higher floors take more risks – here’s why

April 10, 2018

Academics try and link financial behavior to all kinds of things.

Prof Sina Esteky of Miami University (Marketing area) in this research links risk taking in finance to being located in higher floors:


When students run bank branches at their schools….

April 9, 2018

This bit is interesting from world of banking which is worth emulating.

There is a bank named First Metro which opens branches in schools. It goes a step further and allows students to manage these branches:


Catholic origins of US Credit Unions…

March 29, 2018

Fascinating piece:

As more and more Americans have learned over the years, a good alternative to a bank is something called a credit union, a financial cooperative controlled by its members and operated on the principle of people helping people.

But what most people don’t realize is the Catholic origins of such arrangements in North America.

According to Nathan Schneider, a professor of media studies at the University of Colorado Boulder, the first credit union in the United States was St. Mary’s Bank in Manchester, New Hampshire. It was developed in 1908 with the help of Alphonse Desjardins, who built Quebec’s famous caisses populaires.

But in fact, Desjardins got the idea from a priest on Prince Edward Island, Fr. George-Antoine Belcourt. “Credit unions take many forms now, but their origins were specific,” Schneider wrote recently in America magazine. “According to Mr. Desjardins, ‘The caisse populaire is truly an organization of the parish.’”

The role of religion in money/banking is as central as one can imagine…

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