The Case for Investing in Durable Income

1

Investing passively in traditional fixed income exposes investors to low expected returns, has little scope for capital appreciation, comes with significant interest rate risk, forsakes opportunities in unlocking an illiquidity premium, as well as excludes niches in credit investing. Durable Income, unlike fixed income is more resilient to economic downturns, to changes in credit and market risk, for it has its foundation in multiple return drivers. This paper discusses Durable Income from an alternative investments perspective. It points out essential differences between Durable Income and fixed income alternatives, outlines the investing case and explores its potential role in investment portfolios.
Jain, Sameer, The Case for Investing in Durable Income (September 4, 2013). Available at SSRN:  -->

2010-July- Random stuff

0

7/25/2010; The place of government, Sebastian Mallaby

Free competition rather than free markets

i)                    Disappointment with privatization and free markets in Russia, more populism in Lat Am and in USA too with instances such as ’00 California electricity blackouts, telecom meltdown, failure of corporate governance around Enron time, airline bankruptcies ( and more recently banking)

ii)                   During times of stress ideological reversions happens as citizens expectations from govt. increases and faith in markets decreases. (a)post 911- Airline loan guarantees, terrorism insurance, airport security (b) post Enron Sarbanes Oxley, curtailing self regulation

iii)                 Need for better public goods regulation :(a)Regulation that controls firm’s market entry (b) regulation that forces production of public goods such as clean air that imposes around $800bn costs on US GDP

iv)                 Need for regulation that reduces private sector rent seeking by defrauding, colluding, misrepresenting etc . thru devices such as antitrust enforcement. Lobbying secures government favors to organized interest groups.

v)                  Need for regulation to manage industries that have a natural tendency to become monopolies such as electricity grids

vi)                 Labor Unions (a)block trade expansion and promote sector protection which reduces overall economic growth and harms consumers too (b) insist on minimum wage which protects the poor but discourages new job creation which hurts unemployed and very poor

vii)               Not a good idea to frame issues in terms of ‘more’ or ‘less’ regulation. Better approach is to frame it in terms of ‘smarter and better” regulation. Examples (a) Allow airports to auction takeoff slots which will allow traffic staggering and substitution (b) do not control retail prices such as for electricity ( healthcare) as this removes consumer incentive to minimize consumption leading to rationing (c) as in case of baby Bells do not allow them to charge extra for internet access which allows service providers to be born around that infrastructure thus reducing costs

viii)              Stress need to be pro competition vs. pro market and govt. activism can promote pro-competition. Competition can be done by innovation, research etc too and not just thru markets and instinctive proclivity to denounce regulation.

 7/25/2010; Who are we? Sam Huntington

There is a lot of controversy and a certain amount of confusions in perception of the brand of patriotism and challenges to US National identity that he espouses.

i)                    Being American is more than just allegiance to constitution.  He stresses the need to preserve inherited English language and Anglo protestant culture as the core of Americaness. Initial settlers who transplanted their culture in US were different from subsequent immigrants who assimilated within that culture out of choice. ( Though one may argue that unlike other colonists the US welcomed an early diverse foreign ethnic pool such as germans, italian, irish,polish and not just English)

ii)                   Post WW2 American national unity surged on account of nationalism brought about by the war and the slowdown in recent immigration giving greater time for assimilation.

iii)                 He is concerned about the weakening of American identity on account of recent Mexican immigration which is concentrated in a very narrow area and questions their language, education and affiliation to the US. He is also opposed to multiculturalism that liberal elites favor.

iv)                 Could it be that at the extreme end of the spectrum the new America will be multi lingual, multi ethnic, no commonality in culture, where US subordinates its foreign policy to multilaterals

v)                  Is military conflict the crucible of national identity and if so is it a good thing and desireable?

vi)                 He seems to have exaggerated the risks brought about by his unique perception of what it means to be American. Other countries face bigger risks- islam in Europe,demographics in japan,political risks in middle east, civil war in Africa etc

7/25/2010: Business model for foreign labor. T.C. Brown

My take on it:

Issue: How to deal with 12 m illegal immigrants without disrupting families, local businesses or putting them on the path for citizenship.

i)                    Official development assistance is around $60bn globally, while remittances are 5 times this amount. They benefit the poor in recipient countries.

ii)                   A solution to the illegal immigration problem in the US is a supply and demand issue. A black market where in US  $400bn is paid to illegal workers

Solution : (i) Create lower skilled 2 year temporary worker category program. Provide 6 months grace period for illegal immigrants to join this program – forgiveness not punishment. Award 2 year temporary work permits and bring them within the formal economy- a once time non punitive approach to regularize the situation. (ii) Subsequent permits to be issued through embassies abroad only. (iii) No P.R. or citizenship track offered (iv) Create blacklists of illegal workers and employers (iv) Deposit 10% earnings in escrow accounts in their country payable upon return after 2 years. Likewise withhold social security and medicare taxes payable only when worker retires in country of origin (v) Charge fee to employers and workers for work permits to fund state department budget if needed

iii)                 Will reduce existing illegal residents as well as enforcement costs, social costs etc and remove the underground economy.

 7/25/2010:  Religion within reason ; Pope’s criticism of Islam ; Mark Gould

My take on it:

The pope’s comment around 2007 about the necessity for reason in religious matters/ reasoned dialog touches upon the relationship between reason and faith. There are marked differences however

< didn’t understand this piece well hence not posting>

7/25/2010:  Faith reason and war against jihadism, G. Weigel

My take on it:

It has become fashionable in US to lightly dismiss the power of religion to sway human action, promote secularist views, uphold multiculturalism and believe that the rest of the world will ‘get it’ and all will be well in the fitness of time- stuff like ‘it is inevitable’, ‘democracy will prevail’, ‘after all it is common sense- all they need is to get out of poverty”. There are real dangers with this attitude and one must be alert to the dangers posited by Islam whilst drawing distinction of course between Jihadist (actively promoting Islam and repudiating everything else at all costs) and relatively passive /moderate forms of the practice.

i)                    Differences in opinion on conflicting priorities exist e.g.;) jihad terrorism, globalization, n.korea, proliferation, the economy, WMD etc

ii)                   Misperception that religious beliefs are becoming inconsequential as world is becoming more secular. Eg. Growth of newer strains of Christianity ( Pentecostalism and Mormonism)

iii)                 It is important to understand the ‘enemy’- and Islamic jihad is the enemy ; therefore religion and nation security issues ought to fuse.

iv)                 Secularism in elitist circles poses a danger in that it ill prepares us from confronting reality that exists in the Islamic world.

v)                  Judaism, Christianity and Islam are very very different stripped of the veneer. Eg. a) in islam quaran is real revelation that supercedes J and Christi.. b) islam encourages complete subjugation to God whilst ‘Jacob’ is about struggling with god c) Christianity is about God as loving father and near and close while islam is about seeing allah as a distant amorphous construct  and all muslims are in exclusive possession of a unique revealed truth d) ..

( I think it is important not to take quick pronunciations as given, though some may be true)

vi)                 Enemy is not islam but extreme interpretations ( this is a blanket excuse to allow the theology to thrive for islam too does not allow for intel pluralism, individual rights, subservieng God to human kind etc etc)

vii)               (Boring) historical details about development of Jihadist thought –Taymaiyya, Wahabism, Muslim brotherhood etc-

viii)              Digressed onto reason and islam vs reason and christianity (The pope’s comment around 2007 about the necessity for reason in religious matters/ reasoned dialog touches upon the relationship between reason and faith. There are marked differences however that he has not touched upon.)

ix)                 Reformed western realism can counter Jihadist Islam. This may include being less apologetic, more self confident, less intolerance for our ( Western) own selves and more tolerance for others, stressing religious freedom, freedom, dignity of individual, not be shy to eschew multiculturalism etc

 7/26/2010:  Quick summary of a random series of dated op-eds

Global savings puzzle, M El Erian (2007)

My takeaways:

i)                    External capital inflows to US from Asian exporters and Middle East cushioned savings deficit and supported its consumption and investment needs; richest countries borrowing from poorest countries. How will it end?

ii)                   Counterfactual hypothetical scenario- if US economy were ‘closed’ and running at full capacity consumption and investment would be = or < output. Given asset price such as housing price increases consumption demand would increase, good would be finite and inflationary pressures would set in. In response Fed would increase interest rates which would reduce borrowing and demand would decrease reasserting equilibrium

iii)                 Factual  scenario- since the US economy is an ‘open’ economy we can run a trade deficit ( import more than what we export) provided other countries are willing and able to lend us this. All we have to do is to be able to make interest payments without worrying too much about returning the principal amount borrowed if we can continue to roll over the debt by issuing say Treasury bonds.

iv)                 The problem arises when others loose faith in the US ability to service and repay debt, decide to park their savings in riskier higher yielding assets other than US govt debt, lower their domestic savings rate and consume more etc

 Larry Summers ; Strategy to Promote Healthy Globalization ( 2008)

My takeaways:

i)                    Labor Unions and workers increasingly realize that what is good for overall global economy and their employing companies may not necessarily be good for them personally. With global integration workers are more susceptible to market vicissitudes ( as mentioned in the Communist Manifesto too incidentally)

ii)                   Counterfactual to U.S. In ‘closed’ economies companies have a vested interest in investing (a)capital to raise productivity and (b) create more productive workers  by improving their skills, retention etc.

iii)                 Factual to U.S. In ‘open’ economies companies do not have a vested interest in (b) above as they can marry capital with foreign labor. This is detrimental to labor’s conditions naturally and leads to resentment and resistance to globalization.

iv)                 Policies – both domestic and international -need to be enacted that address this. Examples of international policies could be coordination to  (a) stop the race to the bottom by eliminating tax heavens and tax arbitrage (b) stop the race to the bottom by eliminating regulatory arbitrage – in fact regulatory standards ought to be raised and not lowered if anything

Larry Summers; 6 principals for a new regulatory order( 2008)

i)                    Regulators should not be allowed to compete to take on specific responsibilities or supervise particular institution types as it could lead to conflicts of interest

ii)                   Self regulation is no solution as companies have no real interest in making things harder for themselves. External supervision is better.

iii)                 Future market conditions are often unknowable and well designed regulation must explicitly factor this in

iv)                 What matters is public goods and negative externalities – what may be good for a firm may be at odds with the larger public interest. Regulation should be concerned with external stuff.

v)                  A level playing field should be created else it leads to arbitrage or implicit regulatory partiality towards one or more set of market participants over another

vi)                 Single sources of systemic risk ought to be contained.

 Graham Allison; Preventing a nuclear terrorist attack( 2008)

My takeaways:

i)                    Al Qaeda needs just 100 pounds of highly enriched uranium that it could obtain somehow from Russia or N Korea and smuggle it into the US and detonate a dirty bomb

ii)                   This can be an avoidable scenario however if (a) Existing nuclear weapons are accounted for and secured (b) No new countries be allowed to enrich uranium to weapons grade capability (c) No more countries other than existing 9 be allowed to develop nuclear weapons capability

Joe Nye ; Transformational leaders are not always better( 2008)

My takeaways:

i)                    Transformational leaders: Gandhi/Mandela that inspire to do great things

ii)                   Transactional leaders ; normal folks

iii)                 Rather than emphasize individual leaders better and more resilient approaches are to create laws, better design of institutional frameworks. (Transactional leaders can achieve this perhaps better than inspiring ‘charismatic’ leaders. )

Joe Nye ; The mystery of political charisma ( 2008)

My takeaways:

i)                    Does charisma – personal magnetism- has its source in the leader, followers or situation? This is hard to identify

ii)                   Ex ante charisma is not a good predictor of political outcome but is identifiable after the fact.

iii)                 Followers attribute charisma to leaders when they are in a crisis and experience anxiety. (Charisma provides a source of refuge, example Winston Churchill during WW2)

iv)                 By understanding charisma we understand ourselves better, moods and desires.

 Dani Rodrik ; Is there a new Washington consensus (2008)

My takeaways:

i)                    In summarizing the salient points of Michel Spence commission report on growth and development that provides guidance on development models for developing countries this report is a refreshing departure from past prescriptions

ii)                   Past prescriptions were cookie cutter laudry list approaches that exhorted the virtues of privatization, free markets, reduced regulations etc

iii)                 The new approach is one of greater context specificity, experimentalism and learning, iterative improvements, situational in construct, pragmatic and gradualism

Vikram Pandit ; Future of global financial systems speech (2008)

i)                    Provided overview of US situation: going through rebalancing in housing prices, risk premiums, liquidity, individual debt, asset prices etc.

Trends and opportunities.

ii)                   Wealth creation in emerging markets happening a) in 40 years BRIC economies will be > G6 b) Revenues being transferred from western oil consuming nations to easterm oil producing c) new MNCs in China, India, Brazil d) new billionaires in the east

Opportunities in asset mgt, wealth mgt, portfolio advice

iii)                 Demographic changes  a) working age populations in developing countries will grow and those in developed nations will decline  b) richer and larger middle class being formed in developing countries  c) ageing population is developed countries

Opportunities in   a) consumer banking, payment services, debit cards, micro finance in developing countries   b) retirement planning in developed

iv)                 Acceleration of trade and capital flows  a) global trade growing  b) trade with emerging markets growing

Opportunities in   infra services, custody and cash management, market making, trade finance, advice

v)                  Technology and innovation increasing  a) new ways to serve clients  b) product innovation  ;

Opportunities: allows for separation of origination, manufacturing, distribution and risk taking in financial services industry

vi)                 Plus other stuff about regulatory changes, transparency issues etc.

LTCM lessons/Bear Sterns/ Minsky Model; role and limits of the Fed in a market economy

0

 April’02, 2008:

 In August 2007 I wrote an op-ed which would be relevant today too in the light of the recent Bear Sterns episode. 

Today there was an interesting discussion between some of my colleagues which essentially boiled down to ‘should the Fed/ Govt. ‘interfere’ in markets. The broader context was of course what is the role andwhere are the limits of government in a market economy? Especially when itcomes to regulation, injecting liquidity, making interventions, bailing outsectors and by logical extension institutions ( in this case Countrywide) inthat sector and the ‘fairness’ of it all – Institutions who run good shopsand have high standards in credit underwriting get penalized’ ( they pay fortheir prudent conservative behavior in both upmarkets and downmarkets assome people  astutely drew attention to). 

Most folks would argue that we would be ok with government taking on a rolewhen it came to things like safety and soundness of financial institutions,consumer and investor protection etc but balance it with moral hazard or ‘too big to fail issues’. A financial crisis is systemic in nature if many banks fail together, or ifone bank’s failure propagates as a contagion causing the failure of manybanks. The securities market, unlike banks, has been less susceptible tocontagious transmission of the shock but after this Glass Stegal act businesssecurities firms have increasingly affiliated with commercial banks and/orinsurance firms to form financial conglomerates. When the securitiesbusiness is integrated with banking, then systemic concerns about bankingextend to the securities business as well. In this market environment thishas not happened but I argue it can . 

Therefore current short term (twoyears) policy discussions should explicitly worry about theonce-in-a-few-years events where market integrity is tested. The design ofregulatory mechanisms based only on individual bank risk could be suboptimalin a multiple bank /Universal Bank context, and may well have the unintendedeffect of accentuating systemic risk.  Optimal regulation should becollective in nature and should involve the joint failure risk of banks aswell as their individual failure risk. Therefore we must give Fed moreleeway to intervene. Whilst these developments have nothing to do with what happened during LTCMdays (where the Fed did not directly intervene but did lend its moralauthority to get folks to meet and thrash out the issue and ultimatelyresolution ), we can draw valuable lessons. 

We all recognize that LTCM was a case study in exceptions — extreme,undiversified portfolio exposures in extraordinary market conditions. Themain reason of LTCM debacle was the lack of control of liquidity risk.Institutions such as LTCM can fail either because they are insolvent orbecause an aggregate shortage of liquidity can render them insolvent. LTCM’sfailure could itself cause liquidity shortages leading to a cascade offailures and a possible total meltdown of the system. This risk of contagioncould lead to a contraction in the common pool of liquidity. Therefore thereis a possible role for government intervention. Unfortunately, liquidityproblems and solvency problems interact, and can each cause the other. It istherefore hard to determine the root cause of a crisis from observablefactors.  It helps to get into details to see what happened and what is happening. 

The main strategy LTCM implemented is fixed income arbitrage. It is a marketneutral hedging strategy that seeks to profit by exploiting pricinginefficiencies between related fixed income securities while neutralizingexposure to interest rate risk. Managers attempt to exploit relativemispricing between related sets of fixed income securities. One example isto long relatively cheap off-the-run treasury bonds and short relativelyexpensive on-the-run treasury bonds of the same maturity at the same time.Supposedly both bonds will have the same future cash flows and their pricewill converge and the arbitrager can make a profit when that happens.Normally the spread between on-the-run and off-the-run treasury bonds aresmall, so LTCM uses leverage to amplify the returns. By early 1998, theleverage ratio (we should see it as nothing other than asset-to-equityratio) has reached 16:1, which was extremely high even in the hedge fundindustry then. Some days ago Wall Street Journal and others sought an explanation in Minskymodel so since this might be fresh in our minds we can just use this model.First, in terms of the Minsky model, there was an exogenous shock whenRussia defaulted and there was a flight to quality – mostly on the run USTreasury bonds. The market deteriorated and LTCM began to suffer losses.Russian government devalued the ruble and declared a moratorium on futuredebt repayments. Those events led to a major deterioration in thecreditworthiness of many emerging-market bonds and corresponding largeincreases in the spreads between the prices of Western government(especially US treasury bonds) and emerging market bonds. And immediately amassive “flight to quality” by general investors ensued, with investorsflooding out of any remotely risky market and into the most secureinstruments. Trades that were expected to converge did not do so. A similartrend albeit NOT of the same degree is happening for we see a flight toquality to T bills where yield has dropped by 200bp last week. 

In terms of Hyman Minsky’s model the boom created by the profitopportunities after the shock is fed by increasing money supply. Moneysupply is being increased now because of 50bp cut in lending rate. Thebeauty of it is that even in the past given the increase in liquidity LTCM’sfund presented new opportunities for even higher returns. Actually it meantan opportunity for LTCM if it did not have the high leverage they wereusing. Because of the panic of the investors and “flight to quality”, themost secure instruments’ prices were driven artificially high and the spreadbecame larger as the models would suggest. If the market prices finallyconverged to the underlying value, the wider initial spread would indicatehigher profit. So even though LTCM’s portfolio was down there was potentialopportunity for it to recover. It led to speculation that initially hadpositive feedback; speculators earn money and invest more as well as makingmore people invest.But this is where we must not get carried away. Minsky emphasized the inherent instability of the credit system and attachesimportance to the role of debt structures in causing financial difficulties.This happened in the LTCM case for it was highly leveraged for having hadreturned capital to its limited partners its leverage ratio went even higherto fund the acquisition of speculative assets for subsequent resale. LTCM’sdeterioration was dramatically exacerbated by its high leverage ratio whichclimbed to 45-50 ( I don’t remember the details)  ; considering highvolatility due to the market instability, that’s an extremely high number byall standards. 

Minsky stresses the role of pure speculation and excessive gearing. LTCMoften took the opposite ends of the trade and was a provider of liquidity tothe market. Minsky’s model is limited to single country, but in this casespeculators were overtrading in London and other overseas markets too. Thepanic fed it until the prices became very low and trades were cut off .Theactions of distressed parties attempting to reduce the size of their balancesheets had an impact on the value of others’ assets. Weakened balance sheetsgenerated further forced sales, feeding the vicious circle. The liquiditysqueeze generated by such forced sales exacerbated the crisis. The models used by LTCM, although supposedly complicated, did not giveliquidity risk the importance it deserved. Which is where the Analytics Labcomes in. Two bonds might have the same underlying cash flows, yet they canbe priced differently exactly because they have different liquidity risk. Soin the short run, the market value doesn’t simply reply on fundamentalvalues. Most of the assets LTCM longed were illiquid and the assets theyshorted were liquid ones. As “flight to quality” happened, more liquidassets were priced even higher and the spread was widened instead ofnarrowed as the long-run expectation.  Because of the consecutive losses,the fund had increasing difficulty meeting margin calls and needed morecollateral to ensure that it could meet its obligations to counterparties. 

The fund was running short of high-quality assets for collateral to maintainits positions, and it also had great difficulty liquidating its positions:many of its positions were relatively illiquid and difficult to sell even innormal times and hence still more difficult to sell-especially in a hurry-innervous and declining markets. To preserve and raise the cash needed foroperation, LTCM limited investors’ fund withdrawal and encouraged them toput more cash into the fund. Yet it did not get the positive response thatit much needed from the investors. The situation continued on deterioratingand the fund’s management spent another three weeks looking for assistancein an increasingly desperate effort to keep the fund afloat. However, noimmediate help was forthcoming and the fund started crashing.  I agree that financial firms such as LTCM should continue to have theflexibility they have for they bring liquidity, take speculative positions,serve as diversification asset classes and bring efficiency to the markets.The case for regulating these (if at all) and possibly prevent anotherdebacle  should be seen from a perspective of a) protecting consumers b)protecting market integrity c) preventing systemic risk. 

Since these funds are allowed to solicit investments from high net worthindividuals protecting consumers is not a very important issue. However theregulatory framework should ensure that they do not abandon the risk profileinvestors have been led to expect. While it is unjustified to ask hedgefunds have full disclosure as mutual funds do, more transparency, especiallyin explaining the risk involved, should be required. Hedge fund managersshould disclose the underlying risks involved for each specific fund andexplain the driving forces of the risks so that investors are betterprepared to understand and manage their portfolio risk. In this case hadLTCM provided more disclosure to its investors on the nature of its trades,its leverage ratios etc. it might have led to greater confidence in itsoperations LTCM was able to borrow such large sums of money and leverage itself up byusing collateral to borrow money. It bought more assets and these were usedas collateral to borrow more money perpetuating a vicious cycle. This couldhave been prevented if there was one coordinated agency keeping track of itsleverage. 

Many prestigious banks and influential individuals had lent to LTCM.Government policy can be enacted to monitor the interconnection betweenbanks, hedge funds and other participants. In the LTCM case we see that potential losses need not have arisen fromdirect credit exposures to the LTCM, but rather from the proprietary tradingpositions of banks, similar to those of the LTCM. This made the creditorbanks similarly exposed to market movements that would have followed aforced liquidation of the LTCM. Government regulation can be enacted to setlimits on this trading position. The risk as we see in LTCM’s case isincreased co movement of prices, increased correlation between credit riskand counterparty risk. 

The point to look out for is that iquidity risk can have a devastatingeffect on a highly leveraged financial system. As LTCM attempted to disposeits own assets, the negative price impact of this action impacted on thebalance sheets of all others. First of all, LTCM’s counterparties wouldincur direct losses as their contracts remained unfulfilled. Secondly, andthis was a much more serious threat, a disorderly unwinding of LTCM’spositions would lead to an even stronger downward movement of asset prices,which would affect even those banks who did not maintain directrelationships with LTCM. These dangers were amplified by the fact that manyother firms had followed very similar strategies as LTCM and were, thus,subject to the same risks. The regulators need to monitor this.    And as per Minsky’s Model the market stabilizes after intervention from alender of last resort intervenes (the Fed here) or orchestrates aresolution. When the New York Fed organized LTCM’s rescue by its creditors,it was for fears of systemic repercussions.  We need to delve deeper to see if those set of conditions exist now.. I personally am not too sure that they are there.

Investing in Developed Country Infrastructure Funds paper complete

0

March 2008: after months of writing, rewriting and yet again rewriting I have at long last partially completed this white paper!! I

Table of contents

Introduction …………………………………. 3

What is Infrastructure investing? ………………. 5

Why Invest in Infrastructure Funds?……………………………… 7

Suitability within Different Investor Portfolios ……………………… 10

Infrastructure Investment Stages………………………………………. 13

Infrastructure Asset Characteristics ………………………………….. 15

Comparing Infrastructure with Other Asset Classes ……………….. 18

Accessing Infrastructure Investing Opportunities …………………… 20

The Private Public Partnership …………………………………… 27

Geographic Review of Infrastructure Investing ………………….. 30

North America ………………………………….. 30

Western Europe ……………………………………. 42

Australia ……………………………………………… 46

Regulation and Public Policy …………………………… 49

Conclusion ………………………………………. 51

Partial list of recently closed funds …………………………………….. 52

Partial list of funds being raised…………………………. 53

 

some questions to ask relative value trade hedge fund managers

1

In seeking risk transparency without the specifics at the position level of a Hedge Fund we need to know at minimum a few things as captured in a hedge fund’s risk report. Risk reports are a useful starting point but they are ofcourse a static snapshot and do not tell the entire story. For each Hedge Fund we can develop a better story using the understated approach and reasons for the approach:

(i)Position levels information: Provides a static picture of where the fund stands.The position level information measures are most relevant for short term shocks where the actual position and NOT the managers behavior or strategy will define performance. We need to get this at minimum esp. during stressful times such as now.

For medium term horizons this needs to be coupled with (ii) Fund Trading Strategy

(ii)Fund Trading Strategy information: Which explains how ( magnitude and direction) the previous static position (i.e (i)) will change over time when external market factors change i.e. strategy should explain sensitivity of the fund to market rises and falls. This is described more fully at the bottom of the note

In addition to this we need to be clear about Exposure, Leverage and Counterparty Risk depending on the specifics of the Hedge Fund. By this I mean; Which notion of “Exposure”? for Exposure is a generic risk proxy.

1. Exposure as sensitivity to ‘what’ (which few important factors)

Is it Net exposure? : i.e. Sum of – Short positions and + Long positions ; we should use this measure for tightly correlated positions with similar volatalities for this gives a sense of sesnitivity to market factors i.e. how much we stand to loose of win when a market factor moves

Is it Gross exposure: Sum of Absolute positions; we should use this measure for loosely or uncorrelated positions with dissimilar volatalities such as for example global equities.

If the manager uses Futures and derivatives ?: We should see a Future’s contract as a Long position in underlying with short position in cash/funding and variation margin. The “exposure” to a Future’s contract is equivalent position in underlying + funding position. Therefore we must always separate the funding position from the Future’s position in a risk report. Like wise for derivatives we can see it as a case of ‘Futures’ i.e. a Long position in underlying with short position in cash/funding but with the underlying changing dynamically;

The point is to answer the question Exposure to ‘what?’:

– no single exposure measure to characterize position’s risk as for the same position we may be interested in different ‘exposures’.

– we may meaningfully aggregate the same sensitivities only

2.Exposure to leverage

-Ratio of fund assets to equity contributed; leverage may be explicit from borrowing or embedded from derivatives

-Leverage: simple relative indication of risk in answering how large will losses or gains are to unleveraged portfolio. Greater leverage does not automatically imply greater risk . It is a relative measure for a twice leveraged portfolio is twice as risky as an unlevered portfolio provided the 2 portfolios invest in EXACTLY the same underlying assets.

– Decompose positions to make implicit borrowing ( from derivatives) explicit. Example replicate forward contract by borrowing present value of future fixed price X at X^e-rt + F(today) and buying the asset… etc or value the option…

-futures position in itself contributes to leverage but when matched with an equivalent cash position may serve as an alternative to buying the underlying.When this is so coupled we cannot say that ‘because a fund uses Futures or derivatives we are introducing ‘leverage’. Therefore we need to know the risky underlying asset position and the cash positions together.A risk report should separate the two.

-L/S; if we go long by borrowing or we do so by shorting; if longed and shorted assets are not correlated we should look at net exposure as measure of leverage else we should look at gross exposure.

-Risk of total loss to fund equity capital; This is an important measure that every risk report should continuaously monitor. I.e. at what loss will equity get wiped out.

– Risk of a fund, including from its explicit loans and from its implicit derivatives or leverage producing positions, should be less than or equal to X times ( as mentioned in the fund documents) the risk of the fund’s unleveraged counterpart/risk benchmark. Fund’s performance benchmark may be used as risk benchmark as a rule of thumb.

3.Exposure to credit risk/counterparty

-Cost to replace the contract or a set of positions if the counterparty defaults; a loan equivalent amount measure. A forecast of distribution of future exposures? Qualitiative questions can range around long term forecasts of underlying risk factors, accounting for collateral, netting and credit risk mitigation techniques etc

We should ask for a risk report with the above as basics so that we can have (i) a consistent set of scenarios side by side (ii)effect of scenarios as short term shocks based on position level information (iii)effect of scenarios over medium horizons based on factor models And funds stated strategy

Some thoughts (in no particular order) to keep at the back of our mind when thinking about this:

1. Since hedge funds hold non linear instruments they trade dynamically and produce non linear returns. So we can say that funds are certainly exposed to markets and the exposure is non linear. Using multifactor models such as from mutula fund is akin to using misspecified linear models and erroneous conclusions.So how can we capture non linearities through appropriate factor construction? The literature has stuff like (i) perfect trend follower replicated through a look back straddle options (ii) momentum trades etc…. One can use factor regressions over rolling windows to see if a hedge fund has significantly altered its strategy or compare the regression results on either side of a market event. We need to examine BOTH position level results AND factor sensitivities

2.We can use current price information and pricing model and not need historic data dependency for:

Sensitivity measures: the effect of a small movement in spreads on the present value of a position. this is typically at the security level and not at portfolio level..

Stress test or scenario analysis: Modeling. What happens if all the spreads widen by X . Parallel spread stress test. historic volatality of spread moves.

Relative value investors: for example buying a bond and simultaneously buying credit protection thru CDS (i. if the basis between them is historically very wide and investor will profit if basis returns to normal typcial or 2. if basis is ngative and investor receives difference between bond spread and cost of CDS protection without taking any credit risk):

For relative value fixed income hedge funds performance and risk forecasting:

(a) forecast the overall portfolio risk : example to isolate interest rate risk we should hold credit spreads constant while allowing the base interest rate curve to change. similarly to isolate credit risk we should hold interest rate curve constant while allowing credit spreads to change. If credit spreads are strongly correlated to to the interest rate base curve the distinction between interest rate risk and credit spread risk is not relevant for then the two types of risk are really one and one does to happen without the other. Therefore it is important to decompose risk across factors that are independent of each other. Spreads on CDS often exhibit little correlation with base rates and are a good mechanism to decompose risk.

(b) decompose the risk and estimate the portion from spread movements : we may need historical data that has statistical properties amenable to forecasting. So we cannot use Yield Spread to treasury as the benchmark T Bill rate will be changed and this change should not reflect in change in creditworthiness of corporate bond. also spread volatility tends to be greater for longer maturity bonds and it is better to create spread curves on each day and apply stats on data for a constant maturity point.

Series to be analyzed: Whether we use OAS ( OAS added to the base curve gives us a discount curve for cashflows promised by a bond issuer) or CDS spreads the objective is the same- to ascertain how much compensation an investor should receive for bearing credit risk. The 2 are not interchangeable as for a CDS , upon a credit event, the receiver gets par amount irrespective of the prevailing interest rate.( to make them strictly comparable we may need a fixed to floating IRS which cancels at the event of default) . ((CDS and Bonds risk free value : discount all cash flows by base curve)) – (Default probability * loss given default at the same time points)); can give us a ‘bond implied CDS’…

A single risk measure or a single risk factor to describe all positions on a single issuer will not be relevant . For example if the mark to market value of negative basis trade moves against investor a previously predictable ‘zero risk’ position would suddenly ebcome risky. Therefore it is important to separate the two distinct sources of risk – bond and cds market spread….: simplification to a single source of risk for relative value trades would be inappropriate.

-Since volatility changes there is a limit to how much historic data we need to use ; using more history will not improve forecasts.

And lastly : Some qualitative questions that can lead to better understanding of relative value / fixed income hedge funds:
– What type of pricing model do you use to arrive at the NAV?

– How do you mark your positions to market? Is it to a model?

– Have you stress tested the value of your portfolio against alternative methods for marking to market? What did you conclude?

– How long would it take to liquidate your portfolio and what will be the incremental effect on NAV? Why would you not?

– What is your data source for volatility?

– How do you deal with correlation assumptions during these stressful times?

– How do you build your volatility curve?

– Give us a breakdown of your trades ( at the position level) by major strategy types

While VAR alone is a reasonable measure of market risk for some portfolios, the risks of many arbitrage type strategies are better represented by stress tests and scenario analysis.Stress tests should be chosen based on the nature of the portfolio, but might include:

-Large market shocks

-Changes in the level of volatility, the shape of the yield curve or the volatility curve, sector definitions, correlations, etc.

-Changes in liquidity, etc.

-What variables, given a small move, cause a large move in price or risk valuation?

-Which variables important to your portfolio have a high likelihood of change?

-What variables or exposures are considered to offset each other? By how much?

-How wide is the variance of results produced by other commonly used models versus yours?

-What is your model’s acceptance in the market place? Does the majority of the market use the same data inputs and modeling assumptions (for example, raw data, curve building, interpolation techniques, bid-ask levels, volatility assumptions, etc.?)

market ranking rough model complete; nov 2007

0

I have completed a variant to an existing market valuations model using my own factors. I rank 15 global markets  based on intrinsic valuations and step wise regression selections of Earnings Yield Earnings Yield less Interest Rates Dividend Yield Price to Sales Ratio RoE Interest Rate Trend Long-Term Price Momentum Medium-Term  Price Momentum Short-Term  Price Momentum Earnings Stability Earnings Revision Ratio Change in Number of Analyst Estimates Change in Real Effective Exchange Rate  

November 2007; real estate study complete! wheww

0

Real Estate

After 1 month of concerted work I have substantially completed a research investigation into global real estate markets and have come to definitive conclusions on :

1. Asset characteristics, performance, drivers, where different regional sub markets and property types ( retail, industrial, office, apartments, industrials ) are in their market cycle

2. Global Real Estate outlook , markets and property types performance expectation, opportunities

3. Regional ; US, Canada, Latam, Western Europe, CEE Mature and Emerging Asia outlook subdivided by property types and risks

4. Tactical Recommendations for each market and each property type as well as asset allocation recommendations

A case for investing in Master Limited Partnerships (MLPs) for yield oriented equity investors.

0

 Issues: (i)                  Why are MLPs a potential good fit for HNW client portfolios?      

 Background:

MLPs are hard asset plays, which generate predictable inflation hedged cash flows and hold long-term physical infrastructure assets. They are regulated by SEC and trade on NYSE, NASDAQ and the AMEX. Because they are structured as partnerships they are not taxed at the entity level. They exist as quasi regional monopolies, have high barriers to entry given significant upfront investments needed to create these assets, have low operating costs and face relatively inelastic demand.  The market cap for these listed MLPs is around  $130 Billion with retail and HNW investors owning around 90% of this. Historically, legislative and structural barriers have kept mutual funds and large tax exempt institutions (who incur UBTI as MLP distributions are treated as non qualifying source of income) away from this space.  The Alerian MLP index and the S&P MLP index are two popular indices that track MLP performance but they are both not directly investible. In some ways they are like REITs for they distribute much of their available income. They are loosely correlated with other asset classes including REITs. With a general slowdown in property markets and REIT returns expected to continue to falter, MLPs can be an effective ‘substitute’ to provide partial tax deferred cash distributions and running income. 

 They are growing at a very fast rate and continue to have a large room for future growth. The drivers of this growth are growing and predictable energy consumption, the need for new oil & gas pipelines, the need for new LNG terminals, acquisitions and organic growth activity in the energy sector. Moreover lower comparative yields from other asset classes make MLPs higher yields even more attractive. With corporates resizing their balance sheets we foresee a migration of qualifying assets from corporate balance sheets to MLPs. According to the Alerian index, over the past 12 years MLPs have delivered around 17.4% returns with 7.8% dividend yields which have been higher than REITs.  Research expects MLP dividend growth of 12% for 2007 and 2008.

Investment  

Pros: MLPs have weak historical correlations with broader equity and commodity markets. They can serve as a valuable class for portfolio diversification and yield enhancement. Since their future revenues and haulage tariffs are often contractually linked to changes in the producer price index they can be a valuable long-term inflation hedge.  They are not taxed at the entity level if they generate 90% of income from qualified sources. Their periodic distributions reduce their original basis and depending on the amount of distributions MLP investors can defer 70-90% of income received until they sell them. [1] They pay out their cash flows and have to return to capital markets at periodic intervals to raise capital for new projects and growth imposing  greater self discipline to meet investor expectations. 

Cons: For non US persons direct investment in MLPs may subject them to US tax filing and a 10% withholding tax upon sale. For US persons direct investing in MLPs result in receiving K-1s instead of 1099s and require filing returns in each state where MLPs do business. Also, as previously mentioned,  registered investment companies may be subject to UBTI as that income is treated as non qualifying.  The participant space for MLPs has been changing over the last 3 years with new types of qualifying assets with greater sensitivity to commodity price being structured as MLPs. For example, a new category of riskier pure public play GP entities, which receive carry from a fund, have started to be structured as MLPs This requires that investors carefully scrutinize the underlying MLP holding, much as they would in any stock selection, before they decide to invest. Liquidity has been lesser than large cap stocks traditionally though, with their enhanced popularity this is continuing to improve (around $ 300 million daily)  MLPs like any other business face regulatory risk, changes in demand and therefore throughput, supply side disruptions, macro economic disruptions, changes in the tax code and their inability to grow cash flows.

 In a slowing economy, underperforming REITs and lowered interest rates investors could benefit from adding MLPs to their portfolios. This will provide them with a high equity yield income and provide valuable tax deferral advantages.   

Sep2007- my thoughts on real estate markets

0

– Over the last five years, long-term real estate investors have enjoyed excellent market conditions.  Falling interest rates ( except for the last 2 years) in combination with a huge wave of capital has created what appears now to have had been an insatiable demand for real estate.  Across the risk spectrum, from development to environmentally contaminated properties, from value add to core, and from international to domestic yields have compressed significantly due to the weight of this capital. 

 –

There appears to be no risk that optimistic buyers can not “pro forma” into a non-event through rent growth of 3% or greater, expense inflation below compounded percentage increases for rental rates, minimal capital and tenant improvements, and 80% or greater LTV debt priced in the mid-5% range for reasonable quality properties. –

It has appeared easy even for the least skilled investors to profitably buy and trade real estate, which has the effect of driving prices to levels which will generate returns for buyers below historic norms. Rising land, commodity and labor costs have limited construction across most of the US, creating a sense comfort which has allowed investors to discount the risks of new supply.-

Many investors famous for chasing yield and showing up late have recently made allocations to the real estate asset class, which has created tremendous demand for properties fully leased to reasonably credit-worthy companies.  Demand for “core” is even being fed from investors re-allocating within the asset class in some specific instances trading from publicly traded securities to core open-end funds which appears to be a poor trade in his view.  It appears the best strategy at this time is to feed this demand for fully leased “core” real estate by investing with managers that can “create” the cash flow streams that are so aggressively being pursued in the current market environment-

It appears that this is not the time to “reach” for yield, but instead to carefully select managers with true value added capabilities and to identify managers who are cautious in this environment and willing to assume some disruption in the capital and real estate markets in the near to medium term. The less prudence with which others appear to be investing and allocating their capital, the greater the prudence required by us in investing and allocating capital. 

Sub-Asset Allocation Overview 

Core           Fully leased properties are priced ahead of the underlying operating fundamentals and are unlikely to produce acceptable returns at this point in the investment cycle          Large open end funds will suffer through re-calibrating investor’s return expectations          There appears to be some medium to smaller open end funds with appraised values lagging transaction pricesConclusion: Too much money chasing too few deals.  Investors should sell into this market rather than passively participate through these vehicles. 
Value Added           Relatively reasonable valuations           Decreased competition          Improved exit market Conclusion:  Currently an attractive sub-asset class to deploy capital but accessing the best opportunities is a challenge. Deploy capital when high quality funds and other opportunities are available; One should pro-actively position oneself with managers . 
Opportunistic           Fund managers are increasingly going outside the US to generate higher returns           Intense competition by investors to gain access to best historical performing managers          Mega-funds are becoming even larger and alignment of interest is being diluted by fee arrangements          Attractive opportunistic themes include:          Germany and Europe: privatizations and corporate dispositions          Japan: Positive spread investing with value added exit to J-REITs          India and China: Development and residential           Mexico: Industrial and residential          US: Development, value add, wholesale-to-retail arbitrage Conclusion:  Currently an attractive sub-asset class to deploy capital but accessing the best opportunities is a challenge. Deploy capital when high quality funds are available 
REITs           REITS have been up as we know  yet “pricing relative to NAV” is reportedly within the historical-norm band          Take private transactions continue to demonstrate NAV estimates are low

          REITs with large development pipelines will add value whereas buy-and-operate REITs will continue to compete against private buyers

Conclusion: favor those REITs with development capabilities; broadly diversify globally; favor those REITs adding value through development. 

Mortgages

          Securitization of the lending marketplace had lead to thin margins and efficient pricing for the most senior loans. After subprime crisis even good quality mortgages have been hit.

          CMBS loan servicing limits borrower flexibility          Mezzanine is priced like equity with equity type risks but debt like pricing          Opportunity exists in the market for strategic lenders underwriting real estate risks willing to lend on a short but senior basis to transitional value added properties 

Conclusion: mezzanine returns are unattractive; focus on whole loans and structured debt with value added firms; use loans up to 70% which can be contributed to CDO’s as a surrogate for core exposure. Problem is  CDO market is unlikely to pick up in short term 

Other           Distressed Debt – still appealing, managers focused on Germany           Secondary market – sporadic transactions, priced on a deal by deal basis. 

Streamline the financial regulatory framework for God’s sake!!

0

The Federal Reserve can and ought to take lead to bring about radical changes to the current regulatory framework. The current regulatory framework looks at the financial services market along major product lines; investments, banking and insurance services. Within each area, a separate agency tends to the functionally distinct components of any financial services business such as: the product offered providers, the marketplace, exchange mechanisms and delivery. This regulatory framework is turning out to be a bad foundation for a thriving financial services industry.With financial innovation major product lines in financial services are blending. Banks, securities firms and insurance companies are replicating each other’s. Product-based regulation ignores these realities and is an especially artificial (and inefficient) construct for the regulation of highly integrated organizations that seek to deliver a variety of financial products and services on a seamless basis. Progressive institutions are striving to intermingle the delivery of financial products for the convenience of their customers. But the government insists on deconstructing the exercise for regulatory purposes. In some cases, this forces institutions to restructure their operations just to facilitate a regulatory theory.

Bernanke can make a big difference here. Although customers and providers are progressively less concerned with geographic and product boundaries, the regulatory system still revolves around them. Individual state licensing requirements still frustrate access to regional markets in many instances. The 50-state licensing process poses an entry barrier to the national market. The absence of a single licensing process in the United States curtails the ability of financial institutions to operate nationally. These restrictions no longer have any regulatory justification and the Federal Reserve should work with other agencies to remove them.

Establishing an umbrella license – one that would qualify a provider to offer investment products and insurance in all 50 states – is essential for full nationwide operability. Substantial uniformity must be introduced into the regulatory system if it is to become efficient. Banks, other financial services firms, their customers, shareholders, and the nation’s economy as a whole will be deprived of the full benefits of financial modernization until the existing regulatory framework is revamped and Feds should and can contribute to this revamp.

The Federal Reserve has a major stake in the development and maintenance of a smoothly-functioning government securities market, as well as the overall development of the financial markets which can provide substantial benefits to the economy. This revamp and streamlining of regulation could potentially be something that Bernanke can be remembered by and also enable him to fulfill the Fed’s mandate…

real estate long short hedge funds that i like

0

The universe of good real estate long short hedge funds:

AEW

Alesco

Alpine

Angelo Gordon

Atlas

Barons

Blackacre/ Cerebus

Capri Capital

Cliffwood

Colony Capital

CRM Windridge

GEM

Greenwood

Heitman

Helix Realty

High Rise

Hunter

ING CLARION

Kayne Anderson

Kensington

Landmark Partners

LIM (HK)

M.D. Sass

Mecury Partners

Oak Hill Partners

Pengana (AUS)

Praedium

Prospect (JPN)

RTM Capital

Rock Capital

Rosen (Lend Lease)

RREEF

Starwood Capital

Thames River (UK)

Tidewater Capital

Trilogy

UBS AM

Wellington

Wesley

Woodburne

August’07: (i)Lower middle market distressed (ii)Mortgage Reits (iii) Start Up Banks (iv) Reverse Mortgages

0

1. Lower middle market distressed ; refer note on ‘the credit crunch is far from over’ where I took a position contrary to what others were saying weeks ago before all this diversified financials sector news came out.

2. Reits

Most people today would be reluctant to touch REITs with a barge pole but within REITS I identify a sub section , Mortgage REITs.

Mortgage REITs typically invest in government guaranteed adjustable rate mortgage-backed securities and finance these securities with short-term borrowings – earning a spread on the difference. The maturities on such borrowings are shorter than the resets on their adjustable rate assets, which cause portfolio spreads to narrow and dividends to be cut as short-term interest rates rise. I think that the Federal Reserve is finished raising short-term rates for the next year or 2 just as the falling dividends caused by such Fed tightening predictably caused investors to sell mortgage REIT stocks down below book value. Now that the effects of the Fed pause are playing out, mortgage REIT earnings and dividends should begin rising again as the coupons on their (lagging) adjustable rate mortgage assets re-price upwards, at the same time financing costs stabilize. I see a reasonable chance that a weak economy in the next year will cause the Fed to drop short-term rates even more– the perfect scenario for mortgage REITs where financing costs are falling and asset yields continue to rise. In this environment, these companies are capable of earning mid-teens return on equity and the stocks typically trade at big premiums to book value. The problem is the mortgages itself will default and this is a HUGE risk

3. Banks

Most people would be reluctant to touch diversified Financials and Banks with a barge pole but within these financials I identify a sub section , Start Up new banks.

A start-up bank is uniquely positioned to capitalize on the liquidity and lending opportunities that are there and remain unfulfilled without the losses and distractions that a legacy loan portfolio losses bring. One has just to look at new licences being granted for banks or invest in the equity of such new banks.

4. Mortgages

Most people would be reluctant to touch residential Mortgages with a barge pole but within Mortgages I identify a sub section , companies in the business of Reverse Mortgages.

Companies and mortgage brokers that focuse on the reverse mortgage market are prime candidates for us to invest in. ( By way of background a reverse mortgage is for senior citizens who want to borrow against the equity in their homes without the burden of regular mortgage payments. The borrower can take a lump sum payment up front or set up an annuity stream of income while the lender gets repaid with interest when the senior dies or no longer occupies the home as his or her principal residence). The Department of Housing and Urban Development (HUD) has stepped in and standardized the lending practices in this industry. The reverse mortgage market is growing at over 40-50% annually and the sector is not subject to interest rate or credit risk like standard mortgages. Furthermore, I believe that the sector’s recent growth will accelerate as the refi and purchase mortgage markets slow down and brokers and bankers look to find new growth products.

So my point is that , even in today’s environment, one can still be LONG the financial sector but to do it SENSIBLE, THOUGHTFULLY. From a portfolio construction perspective one should BEGIN by looking at the sector, then drill down to specific opportunities within it, then identify managers / sub asset classes and thematically invest. When we bring in a process based mentality, are not innovative , paint everything with broad brushes our investing decisions can be mechanical and suboptimal.

My thoughts on a conceptual evergreen fund of private equity funds structure

0

Evergreen Fund of Funds structure can be something that can enable clients meet Private Equity exposures without necessarily having to make large single commitments for ten year periods.

Proposed Fund Structure: 

          The evergreen fund may be structured as a limited liability partnership

          The Fund’s size can be constantly changing allowing the GP to make say X amounts of investments a year ranging from XX$ to YY $ each.  The Fund will not be a “traditional structure” but will be  seeking limited partner capital equivalent to a traditional fund of approximately XXX$ over the next XXX years . The Fund, when “fully funded” or say ‘at equilibrium”, will allow the GP to invest XXXX$ in any 12 month period. 

          This will be a committed capital, blind pool investment fund similar to a traditionally structured fund but will provide far more flexibility to investors.  Instead of an initial close with a  single large 10-12 year commitment, investors may make smaller annual commitments and can terminate, increase or decrease their capital commitments at any time upon 12 months notice while retaining their interest in existing investments.

           The Fund could draw up to (say) $XXXX * 4 times  from its partners over a five year period like a traditional  fund but no single investor is required to invest for the entire five year period.  Instead, investors can opt out of future investments at any time, after giving notice.

          Specifically, each Investor in the Fund commits to a maximum amount of capital that the GP can “call” in any 12 month period.  New investors can enter the Fund partnership at any time but they do not participate in any Fund investments that were made before they became investors.  Each investor can increase its (12 month rolling) capital commitment at any time and can also decrease or terminate its capital commitment with 12 months notice.  New investors can become limited partners at any time and can also give notice at any time that they intend to stop investing in new investments. 

          The General Partner, will contribute a minimum of 10% ( or a certain number)  of the equity acquisition cost (in cash) pro rata with the contributions made by the Limited Partners in connection with each investment made by the Fund. 

Opportunities from credit market fallouts

0

I tried to think of the opportunites that will come from the fall out in credit markets and feel that Control-oriented investments in distressed and capital-constrained companies in the lower middle market will be a big area.

Theme: Control-oriented investments in distressed and capital-constrained companies in the lower middle market.

Lower middle market remains underserved by distressed investors. There are many reasons for this but what stands out this time around is (i) illiquidity and lack of public information continues to create inefficiency and deters trading-oriented investors (ii) traditional distressed funds have migrated to larger transactions (iii) substantial investment opportunities will continue to arise as default rates increase (iv) Volume and risk profile of LBO financings

– over $200 billion (?) of leveraged loans and high yield bonds rated single B or worse

– significant increase in leverage / deterioration in credit quality

-default rates are expected to increase in 2008

There are opportunities to purchase distressed debt or inject new capital with the intent of creating a controlling or influential equity. These opportunities will be in areas such as (i) to purchase “fulcrum” distressed debt securities that are likely to be converted into equity (ii) bank debt (iii) mezzanine/high yield debt (iv) “Rescue” financing (v) structured financings for companies that are capital constrained (vi) “Broken auctions” and divestitures

Investments in distressed securities and assets are frequently undervalued by the marketplace, providing the prospect of greater appreciation than the

securities and assets of more financially stable companies. Although interest are expected to be low in the near future default rates on high-yield debt also remain at near record lows . This combination of factors has caused opportunities in secondary market and publicly and privately traded distressed debt (traditional distressed investments) to be relatively limited.The large number of issuances of high-yield debt, coupled with what is believed to be less rigorous underwriting criteria, will inevitably create more opportunities in distressed publicly and privately traded bonds and debt when the economy softens or when long-term rates rise.This presents opportunities

– to invest in weak operating companies where returns can be generated through the stabilization of operations

-purchasing Secondary debt : The supply of this debt remains available, although diminished in the current environment, as banks and other traditional lending sources may sell their loans when their borrowers develop problems.

– private equity or subordinated debt in companies with liquidity needs

Bankruptcy Sales and Corporate Divestitures to benefit from any increase in supply of middle-market or larger investment opportunities that may be presented by any economic downturn. The rise in corporate bankruptcies that may occur and the pressure felt by companies not in bankruptcy to rid themselves of non-core assets may result in a marked increase in private equity opportunities for investment in bankruptcy sales and corporate divestitures.

While traditional buy-out investment funds may possess operations teams, they typically hesitate to make investments in companies requiring substantial turnarounds, including reorganizations subject to the complicated regulations of the bankruptcy process and involving the numerous constituencies that have to be satisfied.

One night the moon

0

One night the moon..oh such a sad movie.. This was from a movie I had seen in  class that i revisited.

 tried watching this movie all over again after 2 years. This was a very sad movie and I could not bear to watch it towards the end. Stuck with a husband who allows his prejudice to stand in the way of finding their lost daughter, the mother goes to the aborigine tracker to help her track her child. But by then it is much too late. The father and mother were both deeply entrenched in his own racist values. The mother too was as racist as they come but she, in the interests of vested self interest, decided to use the aborigine trackers help.

It goes to show that we must listen to each other and in particular listen to those who sit at the fringes. Listening enough is not enough however. For people to genuinely change they need to be willfully conscious of what our harp strings are, the choices we face and whether we have the courage to exercise those choices. Once we have made our choices it is time to take a decision and then act on it. It is not enough for us to insist that someone or something is driving us to behave the way we do. In the movie the father was responsible for his biases which reflected in the way he treated others.

A major delusion the father faced was his extremely, almost arrogant belief, in his own abilities. He needed to acknowledge, after the initial tracking party was unsuccessful that he should reach out to the expert aborigine tracker and shed his own bias. If the father was self-responsible he would have worked to become aware of his own beliefs and values and reached out to people who see things differently.

Other people do not exist as means to your ends, any more than you live in service to their goals. People may choose to help one another — voluntarily as the aborigine wanted to.

Racism is destructive. It disempowers people by devaluing their identity. It destroys community cohesion and creates divisions in society as i saw in the Australian farm in the movie. Racism is the result of a complex interplay of individual attitudes, social values and institutional practices that prevailed in Australia then. It is expressed in the actions of individuals and institutions and is promoted in the ideology of popular culture which at the early settlement days was to hate the aborigines.

It changes its form in response to social change. Racism has its roots in the belief that some people are superior because they belong to a particular race, ethnic or national group . The concept of race is a social construct, not a scientific one. Racist attitudes and beliefs are misconceptions about people based on perceived racial lines and are often founded on the fear of difference, including differences in customs, values, religion, physical appearance and ways of living and viewing the world. It is so easy to learn not to be a racist if one wants to consciously do that.

Real Leadership : Helping People and Organizations Face Their Toughest Challenges

0

Real Leadership : Helping People and Organizations Face Their Toughest Challenges

I spent the better part of this afternoon to reread : Real Leadership : Helping People and Organizations Face Their Toughest Challenges by Dean Williams

“This book debunks popular leadership notions of the strong visionary charismatic individual who stands head and shoulders above others leading his followers to victory.

Dean William’s premise is that at the end of the day a group of people themselves need to confront their reality and themselves contend with conflicting demands on their ingrained values, habits and practices. This is easier said than done of course. The role of someone exercising true leadership is to help the group analyze it’s challenges (and it shows how to do so) and help them come to terms with attitudinal shifts they may have to make to respond to these challenges. It provides an excellent framework to analyze context specific leadership challenges as well as the tussle between a groups feeling, the barriers to progress in exercising leadership and potential rewards should progress be achieved.

It goes to the core of the leadership matter and explores issues with examples across the private enterprise, politics, non profits and the public sector. The book is replete with colorful anecdotes, topical and historical examples and news items which help to intuitively clarify the context and challenges of leadership. In order to illustrate concepts Williams examines characters and contexts from popular movies that many of us may have seen (Gandhi, Lawrence of Arabia, the Fog of War, The Last Samurai etc) through the prism of his framework. For me this helped to do away with much of the jargon one sees these days in the academic literature on leadership.

`Real Leadership’ does not stop at just analysis and interpretation. It also provides valuable practical tools and strategies for one to actually do something about it.

Overall an excellent read and decidedly a book worth buying. “

Why is the Fed Fund rate used to predict recession?

0

Migrated from 2006 Blogs 

Why is the Fed Fund rate often used to predict recession. Here is a plausible commonsensical explanation without getting into economics  theory…

 An inverted yield curve is often a leading indicator of forthcoming recession. When short term (three-month) interest rates are higher than longer (ten-year) GDP growth in subsequent quarters slows and probability of recession increases.The logic: The greater the term spread the more restrictive current monetary policy is which reduces impetus for investment and that reduces real growth as well as future GDP growth and increases the odds of recession.The level of the federal funds rate and the term spread is an extension of the above concept  and serves as another another predictive indicator. So to reiterate when the shorter term US Fed Funds rate is higher than the longer term 2 year treasure rate (by a few hundred basis points ) the probability of an imminent recession increases.

(Of course adding a term premium adds more explanatory power but also complicates things.)

Therefore, for our pusposes,  the Fed Funds rate , because it is a very short term rate and captures Federal Monetary policy in isolation is a much cleaner measure. This is elegant for it does not include the pernicious effects of term premiums. Therefore :

 Feds Funds rate  – Longer 2 year rates= spread is or may be an explanatory variable for future recessions 

2. Volatility as a predictor of recession ?? To the best of my understanding the Fed does not use volatlity in its predictive models. It uses the yield curve and its variants ( as above). People have tried to use volatility and other variables but there is no clear explanatory power.

cross sector interaction

0

cross sector intersection
This Blog has been migrated from another server

1/4/06; 1:11:53 PM –

cross sectoral intersection & balanced decision making

It ain’t easy blogging every day. Jeeez this is going to be a hard act to sustain.Well here goes…

I am still looking for a platform to become more cognizant of my ethical, managerial, community related as well as economic responsibilities as a business leader. I am still trying to develop theoretical, analytical and more importantly real world insights into the interplay between politics, institutions, policy formulation frameworks and governance in general. Time is fleeting…To win the hearts and respect of those around me and provide leadership I myself need to learn more. How can I provide the leadership needed to change organizations, cultures and people??. What will equip me with the tools, methods and frameworks to dig deeper to understand, preempt and respond to the forces that influence business, politics and society??

Are these just my own demons?

I intend to focus more attention to ongoing activities in the area of Privatization and Divestment including (a) quantitative and qualitative analysis and policy oriented studies on the role of regulation, deregulation and privatization in the context of economic reforms in emerging economies such as India’s (b) studies on the role of the firm, creation of efficient markets and issues that arise from incidence of market failure and (c) approaches to bringing structural improvements in small and medium enterprises as well as the organization of Industry at a national level.

After that? Well life is a state of striving:)

confusions in life

0

All my life I confused managerial excellence with leadership. I thought I was being a leader by optimally organizing work in terms of  preparing detailed work plans , monitoring , prioritising actions ,managing allocated resources and manpower to achieve goals within budget. Indeed organizations work that way and I set up reward mechanisms that way. Because of this falalcy one was not always paid to exercise leadership.

 I myself learnt to routinely “solve”  problems and make decisions. Most of these decisions have been operational decisions related to organization, product, markets, partnering issues as well as business unit related financial issues. I had always tried to ensure that political considerations  not cloud and bias my decisions. This was an egregious mistake as I now learn  . To be rational and objective  I tried to always understand my own area of authority and rigorously evaluate information , facts  and options to select an alternative that best meets the requirements of the defined situation.Never evaluated other peoples ‘opinions’. That was not leadership.

In my own limited context I thought I was providing leadership by adopting a “hands-on” / “attention to details” approach to work towards organisational goals . I have tried my best to provide encouragement and mentoring to motivate  high standards of performance and have listened actively to daily operational issues and problems faced by other team members and volunteered necessary support. This was not necessarily leadership. When I look back I realise the opportunities lost and how I could have been more effective.

Culture in corporate organization

0

I have found the aspects related to understanding and bringing about cultural change initiatives to be a very important part in creating systemic change in a company. I think that rational strategic design programs often fail because of an unappreciated understanding of underlying culture .Also political processes in a company evolve in response to or to make ‘capital’ of a company’s culture.

Without understanding cultural issues many sensible programs such as those related to structural changes, TQM, re-engineering etc can easily be subverted. I recognize the potential causal role of culture in the success or failure of organization change and am for developing strategies and approaches for examining and redesigning cultural systems as an integrated aspect of change management.

When we think of “culture” we intuitively know what we are talking about but it becomes very difficult to capture and define. One should be able to look at ‘culture’ more meaningfully and deconstruct it to it artifacts, such as for example office layout, “who comes at what time to office and who rolls his sleeves” , rituals, stuff that we instinctively sense ,power equations, values, and behaviors coming together in a coherent holistic whole. Perhaps this complete view can be a starting point for us to look at organization culture?.

I believe, say for example, that while some companies celebrate individual contribution to an extreme ,however good one is as an individual it is important for companies to develop teamwork and team effectiveness. Now culture is what can make this possible. Cultural interventions through rewarding group productivity, Not celebrating the individual hero etc can over a period of time create an environment where teams flourish. I have seen scores of cases where individual actions, while very sensible, are often incongruent with company values.

This always created problems for the individual and the organization too lost out by not absorbing the individual’s contribution. By purposefully aligning individual values with company values (as captured in its culture) I feel one can create greater workplace/employee value. I am not sure if I can extend this argument to shareholders and customers too but I suppose a company’s culture does impact those dimensions too- perhaps in subtler ways.

When I take a walk down memory lane I can recollect many many instances when I did not understand the important underlying role that culture was playing. I blamed so many outcomes on “others”, the “system” etc. My lack of understanding was expensive. Had I known better I would have facilitated both upward, downward and lateral communication about difficult issues, recognized political networks and coalitions.

A deeper recognition of culture can reveal mental models that are largely hidden from awareness, and usefully channel them to solving daily operational as well as more important issues.

I am a convert. I now recognize that once the issue of culture is addressed one needs to, with equal empathy, explore and reconcile political factors and strategic design. After all, dosen’t the Truth lie somewhere in between?

Ed Schein’s career anchors

0

I took Schein’s career anchor orientation inventory today. It more or less ratified what I have always thought was often true of my own inner reactions- autonomy and independence.

Having recognized this I still find it very difficult for me to come to terms with the ‘revelation’. I am tempted to attribute flaws in the questionnaire which prompted me to select a few dominant motives which magically then ‘characterize my career anchor’- on the other hand this anchor (autonomy) is certainly something that I would never consciously and given a choice trade.

My career, given my personal situation and circumstances, has not evolved in the classic sense of the word as Schein so eloquently describes. I wish it had. I had to take on General Management responsibilities very early in life – something that I abhorred but nevertheless accepted. I thought I did reasonably well in it too even though I never really liked it. Where I find cognitive dissonance is to recognize and come to terms with the fact that I will be ‘forced’ to do something for the rest of my life that I truly deep down don’t want to! As someone said ‘and pay you will the price of power’. Often we have to pay a very high personal price by compromising our inner beliefs, aspirations and transgress our comfort zones. I have this deep sense of uneasiness at the moment. It would take 3-4 hours to do justice to my innermost thoughts. Thoughts that I am still in the process of coming to terms with. I will write more later once I have been able to compose my thoughts and have a clearer sense of purpose , identity and self image.

ON WORKING WITH PEOPLE

1

It is all too easy to forget that what people publicly espouse publicly is often quite different from the views they privately harbor. In order to better understand the motives of people we work and live with we should us multiple formal and informal ways of gathering information and opinion.

This approach can make us more aware of how people feel, their stakes, the expectations they have to respond to and the politics of their situation. Since most often than not we aspire to create consensus decisions we should go out of our ways to actively solicit and surface every stake holder’s point of view. By being able to see across the board we can recognize common ground and conflicting interests across disparate pieces of information and viewpoints. This will enable us to distill complex signals into its key messages

Then we can take decisions that are balanced and hopefully that most people were happy to live with. I cannot overemphasize how important it is to listen actively, take the perspective of others, encourage the expression of diverse opinions and withhold judgment. An important lesson I have been learning is the power of developing both formal and informal relationships with people. In yahoo groups I have seen people often change their views and it is important to build a broad coalition of support.

By being able to empathize with people’s vested stake makes it a lot easier to make our thinking clear to others. We can then be better able to persuade others to consider ideas and proposals that find favor to negotiate win-win solutions.

GDP vs. Happiness Index in Bhutan

1

I was struck by an index they seem to use in Bhutan called the ‘happiness index'” . I suppose it stems from a strong Buddhist tradition. One can say it is a ‘flawed’ measure for it conveys ‘nothing’ that can be used as basis of planning., or resources allocation etc. But then one can say the same for other measures such as GDP which we all love to gobble up.

Why I say that is the GDP measure too is somewhat flawed .There are many other parameters of economic welfare that are not included in the GDP. Because these are omitted from the overcall contribution to national welfare they may understate the extent of the true well being of a country. Some of these are ( and i recall from eco 101):

– the work that people in households do. This is not included as part of market transactions and is treated as Zero for purposes of GDP calculation

– sometimes GDP over adjusts for inflation. When we over estimate the rise in prices we may understate the extent of the increase in physical production.

-many economies have large amounts of ‘illegal’ activities which are not included in the GDP..India has a parallel economy almost

-qualitative factors such as the quality of social benefit, healthcare, education etc. are not included in the calculation of GDP. Another Thing that does not show up in GDP is leisure time. These improvements in life quality for an entire society do not show up in GDP calculations and may bias the GDP calculations downwards.I guess Bhutanese people may agree here with me ..tee heee

-developed countries are beginning to accord significant resources to maintain the environment, enhance safety standards and pay a high social costs. This investment ( or the pernicious effects of the lack of them) do not show up in GDP

I am struck that despite these shortcomings GDP remains as the most attainable compromise measure to reflect the overall degree of economic development in a nation. I guess it gives a good sense of changes in the business cycle – and measuring that relative change is important for policy makers.

Fluctuations in real GDP tell a lot about how the factors of production have been used, the state of unemployment and in general the overall health of an economy.But ofcourse GDP is not a measure of welfare of a society or its people. (it values a dollar spent on education the same as a dollar spent on alcohol.) Instead it provides the information needed to track the performance of the economy. Without this information, policy makers would not be able to adopt corrective economic activities.

So I cna live with GDP but i see more informational content in GDP changes than the absolute figure itself.

my 10 commandments on doing business in emerging markets

0

For 40 days and 40 nights he laboured. At the end of the 40th night realization dawned and he knew the truth..and the truth set him free. Free to do business in emerging markets!!:) These are my 10 commandments from personal experience 

• Thou shat understand thy Joint Venture partner. Thou shalt maketh effort to understand mutual vested interests –explicitly stated and implicit- for ensuring thy sustained beneficial partnershipThou   shalt befriend Government and local authorities in emerging markets and try to align thy stated goals, actions and plans with Govt. policies. Then the Government and the Lord shalt both support thee• Thou shalt continually test thy assumptions with ground reality through discreet feedback from local authorities. This shalt prevent unpleasant surprises 

• Thou shalt recognize the absence of proper laws, governance mechanisms and a general lack of transparency business situations and shalt frame thy consequent response. Often there are no precedents, and even when there are, they are no predictor and sometimes not applicable to the new situation. 

• Thou shalt strip ‘Investment banking deal making’ of its hallowed veneer. It is much like good old plain salesmanship or strategic account management 

• Thou shalt not try to con thy partner.Joint Ventures that favor only one party don’t last too long. 

• Thou shalt read between the lines and examine the financial numbers and assumptions in great detail to uncover issues that may have a potential future impact. While the spirit of an agreement is certainly important it helps to have the letter echo it 

• Thou shalt recognize that doing business in emerging markets is no magic. The ‘laws’ of doing business are very transportable apparently though small variant subtleties do exist 

• Thou shalt ,during an IPO pay a lot of attention to classifying productive assets and have strict covenants (if that’s possible) on use of proceeds 

• Thou shalt not practice black magic. There is no magic to deal making. At the end of the day it just boils down to common sense and purposefully considering all available information (and systematically searching for relevant unavailable information) to making informed , balanced and fair decisions. 

Ofcourse when thou art visiting they JV partner thous shalt not covet his house, his wife, nor his manservant, nor his maidservant, nor his ox, nor his ass!

My 10 commandments on systemic fin risk;migrated from Blogspot

0

my 10 commandments on systemic financial risk

I watched John Thain’s address and was struck with some stuff he spoke about on regulation issues. The fact that the equities and the cash markets are regulated separately- this to me sounds like good and bad for it has the makings of for and against a systemic crisis…

The securities market, unlike banks, has been less susceptible to contagious transmission of shock. Policy discussions should explicitly worry about the once-in-a-few-years events where market integrity is tested.
The design of regulatory mechanisms based only on individual bank risk could be suboptimal in a multiple bank /Universal Bank context, and may well have the unintended effect of accentuating systemic risk. Optimal regulation should be collective in nature and should involve the joint failure risk of banks as well as their individual failure risk. The Lord appeared to me in a dream last night and told me that tthe challenges facing our financial markets for the next 2 years are :

Issue 1: Protecting institutional investors:

Institutional investors, increasingly large participants in Hedge Funds and proprietary money management firms should be given additional rights to compel management to disclose more relevant data, value at risk as well as more specific information on risk return profiles. Government should encourage the development of rating agencies to examine and rate large Hedge Funds with high institutional investments in them. It is particularly important that managers of investment firms give extensive information and are closely supervised. SEC ought to bring these firms within the ambit of regulation.I see some development happening here and this is good.

Issue 2: Strengthening takeover regulation:

Minority shareholders have begun to play an increasing part in the post bubble economy. Regulation should be strengthened to protect minority shareholders and further protect exploitation by majority holders. Lack of minority shareholder protection severely restricts the ability of firms to raise capital. Legal changes are needed to strengthen protection and take over codes. This issue is pretty bad in emerging markets and with the markets being increasingly integrated i worry..

Issue 3: Fall in efficiency given the fast pace of innovation:

Regulation needs to be strengthened to improve the informational efficiency of markets through better disclosure and price signaling mechanisms. The ban on insider trading should be reexamined of there is a case that insider trading improves overall market efficiency but must be balanced against its costs (benefiting at the expense of the uninformed and this reduces the willingness of uninformed investors to participate). Given the increasing esoteric nature of newly designed securities instruments manipulation will potentially cause significant misallocation of resources. A lack of confidence in the transparency of the securities market will reduce the total amount of investment that is undertaken. Specific steps that help to strengthen the aforesaid and improve market efficiency is absolutely critical to counter the effects of financial innovation.

Issue 4 : Risks posed by asset volatility:

In order to reveal information, prices have to fluctuate with changes in underlying information; but price fluctuations themselves are costly to the extent that they impose risk of uninsured changes in wealth on investors. There is therefore a trade-off between allocative efficiency and risk sharing. Asset volatility has been very high in some markets . While regulation should not interfere in free market functioning there is need to ensure that the securities markets are not out of synch with those for indexed products and derivatives. Regulation for integrative management of these linked instruments should be enacted to be more effective.

Issue 5: Intra Bank Risk:

Securities Regulation has traditionally placed a very limited emphasis on the prevention of systemic risk since most of the regulation is towards regulation of the individual firm itself. Additional regulation needs to be passed to ensure that securities firms continue to segregate customer funds from the firms’ own funds and disclose leverage in proprietary trading strategies. There is a risk that Banks will fund in-house securities business and separate regulators will lack an integrated picture of the firm’s consolidated position. Regulation aiming to create Chinese walls will make it easier that when a securities firm fails, it will be easy to transfer the assets of that firm to another firm .Security firms have access to large value payment systems and there is need to beef up regulation of the clearing corporation.

Issue 6 : Internationalization:

Leading securities firms have become increasingly international. They operate through a complex structure of affiliates in many different countries with differing bankruptcy regimes. The effect of international bankruptcy laws on the fate of a domestic securities form needs to be studied. Cases such as the collapse of Barings Bank, BCCI and others are examples of what has happened in the past. Regulation then needs to be enacted to respond to the risks of international bankruptcy.

Issue 7:Growth in size:

Securities firms and banks have consolidated to form larger and larger entities. Partly this is because the formation of financial conglomerates has often involved mergers and acquisitions. Although it is possible that larger financial firms will be less likely to fail, the occurrence of failure is more likely to be associated with systemic risk since the spillover effects on the rest of the financial system are bound to be greater. New Regulation should be enacted that treats the largest firms differently from the small securities firms.

Issue 8: Over-the-counter derivatives:

The growth in the OTC market as well as the concentration of activity in a few large firms brings corresponding increasing concentration of risk. They pose risks to the system through a combination of size and market illiquidity. Capping the size of financial entities through regulation would help address the first, improving market liquidity would address the next. OTC derivatives markets span national borders and are subject to a wide range of regulatory regimes. Such firms are likely to be managed in an integrated fashion along lines of business without regard for legal entities, national borders, or functional regulatory domains and with substantial intra-group transactions that would be difficult to disentangle in a crisis. Although the laws that govern bankruptcy procedures correspond to the legal entity or the regulated entity, these may no longer correspond to coherent part of the global firm. There is need to encourage the intrinsic strengths of exchange-traded derivatives when compared with off-exchange derivatives and these should be regulated more.

Issue 9: Bankruptcy laws for derivatives transactions:

The ability to closeout all derivatives contracts with the failed firm, net them and liquidate the collateral eliminates the degradation of collateral that could occur during lengthy bankruptcy procedures and enables counterparties to settle other transactions that may have been linked to the positions with the failed firm. When a failed firm such as LTCM has taken positions that are large enough to move Prices, however, these procedures may disrupt markets and exacerbate losses to counterparties and other investors with positions similar to those of the failed firm. In such cases, the simultaneous closing out the failed firms positions and attempts to liquidate illiquid collateral could cause the market to crash directly causing losses to the counterparties and other investors with similar positions. This could lead to additional defaults and additional pressure on illiquid markets as additional collateral is liquidated. The benefits of the current derivatives laws for securities need to be reexamined given the potential for systematic risks
Systems are only tested in times of market volatility; short track–records of functioning under normal conditions should not generate confidence. The best designed regulatory framework will fail to generate safety if it is not backed by effective enforcement and there is need to beef up enforcement in the next two years.

Issue 10: ???? I bet this one’s gonna take us down:(( What is the 10th commandment??:(( Anyone knows??

Recommendations to the Federal Reserve :No more risky business after this

0

With Bernanke coming on board , he needs to, in addition to, the much touted interest rates business also worry about some of the more pressing issues in the supervision and regulation of banks and other institutions. I emailed this letter to the Fed and also sent them a printed copy.

Safeguard against systemic risk: The Federal Reserve needs to safeguard against systemic risk deriving from concentrated fast growing sections of the financial market, such as those for OTC derivatives which are increasingly confined to just a few large dealers. Another source of short term systemic risk arises from the fact that the entire government securities clearing segment as well as the housing mortgage segment is dominated by a handful of institutions which increases vulnerabilities for systemic crisis. A new risky trend, given the increasing trend investing in unregulated vehicles such as Hedge Funds, increases the role the Federal Reserve will have to play in the next 2 years in protecting investors from opportunistic behavior.

Interagency Regulation: The Federal Reserve needs to put immediate plans in place to take lead in steering interagency regulation. It has an important intermediate role in enhancing the efficiency of the financial system, and achieving a broad range of social objectives.

Banking Regulation: The high concentration of consumer assets with a few large (top 20) banks should be of concern to the Federal Reserve over the next few years. It must continue to exercise oversight of the affairs of banking institutions in the form of inspection and examination of the institutions for compliance with a broad set of safety and soundness standards. It must reexamine the role that deposit insurance has played to provide protection against losses for small depositors and investors. It needs to reexamine its existing policies as banker of last resort and provider of emergency liquidity facility as well as existing capital adequacy standards

On the banking supervision front there is a pressing need to strengthen credit risk-management practices in financing of commercial real estate and has been the highest category of loan growths. Such concentrations in exposure have resulted in crisis in the past and there is need to strengthen oversight. The Federal Reserve needs to continue to implement the interagency recommendations of sound practices for Financial Markets.

Given the war on terror and the dangers of another terrorist attack it needs to focus on business continuity services in emergencies for recovery and ensure resumption of clearance and settlement activities in wholesale financial markets. Going beyond business continuity the Fed must insist on more risk-sensitive measure of capital adequacy for the largest 20 banks and apply the new guidelines. The Fed should require and encourage Banks to report their exposures to risk in terms of the market value of their assets, liabilities and off-balance-sheet positions. This will enable customers, creditors and shareholders to evaluate their prospects and react accordingly. They should also be required to report on the risk management and risk control systems in place. The development and use of rating agencies should be encouraged by the Federal Reserve. A major task for the Federal Reserve in public policy will be to ensure that financial regulation does not distort or stifle rapid and beneficial innovation, while responding appropriately to the challenges that financial innovation will pose

Budget deficit: On a non institutional front the weak job growth and a ballooning budget deficit are important problems facing the economy . With consumer debts rising in relation to household income, a further rise in interest rates would increase household debt service burdens and could push financially strapped families over the edge into bankruptcy (especially if unemployment stays as high as it is now). The Fed needs to balance consumer spending, which is good for the economy, with the potentially ill effects of rising debt.

Unless the economy expands drastically in the next two years, and that appears unlikely, tax revenue will not increase and unless discretionary spending is cut there is a risk of budget deficits further increasing. Keeping a balanced budget would be a short to intermediate term concern but the Fed would not be able to influence programs for Government spending. It is important that it is able to bring about a more balanced budget. Unrestricted increases in government spending will crowd out the market for private investment and result in overall rise in long term interest rates. This will adversely affect investment decisions for the future. Bernanke should use his office to encourage congress to bring about spending cuts.

Social Security & Medicare: If the social security system is to survive in its current form, either real benefit must be curtailed, or real taxes increased. The Fed may not be able to solve this problem on its own but it should decidedly raise concern for Congress to have the political will to confront this issue. A primary cause of social security’s funding imbalance stems from the fact that, until very recently, the payments into the social security trust accounts by the average employee, plus employer contributions and interest earned, were inadequate, at retirement, to fund the total of retirement benefits. This has started to change.

Under the most recent revisions to the law, and presumably conservative economic and demographic assumptions, today’s younger workers will be paying social security taxes over their working years that appear sufficient to fund their benefits during retirement. However, the huge unfunded liability for current retirees, as well as for much of the work force closer to retirement, leaves the system, as a whole, badly under funded. . Given President Bush’s public stance that existing retirees or those approaching retirement will not be adversely affected the Federal Reserve has a responsibility to frame this issue for Congress’s agenda.

Monetary Policy: Since the primary purpose of the Federal Reserve is to ensure sustained growth and stability by regulating the supply of money and credit to the economy it now faces the challenge to stop raising the real federal funds rate

Foreign Capital: The has become so dependent on foreign capital inflow that were such reversals, or even a significant slowdown, to take place it could set off a financial crisis leading to a recession. This is a source of risk The Fed also needs to be concerned at a stage that many governments have accumulated large amounts of dollar-denominated debt and they may be less willing to fund future current account deficits. Therefore the Fed needs to act to increase national savings and employ other fiscal tools to incentivate people to save more.

Payment Operations: The Fed’s ability to conduct monetary policy and bank regulation has been accused of being compromised by the need to manage its nationwide payment operations. Technology is rapidly changing the way payments are made. Removing all responsibility for processing retail payments from the Fed would permit it to concentrate fully on performing its vital public functions. It must instead strengthen the role it plays as serving as the banker’s bank, the government’s bank, the regulator of financial institutions, and as the nation’s money manager over the next 2 years

New forms of risks: There is also a need to push for deposit insurance reform so that free riding by banks through government guarantees is reduced and depositories are treated the same way. As financial services firms adopt new product lines, enter new markets and lose the protection of traditional industry barriers, managing risk has become a major concern. In today’s financial markets, many firms offer products and services that cross what had once been traditional boundaries. As a result, they must now manage default, interest-rate and market risks as well as risks associated with liquidity and operations. The Federal Reserve must become itself more aware over the next 2 years of these categories of risks if it is to extend effective oversight

Over the coming few years’ market discipline will slowly substitute for prudential regulation. Having said this in the shorter term increasing emphasis must be placed on developing investor trust and proper market values throughout the regulatory process and improved disclosure. Another source of risk to the financial system is fraud. The last few years has seen an increase in governance, accounting, and legal compliance failings in publicly held companies and mutual funds. This is a bad trend that can adversely affect the financial markets.

Innovation in risk transfer products brings new challenges to risk management issues. The Federal Reserve needs to work even more now than ever before with the banks they supervise to strengthen capacity in training its examiners to identify violations of non-banking laws, compliance with tax codes, independent legal or tax analysis of transactions etc. In many respects the infrastructure of any regulatory regime is the people that enforce and oversee regulations that have been put in place by the political process. In this changing financial sector, investments must be made in this infrastructure to insure that the regulatory staff is cognizant of global market trends and are capable of assuring the health of institutions under their regulatory mantle

An area of importance for example is the Gramm-Leach-Bliley Act allowed banks to affiliate with insurance underwriters and insurance agencies. To date, about 630 bank holding companies have chosen to become financial holding companies. Federal Reserve has little expertise in supervising insurance companies and needs to augment is capacities over the next two years

The Fog of War: Eleven Lessons from the Life of Robert S. McNamara

1

The Fog of War: Eleven Lessons from the Life of Robert S. McNamara’ Saw this movie again after 2 years

My impression is that “the fog of war” was also about about creating a better world, engaging the hearts, mind and the gut of decision makers whose decisions affects the life and death of nations. The US govt. during Kennedy’s and LBJ’s administration faces many of the choices the current govt. faces albeit in another context.

The first lesson from McNamara’s talk was he puts the work back to us to develop a heightened awareness of the dangers posed by modern weapons and asks us to think about how we can contribute to reduce these weapons for our children’s sake. He encouraged people to read the Kennedy tapes. I was struck by how dangerous concentration in power and authority can be when he spoke about ‘one human being has the potential to launch weapons and destroy world. Such concentrated authority coupled with “human fallibility’ came so close to destroying the world. Leadership should recognize their own fallibilities and put a system of checks and balances (in his example hotline, test bans, permissive locks) etc. These are technical solutions and important ones at that another technical solution that will make the world a safer place is to reduce the number of weapons to around 20.

Leadership must also distinguish between moral deeds and immoral deeds. He was against the brutal bombings against Japan and commented that those same actions will be construed as immoral if the USA had lost the war. While one can argue that ‘to the victors goes the spoils of history’ I too am in favor that leadership lies in developing widely endorsed and accepted international standards in war and the development of judicial deterrent. Since leasers and authority figures are only human it is important that there exists a system to keep them in check from themselves.

This was further highlighted where a resolution gave LBJ complete authority from congress to go to war in Vietnam. When an authority figure has unchecked authority even if he is wrong he is able to get away by carrying his sense of righteousness in his mind. Bob was right when he said we often see incorrectly and further more we see what we want to believe. In war, in perceiving the ‘work’ belief and seeing are often wrong. Adaptive work is more complex than technical work and is similar to military operations and therefore mistakes happen. It makes sense for a leader to take time to be sure her decisions are correct and often when they are not correct to have the good sense and humility to recognize that she may be wrong.

The importance of empathy cannot be to over emphasized. Bob says that they were able to put themselves in skin of soviets during the missile crisis which helped save the world. They did not do so in Vietnam where the Vietnamese saw it as civil war and the US saw it as cold war. Both sides did not empathize and this led to a complete breakdown. Leadership should have been about being more sensitive to the culture, the history, and the aspirations of the Vietnamese people. Deploying empathy can help a leader diffuse tense situations and it is important for a leader to surround him with people capable of empathy as Ambassador Thomson was. It makes me wonder why we as a nation are less empathetic now than 20 yrs ago.

Repeatedly we see unilaterism. Indeed it is a tool of foreign policy now and it makes sense when one nation has global hegemony. In most leadership situations this is not the case for every authority figure has to work with a team of people. The lesson for a leader is not to apply power unilaterally but to “persuade others with comparable values about the merits of your cause. If you cannot do that then u should reexamine your reasoning.”

The fact of the matter is that since human affairs are so complex we are not able to comprehend all the “variables”. It would be an uphill and fruitless battle many a time to try to change “human nature”. Cold logic and reason has its limits when interacting with people or when leading them.

Of course one needs to couple powerful analytic arguments with emotional appeal, appeal to constituency stakes to force deliberation when people brush important issues aside. This takes leadership and guts (Not synonymous all the time of course). My take away was we make mistakes and we should, when we experiment with exercising leadership, identify those mistakes, take corrective action and pass on the learning to others.

My prescriiption for Developmental Policy-Indian North East States

0

In thinking through how one can bring development to the north east part of india or any other place I believe, more today than ever before, that the private sector,NGO’s and educational institutions need to work hand in hand with public uthority toshape policy making and develop appropriate norms for the economic development of the north east part of the region.

While State Government is still responsible for creating the right frameworks in regulation, tax policy and market based initiatives to support business’s efforts, people in business, can in turn contribute crucial financial, technical and managerial resources to meet the region’s challenges. Given the enormity of challenges our country faces and the paucity of resources and talent in Sate Government these days, I am beginning to see an expansive view of what Business and Government can together achieve. In doing so, I advocate a broader and more proactive social economic political role for business leadership.

My broad observations:
1. • Building strong regional economies takes decades normally and North East India will be no different.

• Key influencing factors which need to be assessed separately for each state that will be a first step for any cohesive analysis will include assessing:
– Natural endowments
– Entrepreneurship
– Specialized assets
– Civic leadership
– State Government policy and actions and role of NEC
– Role of Multilateral agencies such as OFAD etc

2. • Development involves some inheritance and serendipity, but can also be strongly influenced by strategic choices
• Successful states will need to leverage their unique mix of assets to build specialized clusters
-Economic development is a collaborative process involving government at multiple levels, companies, teaching and research institutions,and institutions for collaboration .

3.Creating and Implementing a Regional Economic Strategy will require:
• A shared economic vision helps elicit broad support and coordinate activities
• Strong leadership is a necessary part of any successful economic development strategy
• An overarching organization for economic development helps coordinate and sustain the process
• Broad-based collaboration across actors is needed for development strategies to succeed
• Rigorous analysis to develop a fact base is a crucial early step in implementing a regional strategy
• An explicit process is needed to translate ideas into action
• Regions need to overcome transition points in the development of their economies, as past strategies run their course and the next stage of productivity growth is necessary

4.The region’s economic growth and prosperity can be greatly enhanced by a healthy regional economy. Why?
. Larger, inter state accessible markets for local firms
. Individual states become more attractive as places to invest if they create regional competitive clusters
. State’s should try to grow only in those areas where they have unique strengths ( its more difficult than it sounds)

The states in the nort east will inevitably suffer if they are isolated or islands . Competitiveness can be greatly enhanced by regional coordination versus unilateral action. A sound macroeconomic, political, legal, and social context creates the potential for competitiveness, but is not sufficient . At the end of the day competitiveness ultimately depends on improving the microeconomic capability of the economy and the sophistication of local companies and local competition. So my feeling is that most of the responsibility for development should ultimately rest with local firms in North East India with government providing enabling environments. NGO’s and groups and individuals such as us will be ultimately peripheral.

IRR issues

0

IRR keeps coming back to haunt us time n time again. Here is a FAQ of sorts explaining it once more in simple words: 

The net present value (NPV) of future cashflows is the sum of the present values of the individual amounts of future cashflows. Each future cashflow is discounted, meaning that it is divided by a number representing the opportunity cost of capital.IRR is a measure of this number. It is the discount rate that makes the net present value of future cash flows equal to zero.

-IRR is a true indication of return on investment only when the project generates no interim cash flows. In cases when it does generate income the presumption is that interim cash flowsare invested at actual IRR.

– Finding a IRR is an iterative search solution in locating the root of a polynomial via the quadratic equation. To seek a closed form solution would mean restricting the the number of cashflows to a maximum of 2 numbers which does not happen in the real world.

-The IRR is a convex function which when solved may give 2 roots to the polynomial.This happens when the sign changes for interim cashflows. So 2 answers may confuse the person looking at the IRR number because both answers are correct answers

– IRR is sensitive to the timing of future cashflows. A fund ( say a Private Equity fund with early realizations) will show a high interim IRR than another fund that has later dated realizations and cashflows. Just looking at IRR when comparing 2 different funds, may bias an investor for this number does not help compare 2 different funds. NPV ranking ( which does not happen for funds but is used for projects) may lead to a different conclusion than IRR. This happens when the hurdle rate is less than the crossover point on the X axis when the polynomial is solved.

– When there are restrictions in capacity in a fund or the amount an investor is permitted to invest in a fund it would not make sense to use IRR for comparative purposes ( between funds) because at the end of the day what an investor is looking for is the total absolute $ amount in return. A smaller investment with quicker positive cashflows may have a higher IRR than say a larger investment with later cashflows ( depending on the stage of fund investing and realizations); but what an investor should look at is the latter number rather than the former.

-IRR is a curved function of future cashflows.Intuitively we look at linear functions when we make choices

-IRR is a single number. This single number or the discount rate that makes the NPV=0 caputures both the time value of money and the risk. A purist would say that the 2 should be separated

Minerals, royalties and overriding royalties! (migrated from blogspot server)

0

Minerals, royalties and overriding royalties!

Here is what I learnt today after speaking to a gentleman from Texas! Mineral rights are a broad term that represents ownership of the minerals or oil under a given surface area of land and the rights to drill and remove them. Minerals, royalties and overriding royalties receive revenues from the production of oil and gas from a well without paying the drilling or monthly operating expenses from the well. The legal instrument through with oil and gas leases or royalty interests are conveyed is called an ‘assignment’.

The term “royalties” usually mean (i) mineral interests (ii) royalty interests or (iii) overriding royalty interests. The difference between these 3 :

(i & ii) Mineral and Royalty interest: The similarity between mineral interests and royalty interests is that both involve ownership of minerals under the ground. Both receive portions of the income from the production of oil and gas or from extraction of minerals. However, the difference is that the owner of a mineral interest also has the right to execute leases as well as collect bonus payments; whereas, the owner of royalty interests does not execute leases or collect bonus payments. A bonus is a cash consideration paid to a land owner or mineral owner on the execution of an oil, gas and mineral lease. Even though mineral and royalty owners receive income when the well is producing, only the mineral interest owner receives a bonus payment upfront

(iii) Overriding royalty interests; These interests do not constitute an ownership of minerals under the ground. Rather, it constitutes ownership of a portion of generated revenues from oil and gas production or from mineral extraction in which the ownership expires when the lease has been neglected due to termination of production. Overriding royalties are created from the working interest. Therefore, like mineral and royalty owners, overriding royalty owners also receives a portion of the income from the production of oil and gas. However, the difference is owners of overriding royalty own only proceeds from the production of minerals and not the minerals under the ground. Overriding royalty interest expires once the lease has expired and production has stopped, whereas, minerals and royalties owners maintain their ownership after production stops.

Determining the value of interests : To determine a fair sales price on the interest, a registered professional petroleum engineer or a mineral expert or small firms that consult performs an engineering and economic evaluation, such as analyzing historical production data, calculating production decline rates, and reviewing historical cash flows. The information is then used to forecast future well performance, calculate remaining oil and gas reserves, and predict future revenues. Interestingly, in certain cases, yearly payments are paid during primary term to the party who grants an oil, gas and mineral lease to delay drilling.

A person called ‘Land Man ‘ secures leases and handles damages for oil companies who are drilling new wells or laying pipelines or extracting minerals. This agent works with the ‘Land Owner’ who generally owns all or part of the minerals under his land and is entitled to lease the same. The land owner has a share in well proceeds attributable to net working interest.

Royalty cashflows vary in every month: Due to variations in volumes of oil and gas production as well as oil and gas prices, royalties fluctuate a lot. Also, over a period of time, most wells experience a decline in oil and gas production because there is only so much oil and gas that is recoverable by the well and minerals dry up. Therefore, as months pass, less oil and gas is produced which leads to a steady reduction in production as well as a decrease in the amount of monthly checks.

Partial list of countries visited…hmm need to update this

0

NORTH AMERICA • Canada • Mexico • United States CENTRAL AMERICA • Panama SOUTH AMERICA • Argentina • Brazil • Chile

CARIBBEAN  • Bahamas  

EUROPE & MEDITERRANEAN  • Austria • Belgium • Crete • Cyprus, Republic • England • France • Germany • Greece • Italy • Malta • Monaco • Montenegro • Netherlands • Spain • Switzerland • Turkey in Europe (Istanbul) • Vatican City • Wales

AFRICA • Egypt • Kenya • Morocco • Nigeria • South Africa • Tanzania (Tanganyika) • Uganda • Zanzibar

MIDDLE EAST • Abu Dhabi • Ajman • Bahrain • Dubai • Fujeirah • Jordan • Kuwait • Lebanon • Oman • Qatar • Ras Al Khaimah • Saudi Arabia • Sharjah • Umm Al Qaiwain  

INDIAN OCEAN  • Mauritius • Seychelles

ASIA • Hong Kong • India • Philippines • Singapore • Thailand

Business vs environment:my email

0

Sometime back someone wanted to know if she ought to support a bunch of guys/NGO blocking the development of a business….the factory would ‘harm the environment’. I dug this out as I delete all my old emails..rather than trash it I thought I’d put it up here..Atleast it will keep the momentum of maintaining a Blog going:)

My thoughts reproduced below (cut and paste from the email i sent her)
————

Hi

Since you wanted to hear a multiplicity of perspective on the issue of Business/vs Environment I thought I would take some time and put the issue in a larger context.Nowadays, NGOs have gained more power and legitimacy, and business increasingly has to answer to them as stakeholders.These groups have gained varying legitimacy status. Despite varying legitimacy, many of them wield enormous power. Power without legitimacy can constitute a dangerous situation.I will NOT be protesting against Sterlite to save the biodiversity hotspot in Orissa based on the information that I have and I have my reasons. Lemme explain where I am coming from and why I behave the way I do:

1. The traditional stockholder-oriented approach holds that the firm exists principally to maximize returns to owners.The role of business is economic. It is to create as much wealth as possible operating within the rules laid down by society. The unbridled exercise of power is constrained by Labor laws, commercial laws, comml.code, . When business tries to do MORE than that, when the accede to the demands of the crowd or the environmentalists in Orissa, they give legitimacy ot what amount of unlegislated ‘taxes’ are to be imposed on their shareholders and thus undermine their own legitimacy. This is often the path to poverty for a society

2. On the other hand, the stakeholder approach asserts that the firm is responsible to, and should be run for the benefit of, a number of constituencies, i.e. employees, environment, customers blah blah….At the heart of the stakeholder model is the principle that all persons must be respected. They are ends in themselves and not a means to an end.Unlike the stockholder model, which dictates that all actions and decisions must be taken with a view to owners’ interests, the stakeholder model offers few guidelines as to which stakeholder group gets priority.

3. It would help if practising managers like ourselves appraise stakeholders in terms of their power, their legitimacy, and their urgency. Placing a stakeholder in the right category offers a pointer on how that stakeholder should be treated. I’ll build on it:

Power: What is usually meant by power is that one party has the means to get its way, even in the face of resistance by others. power of all kinds can be temporary and easily lost- we have seen arrogant companies like Nike and others bow to stakeholder pressure. Its happeneing in India too in the case of cocal cola etc. Power may be latent. That is, it is not exercised. We managers should be aware of stakeholders who are quiescent until their interests are awakened,as in the case of environmentalists in Orissa

Legitimacy: A second way of classifying stakeholders is by their legitimacy. An obvious basis of legitimacy is that some relationship exists between the firm and the stakeholder, such as a contract, or the company may be significantly responsible for a stakeholder’s well being. The presence ofrisk also may invoke legitimacy claims.A moral claim also constitutes legitimacy. This means that the stakeholder ( the environmentalist here) can benefit or be harmed, or have rights upheld or violated by corporate actions.

Urgency: The third dimension in which to classify stakeholders is that of urgency.For example,setting up this plant will screw up the environment so badly that people wont be able to live there…

4. While each of these three dimensions can grab the attention of managers, in combinations, they are likely to be even more salient.Of course, there may be disagreement about the extent of the attributes possessed by various stakeholders.Managers over- or underestimate the extent of stakeholderattributes at their peril.A mishandled stakeholder problem situation can deteriorate into a crisis.

5. There are some who advocate that a ‘responsible’ approach to business or an ‘enlightened self interest’ requires a shift in the purpose of business from shareholders to all stakeholders. My position on the issue is that the only thing business is good at , is well suited at is that it can maximise the material weel being of a society. The striving of each company to maximise the present net present value takes Adam Smiths ‘invisible hand’ out of its pocket and puts it to work by best allocating a company’s resources. Now here is where the problem lies- maximising wealth for shareholders ( a very noble objective in itself) often conflicts with other stakeholders and in this case the environment.

6. Much of the time, the business case coincides with the stakeholder case when powerful, legitimate urgent stakeholders are involved. But there are many stakeholders with no power, and even if much of the business world admits the legitimacy of these stakeholders, it is unwilling to grant them attention and see their plight as an urgent matter. And that’s whats happening with these environmentalists in Orissa and they want to use us to enhance their power. I wont allow myself, as a rational guy, to be a pawn in their agenda.The ultimate purpose is advancing the human condition. I might agree that shareholder returns may be a means to that end, not the other way around. But I do not believe that blocking shareholder returns for the environment is a cause more ‘worthy’.

Thats why I wont be protesting )

On suicide

1

 – migrated from HTTP://MAD-WIND.BLOGSPOT.COM/THURSDAY, FEBRUARY 09, 2006

3 days ago a former classmate and a close friend committed suicide in S.America. She must have been in her late 30’s. This is naturally very troubling for me.

Given our natural instinct for self preservation it requires courage and premption to arrive and execute this decision. So it is not a frivolous light decision or cowardice or escapism as some people think of suicide. My take on this is -if it is influenced by deep mental illness and instability then we have as a society the right to interfere and stop some one from committing suicde but NOT if the person is perfectly sane.

It is quite difficult for me to look at suicide in a value neutral way without bringing in my own moral judgment of behavior. I am confused at arriving at these judgements for part of me approves of suicide given certain circumstances ; these circumstances can be both societal or/than personal.

Socieital ; For example if by living a person will harm society then it might be ok for that person to decide to terminate his life.

Personal: Another part of me (catalyzed by utilitarian, personal liberty and freedom and pro choice drivers) endorses in the moral sense suicide. After all if one decides for oneself that one’s own life is just not worth living one should be able to end it. When my religious beleifs come in the way and I think about ‘the sanctity of life’ and ‘thou shalt not kill’ I am tempted to question why certain types of killing are ok with God(in war/ to defend a just cause /self defence etc) and others such as suicide are not.

How can it be God’s decision when we should live or die for some things but not for other things?Also why has God given us free will if God don’t want us to act on it and follow His/Her/Its natural laws?

Groups

0

In any environment where you have groups of people you’d see a number of underlying cultural rules play out. These will include things like people helping each other, people being respectful of each other’s feelings, everyone supportive of each other’s views and mutual respect.

There is however another element of culture- Groupism. People will tend to form tight groups based on language and regional factors. This may have its origins for.example in language issues where everyone is not comfortable in the common language a group is assigned to use etc. In extreme cases these groups will more or less function as self contained eco systems and make very little effort to invite people in or reach out to others. I go to the extent of saying that they do injustice to others and themselves by excluding others and themselves from others.

Another thing is, if you notice carefully, is that all is not well even within these groups. There is a lot of discord and turmoil beneath the surface. But that’s the thing- it is beneath the surface. And it rarely reaches the surface. So outsiders tend to see these as homogenous groups and communities:)

Why? I think it is because people here are much more willing to refrain from asserting their individual rights in favor of maintaining harmony. The welfare of the group outweighs the welfare of the individual in most cases. I think that many times this is taken to an unreasonable extreme.

And this is something that I have seen everywhere. Perhaps this is part of human nature. This ‘small-group’ nature perhaps constitutes a natural base for racism and all ethnocentrism. But if we recognize it in ourselves we can easily educate ourselves to rise above our small-group nature in order not to become ethnocentric or racist. People need to widen their perspectives from their own self-centered world to one that includes the people around them. Those who do not miss a wonderful life where we could potentially extend our own learning frontiers and experiences .

About making decisions

8

All of us make decisions all the time. Some decisions are trivial and we make them ourselves, some that effect those beyond ourselves we make in consultation with our friends,family and colleagues and still others we let others make for us.
Decision making from a corporate “leader’s” perspective is a tough exercise for it impacts the workplace, shareholders and employees. Also her decisions are being closely scrutinized by many people . It is important that leaders spend more effort than others in arriving at ‘optimal’ decisions.

Having said that every decision from a particular vantage point will be suboptimal for it may not cater to a particular vested interest. It should be considered optimal if it seeks to advance the corporate charter without being too machiavellian (though some would disagree with me here)??.

Whatever the moralistic basis the mechanics of arriving at a decision is very important. It is important that a leader is not biased with his own gut feel or the initial inputs that he receives. Sometimes seeking for alternatives leads one to see things in a completely new perspective which may lead to a different decision. Therefore, in arriving at a decision that has company wide ramification it is important that we are not steeped completely in historical context. This inclination may distort objectivity in decision making. On the contrary good decisions are made when we go out of our way to seek newer options and alternatives, restate our original premises, back our decisions with quantitative data where possible and test our hypothesis.

Given the uncertain environment that surrounds business, the quick pace of change and the need to often make adjustments to synchronize with the external world a decision, when made, should never be carved in stone. It should have options for modification.

I have found that while an objective decision making process is certainly very important in itself, equally importantis participants to buy into the decision – for they are the ones who would ultimately live by or implement the decision. This at times meant tireless campaigning, one to one sessions with people and other attempts towards building trust and emotional commitment around the decision. I found also found that my personal traits( as others saw them subjectively) such as my character, style, past actions and behaviour materially affected the degree of buy in I got. It is my belief that clear unambiguous open support for the decision from most quarters contributed in substantial measure towards the effectiveness of implementation effectiveness of the decision.

US Israel Palestine;with Hamas in power

0

US Israel Palestine;with Hamas in power

This Blog has been migrated from  my other blogspot  server

How to create a more constructive US role in advancing Israeli-Palestinian peace?

What good is democracy if guys elect a Hamas? The same thing ahd happened when Hitler was elected..

Now that Sharon is out and likely to remain out and Hamas seems to be coming to power with their 76/132 win in palestine what can the current US Administration do to continue to advance the Israeli Palestenian issue and reduce anti american feelings.. By putting onself in the shoes of a ” hawkish “washington policy maker one can try to simulate the current thinking going forward. Here is a half baked attempt:)
Issues:
How to create a more constructive US role in advancing an Israeli-Palestinian peace settlement so as to remove Palestine as an anti American symbolism in the Islamic world. This engagement has to be balanced against the fragmentations in domestic Israeli politics now that Sharon is out as well as the US’s foreign policy objectives in the Middle East will change post Iraq.
Background:
Being seen as an honest broker through resolving in unbiased manner the Israeli Palestine conflict will improve our image in the Islamic world, reduce anti American sentiment that has been building up over the last 5 years and allow us to win regional influence on behalf of peace. This will strengthen American predominance in Middle East and set the stage for subsequent focus on greater democratization in GCC countries.
US National Interests:
Vital Interests: Repairing relationships with the Islamic world will enable us to continue the war on terror as Arab support for fight on terrorism, reducing threat from WMD (no body talks about it these days but to my mind the threat still exists – it is no apparition) would all be easier to achieve after Israeli-Palestinian peace. (High Threat)
Important Interests: a)Improve relationships with a portion of 1.3 B Muslim consumers (Low Threat) b)encouraging democracy and political reforms in Middle east (Medium Threat)
Objectives:
A two-state solution through negotiation, an end to Israeli occupation and enforceable security guarantees for Israel through:
– Palestinian terrorist infrastructure to be thoroughly dismantled and Hamas reformed.
– Israel to evacuate settlement outposts, freeze settlement activity and withdraw from reoccupied territory.
– Both sides to cease acts of provocation.
Discussions:
Given the historical failure of such well meaning intentions we need to be cognizance of Israeli and Palestinian skepticism. On the Israeli aspect we need to recognize the fragmentation of Israeli domestic politics where for the a) “No choice/national camp”; we need to weaken alliances and US support b) for the “Peace Camp”; we need to support Sharon’s past efforts through funding the development of modernizing programs, developing more secular values through reforming the education system, separation of religion and state, and integration of Jewish identity.
For the Hamas we need to encourage and incentives them to a) demonstrate peaceful coexistence with Israel b) it would not make sense to strengthen the new elected leadership and help em do their job . Arafat’s passing away has been a boon PBUH but this Hamas business is from the frying pan to the fire. c) enact a constitution assuring the rule of law, independent judiciary, and respect for human rights d) take steps to bring transparent and accountable governance. This is one of the most important issues methinks
Option 1: Let Israel and Palestine continue the current negotiation as well as phased Israeli withdrawal and US to a) provide a third party security environment for Palestine b) manage the other constituencies . By this I mean :
a) Set an international NATO /UN/Palestine Authorities led security force, post phased Israeli withdrawal, in the West Bank and Gaza for maintaining peace and building security and policing capacity through training and support. After 9-12 months devolve authority and responsibility to Palestine with a UN monitoring role. Having a peace background will allow for a climate of negotiation on final boundaries, build trust for an eventual settlement in 2 years time. Set an international panel to monitor and judge Israeli and Palestine pre agreed milestones during interim period
b) Hold both Palestine govt. and Israel accountable for violations . No further Israeli support for expanding settlements. Send strong message to Syria and Iran that support for Hamas and terrorist nations will not be acceptable. Negotiate with Palestine that not all refugees can return to Israel for that will destabilize the demographics.
Pros: Provide a peaceful environment for negotiations to process and trust building
Cons: a) Fighting peace disruptors will be seen as fighting Palestinians and alienate Muslims b) Fighting/subduing settlers /casualties will be very unpopular in Israel c) Israel may not trust its defense to outsiders d)Israel and Palestine, left to themselves, will probably not be able to achieve peace
Option 2: Assist to create new Palestine leadership going forward if the current leadership falters and fails to marginalize radicals or fails to engage and win Israeli trust through successful action. After this is done make efforts to renew the peace process Alienate radicals, put pressure to reduce Palestine support for militant factions ( problem is Hamas itself is the Palestine Authority now) and marginalize radicals in 1 year’s time. Reform Palestine govt and build credible institutions and continue negotiations after this is done. Explicit monitoring for curbing Israeli excesses and Palestine terrorism in the interim period.
Pros: a) Will be better for Palestine for the long term. b) Israel will be more open and trusting and may give larger concessions c) Has potential to break stalemate of last decade
Cons: a) Will be seen as destabilizing and interfering in Palestine in the Islamic press b) No guarantees c) No guarantees that radical elements will not come to power and this has the risk to take the peace process back many years
Recommendation:
Take option 1 while setting the stage for some elements of option 2 as described below in the implementation plan.
Implementation:
a) Press to set up a UN/NATO led police force with an explicit mandate to maintain law and order in West Bank, Gaza and other pre-agreed territories.
b) Influence outcome of negotiation by instilling need for making concessions in key areas:
(1) Palestine Authority to recognize that all of east Jerusalem as part of the new Palestine may not be a viable
(2) Transfer of 90% territory from West Bank, Gaza to Palestine Authority and putting pressure on Israel to compensate for territory withheld /make alternate arrangements, dismantle settlements
(3) Pressure on Palestine Authority that pre 1948 immigrant return would be unacceptable and seek a common date between 1948-1967
(4) Reiterate 2 state solution through negotiation
c) president/condi to announce in speech the implementation plan
d) Make available funds for the Appropriations Committee for refugee and migration needs. Work closely with United Nations High Commissioner for Refugees, the United Nations Relief and Works Agency for Palestine Refugees in the Near East, the International Organization for Migration, and the International Committee of the Red Cross, as well as nongovernmental organizations.
e) Make available funds to develop institutions, further legal reforms in the West Bank and Gaza
f) Issue of Jerusalem to be resolved through negotiations
g) Continue US support
Sticks: Exports from Israeli settlements should not be treated as originating from Israel for congessional support. Further aid to Palestine to be tied to it making the phased transition from a liberation movement to a government that now exists. Strengthen the Palestinian Legislative Council’s role in matters of aid deployment.
Carrots: Provide funding to alleviate the humanitarian crisis, and thus reduce the appeal of extremist groups
This could be one set of ways to look at issues as they stand today- atleast as they are reported in the popular media. But none of these will work IF HAMAS comes to form a coalition government..Jeez whtat a mess!!

Solving social security shortfall ;migrated from Blogspot

0

I am going to solve this social security shortfall problem today.

Yawwwwwwn….. 2006 is almost here and I am going to solve this social security shortfall problem today. The more I read about this social security shortfall issue the more confused i seem it get. Why do they have to make it so complicated?
My way of looking at it is that we can be solve this problem using a) Benefits Reduction or b) Revenue Increases or c) a mix of the two approaches complemented by an increase in d) Investment Income.
a) Benefits reduction: Since life expectancy is increasing and people are living healtheir lives it would make sense to increase the retirement age to 67-68.It also makes sense to reduce the cost of living adjustment. Future retirees must not take their benefits for a given. This will be politically difficult to achieve of course but a small cut of 5% will set the stage for future generations to make it more palatable. This who already enjoy a high income say > 65,000$ ought to be able to share the burden of those below poverty line. By increasing wages subject to social security tax we can have the rich subsidize the very poor. So we can 1) Accelerate increase in retirement age to 67 and index thereafter. 2) Reduce cost-of-living adjustment by say 1 or 1/2 percentage points. 3 ) Reduce benefits by 5-10% for future retirees. 4) Reduce benefits for those whose total retirement income exceeds $65,000 per year. I’ve pulled out these magic numbers from my hat:)
The other way is by Revenue Increases
b) Revenue Increases: By raising payroll taxes by a modest 1/2 percentage one can contribute in a large way to the long term problem of deficit. By eliminating the cap on wages subject to Social Security tax for example . So we can 1) do the above AND 2) Raise payroll tax on workers and employers by 1/2 percentage points each 2) Increase wages subject to Social Security tax 3) Tax Social Security benefits like pension benefits
In reality the issues will have to be addressed taking political consideration , government will as well as a mix of benefits reduction, revenue increase and investment income gains through better asset allocation with defined risk adjusted return characteristics that are palatable. Thats where it gets messy..sighhh

Culture as an element of organization change

0

I have found the aspects related to understanding and bringing about cultural change initiatives as a very important part in creating systemic change in a company. I think that rational strategic design programs can often fail because of an unappreciated understanding of underlying culture .Also political processes in a company evolve in response to or to make ‘capital’ of a company’s culture.

Without understanding the cultural issues many sensible programs such as those related to structural changes, TQM, re-engineering etc can easily be subverted. I recognize the potential causal role of culture in the success or failure of organization change and am for developing strategies and approaches for examining and redesigning cultural systems as an integrated aspect of change management. When we think of “culture” we intuitively know what we are talking about but it becomes very difficult to capture and define. After taking this course I can look at ‘culture’ more meaningfully and can attempt to deconstruct it to it artifacts, office layout, “who comes at what time to office and who rolls his sleeves” , rituals, stuff that I instinctively sense ,power equations, values, and behaviors coming together in a coherent holistic whole. Perhaps this complete view can be a starting point for me to look at culture.

I believe, say for example, that while some companies celebrate individual contribution to an extreme ,however good one is as an individual it is important for companies to develop teamwork and team effectiveness. Now culture is what can make this possible. Cultural interventions through rewarding group productivity, Not celebrating the individual hero etc can over a period of time create an environment where teams flourish. I have seen scores of cases where individual actions, while very sensible, are often incongruent with company values. This always created problems for the individual and the organization too lost out by not absorbing the individual’s contribution. By purposefully aligning individual values with company values (as captured in its culture) I feel one can create greater workplace/employee value. I am not sure if I can extend this argument to shareholders and customers too but I suppose a company’s culture does impact those dimensions too- perhaps in subtler ways.

When I take a walk down memory lane I can recollect many many instances when I did not understand the important underlying role that culture was playing. I blamed so many outcomes on “others”, the “system” etc. My lack of understanding was expensive.

A deeper recognition of culture can reveal mental models that are largely hidden from awareness, and usefully channel them to solving daily operational as well as more important issues.

I am a convert. Initially the rational side of me shouted ‘strategic design!’ I now recognize that once the issue of culture is addressed one needs to, with equal empathy, explore and reconcile political factors and strategic design.

After all, dosen’t the Truth lie somewhere in between?

Scratch Pad: Quick thoughts on constructing Private Equity Portfolios

0

  

 

1. Break up Private Equity into; Venture Capital and Corporate Finance 

VC: Early, late, growth capital staged; subdivided, for example into healthcare / life sciences, information technology and communications. 

Corporate Finance : (i) Buyouts ( Lower, Middle Market, Large/Mega) (ii) Special Opportunities ( Distressed, Bridge, Mezz etc);subdivided sector specific 

2. Break up real estate into core, value add, opportunistic.  

Private Equity (without real estate) 

1 – Allocation size and cash flow and commitment modeling and number of GP commitments 

2. Achieving concentrated positions or and diversification decisions 

Overall considerations to be determined from analyzing past data  

– Weak/ negative correlation between returns from different stages of venture equity.  

– Geography diversification : inadequate basis in analytical data to arrive at meaningful measures of country-specific, regional and pan-regional global, Israeli, Latin American, Indian and Asian funds.  

-Manager selection issues 

– Vintage year has had impact in the past on performance but these days this is less so as exit opportunities are over longer periods. Capital is more patient. One can still compare intra vintage funds but not to read too much into that. Best to $ cost average/ invest consistently through vintage years, as opposed to predictive market timing. 

-Portfolio exposure and execution issues ; Cash flow planning, capital commitment, timing, manager identification, pipeline 

-Manage cashflows, J curve, drawdown obligations, manage redistribution considerations 

– Fund of Funds, Secondary interests as useful complements to portfolio building

corporate governance thoughts

0

A good Corporate Governance form must provide empowerment to the executive management of a company, and simultaneously create a mechanism of checks and balances . This ensures that the decision making powers vested in the executive management is not misused and fosters greater responsibility to meet stakeholder aspirations and societal expectations.

Flowing from this philosophy and core principles, Corporate Governance in a large company or a conglomerate can take place at three interlinked levels:
-Strategic supervision by the Board of Directors
-Strategic management by the Corporate Management Committee
-Executive managment by the Divisional Chief Executive assisted by the Divisional Management Committee

A company must have the right balance between freedom of management and accountability to shareholders. this can be achieved by segregating strategic supervision from strategic and executive management. The Board of Directors as trustees of the shareholders exercise strategic supervision through strategic direction and control, and seek accountability for effective strategic management from the Corporate Management Committee. The CMC has the freedom, within Board approved direction and framework, to focus its attention and energies on the strategic management of the Company. Divisional Chief Executives, assisted by the Divisional Management Committee, have adequate freedom to focus on the executive management of the divisional business.

a 3-tier governance structure thus ensures that :
(a) Strategic supervision (on behalf of the shareholders), being free from involvement in the task of strategic management of the Company, can be conducted by the Board with objectivity, thereby sharpening accountability of management.

(b) Strategic management of the Company, uncluttered by the day-to-day tasks of executive management, remains focused and energised; and

(c) Executive management of the divisional business, free from collective strategic responsibilities gets focused on enhancing the quality, efficiency and effectiveness of its business

Issues in Corporate Governance that would be useful for me to investigate this year

– Practical considerations in setting up effective governance structures. Stuff like how many people should be on the board, ‘ideal composition’, how many external vs internal directors etc. These are issues that all of us take as a given but don’t really delve into
-topical news issues that ican easily read about in magazine articles. Need to keep an eye out

-How can executives make the transition from management to becoming Board Members….

Civilian Immunity in War

0

  

This is taken from an old course I took and reproduced verbatim for it is very very sensible stuff from course description: These are not my own thoughts but I have been very influenced.

There are three ways of judging the decision to drop the atomic bombs on Hiroshima and Nagasaki 

i) justified, given the need to end the war swiftly and with as few casualties as possible 

ii)unjustified, given the circumstances, particularly the availability of alternatives. This corresponds to the just war theory requirement of “last resort”.   

iii) unjustified, because it is always wrong deliberately to kill civilians .  This corresponds to the just war theory requirement of non-combatant immunity. 

 

Position (i) is consequentialist, while position (iii) is deontological and absolutist.  Position (ii) allows for the possibility that the decision to drop the bombs could have been justified under different circumstances, again on consequential reasoning. 

Walzer argues in his book Just and Unjust Wars that the bombing of Hiroshima and Nagasaki was wrong because there were alternatives available, but that there would be extreme situations in which it might be justifiable to kill innocent civilians in order to avert an enormous catastrophe.  He suggests that at least some Allied bombing of German cities was justifiable on this morality of “supreme emergency”.  Walzer does not however, countenance civilian deaths in order to hasten victory – only to prevent “immeasurable evil” such as a Nazi victory.  Walzer’s argument here is primarily deontological, but he reserves consequentialism for extreme situations. 

Elizabeth Anscombe takes a stricter view of non-combatant immunity and argues that killing the innocent as a means to an end is always murder, although accidental, or even foreseen but unwanted, killing of civilians in aiming at legitimate military targets is justifiable (this is the doctrine of double effect).  Anscombe relates the principle of non-combatant immunity to the initial justification of the use of force by the state – to protect its citizens or other innocents from attack, or other danger.  If this is the basis for legitimate warfare, Anscombe argues, acts that are inconsistent with the protection of innocent life cannot be justified.  Note that this argument relies on a cosmopolitan conception of morality – the lives of a state’s own citizens are not more important than the lives of other civilians.   

Anscombe takes innocence to be the opposite of “harmful” rather than “blameworthy”.  On this basis she justifies the distinction between civilians, who might support an unjust war, and soldiers, who may have been unwillingly conscripted into the army and may oppose the war in principle.  Is this distinction tenable?  Is Anscombe’s absolutism convincing – think of the really hard cases – Walzer’s supreme emergencies.  Is the distinction, if any, between these cases just a matter of numbers? 

Is Anscombe’s position ultimately dependent for moral attractiveness on a belief in divine providence – so that humans only have to do what is right and God will take care of the future?  Rejection of this idea of providence was a central element in Machiavelli’s realism………… 

my op-ed on freedom of press in singapore

0

The International Herald Tribune is facing a dilemma with regards its avowed adherence to western principles of freedom of the press and the prevailing policy environment of ‘constructive’ media role. How it reconciles conflicting claims from these realities in Singapore will be a product of state constraints, constraints imposed by its ownership, and market constraints. Yet media is after all, primarily a business. It has to think about the bottom-line figure in its balance sheets and operating statements. But IHT can yet make a stand for press freedom in the interest of Singapore’s current drive to position itself as ‘media and art’s hub in Asia’. There is virtual monopoly by two media companies, one owning all newspapers (Singapore Press Holdings that owns Strait Times and Business Times) and another owning all television channels.  IHT in its reaction and its attempts to employ non market strategy needs to take this into account.In Singapore, a free-speech corner has been provided by government. And yet it remains largely unused. For one thing, there is a ban on the use of microphones and music; and secondly, speakers have to have their topics officially approved first. The freedom of speech and expression, taken for granted in the West as a basic civil and political rights enshrined in the Universal Declaration of Human Rights, are subject to restrictions in this nation-state because, as the Minister for Information, Communication and the Arts points out, there are ‘peculiar sensitivities’ due to Singapore’s history and heritage and there is need ‘to protect certain key values’ such as survival and progress. This differing view on the right to speech carries over to the matter of the freedom of the press and of broader media.Recent pronouncements by Singapore’s Censorship Review Committee echo Prime Minister Goh Chok Tong’s conception of media’s role in society as being ‘constructive’ rather than ‘adversarial’ in nature.  Local media is seen as having a unique nation-building role’ in the multi-racial and multi-religious nation-state and that there was ‘need to have a deep sense of responsibility and commitment’.  And by communicating government message across to people, it is claimed, support has been mustered for policies that brought progress and prosperity since its independence in 1965. And true enough, Singapore’s per capita GDP today stands higher than some western European countries.That Singapore’s’ architects of an engineered society recognized the importance of media early on as a major social institution and used it without compunction to set in motion a different idea of how society works, are exactly the same reasons why, today, this emasculated institution does not have the sustained capacity to contribute and respond .Upon examination, the related freedoms referred to here are of two parts: the first part being the right to impart information, to hold and express opinions without interference; the second part to seek, and receive information and ideas through any media and regardless of frontiers. Mills’ instrumental justification of the freedom of speech focuses on the interests of the audience receiving the messages. And it is Mill’s contention that this is to society’s benefit in the longer term because people, made aware of all possible arguments, will fully value the truth — which will tend to emerge from contending outlooks on an issue. But more importantly, in terms of governance, this will result in an informed citizenry, encourage debate and participation and enrich the quality of democracy. For these reasons, Mill would most probably be in favor of a press divided along partisan political lines. By giving voice to a democratically elected opposition party, a more open Singaporean Press will help in discovering and shaping alternatives and keep the government on its toes.It does not follow that an adversarial process should end in total discord and disarray. Truth, or conformity with fact and reality, imbues stronger mandate to building consensus (Tong’s view of the role of the press) than half-truths and propaganda. But in allowing for this process, we need to see things in the political context of Singapore and recognize the historical fragile nature of the city-state. Now that it is a stable prosperous country, going forward, Singaporean society will benefit from a moderately adversarial press in the future.  The reason why I say ‘moderately adversarial’ is that granted that the current Singaporean government is not wholly totalitarian (the Internal Security Act was used for the last 20 to 30 years against the ruling party’s opponents elected to the Parliament and to crack down on democratic activists who wanted to see more freedom and human rights take place in Singapore) there is always a danger of a future regime, which may act differently. The press would have an important role in countering totalitarianism. The press means many different things to me. It is not one holistic category. There is the responsible press, the yellow journalists, the paparazzi et al. They all have a part to play whether utilitarian or not. Indeed they exist when they have an audience else the free market system would not allow them to. And where does one draw the line again- in Dr. Zhivago, the movie, poetry was typified as a bourgeois indulgence and frowned upon for instance. For those espousing communist values it seemed to be a perfectly legitimate reaction. Not all people in Singapore similarly share the govt.’s perception or the majority values. Surely they deserve their say too. A free press allows their views to find voice and contribute to the development of quality public debate. Else with stifling of the minority voice Singapore would be so much the poorer. Media may be gossipy, sensationalist and may purvey nonsense but it is a personal right to decide for one what opinions to convey to and receive from others. The dangers of govt. influencing public opinion through sanctioning the press are too great. Influence and authority are very different things.  

Singaporean government is of the view that the press (and other media) shapes perceptions in society and because of the nation-building project, it makes it legitimate for them to seek to influence how the press, media and the performing arts do (or not do) this. To date publishing permits have to be renewed annually. Sexual content and scenes showing drug use are routinely removed from films shown in Singapore. Indeed, Information Minister Lee Boon Yang was quoted as saying “Singapore would not modify its rules to appease a vocal minority.” But these tight controls have somehow boomeranged such that a government-appointed committee has recommended half a year ago that “strict rules on censorship, public meetings and the arts are relaxed…to promote a more creative and innovative society and culture…” The order of the global challenge is to find a new balance that ‘does not stifle creativity’.  

Yet this lighter stance towards media is less of a response to the clamor for more freedom of expression as a civil-political right than to economic imperatives. Singapore is looking to increasing ICT contribution to GDP from 7 to 12 % in 10 years. But its reputation for a tightly controlled media has prevented the ICT industries from developing as rapidly as they should and has been discouraging content creators to base operations in Singapore. 

Government is not something faceless and abstract. It is made up of politicians and bureaucrats who are as mortal, who harbor opinions and prejudices as anyone else. It is for the press to explore, probe and agree or disagree in its editorial page with policy. This will allow people to form their own opinions. It is for government to influence those opinions but it is not for government to tell people what their opinions ‘ought’ to be in the first place.  

Both the readers of Straits Times as well as the government have the right to express their opinion in a civilized democratic manner. Issues are played out in the Parliament and in society. Contrary to Mr. Goh Tong’s submission I feel that democratically elected politicians do not have exclusive preserve on what people should want and neither does the press. In any vibrant democracy the press and the government and public opinion should be formed dynamically. However, the dangers of government influencing public opinion through sanctioning the press and other forms of media are too great. Influence and control are very different things.  

I can empathize with Mr. Tong in some measure for in most things in life there are natural boundaries and limits. We can only agree with him in that the press should not harm innocent people, undermine the moral authority of leaders, or damage regard for institutions. And in this context where is the frontier? Absolute rights of expression, while at the heart of freedom do not contribute to making the task of running a nation state easier. The government needs to strike the right balance to do justice to very different constituencies. And its stance on an issue will always be suboptimal from a certain vantage point.  

How free a press should be ought to be a function of the state of literacy in a country. The Singaporean press should be held accountable for misstating facts. There is little to be said for accountability of opinion. Indeed one should not be held ‘accountable’ for opinion. I would opine that a society that is highly literate would be able to tolerate greater levels of dissent in opinion and contradictory view points. Perhaps that is why the Western press is more open and free without any obvious bad consequences. There is considerable merit in Mr. Tong’s appeal to the press to help shape consensus politics given Confucius values in Singapore. Having said this there is also a danger. Even Confucian moral authority can never be forever sacred. People and institutions who exercise authority can run amuck. It is in those times that the press serves as vox populi.  

my own learning style

0

My assimilative learning style has been shaped by a number of factors. In a certain sense I am a product of my circumstances. In part because I am not an extrovert I tend to be more reflective. Also my academic training in engineering and the Asian manner of imparting education, my profession etc. have shaped my learning style. This learning style has stood me well in life and I have thus practiced it repeatedly further adopting it.

Also I am quite self directed, and tend to focus on relevant issues and goals and my accumulated life experience gravitates me to respond to issues in a manner that I have gotten used to.

Having taken inventory of my personal learning style last week I have come to the conclusion that I learn best when it comes to problem solving, classifying and categorizing information, working with abstract concepts to figure out relationships, performing mathematical calculations and quantitative analysis etc. This depth in abstract conceptualization has stood me well in life both academically and in my working life. However given the fast pace of business and the need to execute quickly on ideas I realize that I need to develop my accommodative skills and working collaboratively with people and learn from their perspectives and experiences. They say a wise man learn from his neighbors mistakes! Another problem I have faced with this learning style is that because I did not actively solicit feedback I may have repeated mistakes which someone else could have cautioned me about.

I also learn fast when it comes to reflecting on my own concrete experiences. I use this facet more in real life or professional situations.

I am beginning to feel that I can broaden my learning style simply by reflecting on what others talk about and by watching the behavior of my colleagues. I have not found any ‘role models’ here in the strict sense of the word but increasingly realize that there is much in every individual that I can benefit from.

I think that while this assimilative quality is good in problem solving I can benefit more by consciously inculcating attributes that can help me to think out of the box and move to the divergent space. Through innovation and creativity I would be able to distinguish myself from the many other people who excel in problem solving but think conventionally. I also see considerable merit in concrete experimenting in a safe environment such as here or with close friends- if only to see how much that affects my personal learning style.

I hope to use the recent learning style inventory concepts to improve and broaden my learning skills , establish learning strategies , set measurable learning goals within realistic time frames and once again take this test to see if there has been a change at the end of the program. Having said that I also feel that I will prefer and rely on my existing style over others for it is something that I am used to, it serves me well and on that I am most comfortable with.

movie review: The Man who would be King

0

The Man who would be King

Authority is what people bestow upon one for they believe that the person on whom it is bestowed will act in their interests. The people therefore also therefore reserve the right to take it away, unless the authority figure retains it by force (the 20 rifle men in the film). Authority is also given by tradition (where husbands had authority over their wives and traded their services in the movie) and religious sanction as was in the case of the holy monk in the film. Authority is not power always and it is certainly not to be confused with leadership (the husband’s had authority but did not necessarily provide leadership).

 

Sean Connery is given authority over the people of Kabristan and the incumbent king is deposed when he builds credibility by leading them to success in war. He is given further authority when he is perceived as Alexander’s son, a God. He made the mistake of being seduced to become a God rather than continue deriving his authority from being mortal and a strong military leader. I am not sure if the holy monks had formal authority sanctioned by religion or custom (the film was not clear) which supercede political or military authority or just spiritual informal authority. The fact that they did have more authority than Sean Connery is very clear as we see in the scene that all armies postulate to them and postpone the battle until they have passed.

 Often the authority that people provide to their leaders can be quite large (but not limitless) for a certain period of time. Sean had the authority to do what he wished with the holy treasures, settle disputes, and dispense justice which allowed him to exercise leadership in ameliorating the conditions of the people. However when he overstepped his authority by challenging the traditions and customs of the people by wanting to marry a mortal he started pushing the limits of his sanctioned authority. He began alienating the priests and in doing so was setting the stage for them to take away his authority. Even in Gods there is a hierarchy (‘let Imbra decide’ the priests said).  The seasonal famines that struck Kabristan were seen as a portent that Imbra disapproved. He could have used his authority to make the transition to becoming a good leader not a God. He was seduced by a sense of destiny, his own sense of infallibility which let to his doom.

movie review: One woman one vote

1

The challenges in partnering are to realize that it is important to understand what the other person’s vested interest is and to what extent it coincides with one’s own. In this movie Elizabeth Stanton met Susan and they set up a very effective partnership united to fulfill a common cause. We must not see partners as ‘loyal’ or ‘disloyal’ for we saw in the movie that after 20 years Lucy Stone split with the group and led her own movement around the same theme. We can find partners by reaching out to other people- If we expect partners to come on their own it may not quite happen. As the suffrage movement spread people like Alice (in Colorado) rallied around an idea whose time had come and carried on the good work of the initial suffragists. It also brings home the point that one can often creatively collaborate with other’s who are not similar to us

Say in the movie the white suffragists could have collaborated with their Afro American sisters but they chose not to do so for they had their own agendas in mind. One of the dangers, as we saw in Antonym’s case when she wrote the woman’s bible and was ostracized, no partnering is permanent. When we seek to partner we must be ready for pleasant surprises as well as disappointments when partnering interests diverge. We saw that the movement split in the civil war as the group was learning to move politically through American society. In partnering and in coalition politics, compromises are often made – here black women were ‘sacrificed’. In any case the broader lesson is partnering keeps a cause alive. Many things are too large; require too much effort to change beyond the capability of a single person- Partnering makes the work achievable.

I think that the fact that the women partnered and symbolically demonstrated solidarity was a very powerful way to highlight a cause. It also brought home the point that even within the common constituency there are multiple factions- older women and younger women, colored vs. whites etc. They may have their own differences even though they face the common adaptive work of making their voice heard on the gender issue. This is much like in the movie. It mirrored some of the things in the movie such as when a woman from that new group would upstage a ‘male chauvinist, much like Alice upstages the President in the movie.

I also think that once the women in the class succeeded, as they have, in sending a strong signal of their intentions through symbolically coalescing together they should keep the work alive by including other liberal men, older women etc.- otherwise this issue too would be just another passing issue like stem cells, racism, gay rights et al . It takes time to change deep rooted assumptions and the attitudinal shift is unlikely to happen overnight. Hopefully all of us are in some way influenced (I certainly am) to uphold the issue, make the small changes we need to make in ourselves and in some ways become ambassadors for the cause in our interactions with other men.

People are inspired to move and act not so much by logic but by emotions- an emotional outburst may be a  rallying cry for other women .I think that partnering is key to influencing issues.

Movie review:Rising Above: Women of Vietnam”

0

I quite liked this movie. 

In Kim Lai’s case the stereotypical role of a young girl was called to question when the media built her into an icon of one capturing an American soldier (Robinson). In Tung’s case the picture of her confidently smiling and making mockery of a repressive regime called to question the stereotype of an obedient Vietnamese woman. Since Vietnam worships patriotism people who are seen as patriotic and who don’t disgrace their family and community are given authority and leadership status. In Tung Dinh’s case she played the stereotypical role of a woman providing motherly love to soldiers and is given authority because of her success in mobilizing a woman’s army and fighting a psychological warfare battle.  

All 4 icons impressed me foe they all exerted leadership. Some did it at greater personal cost to themselves and many would see that as more ‘virtuous’. Kim Lai married a man to save his life and that was ‘heroic’ even though leadership is not about heroics per se. Auntie Ba used tremendous personal strength to mobilize others and affect change- she was able to do that and one should not have expected the same from Tung (who was ready to sacrifice herself by extending her punishment term to 20 years) in order to prove a point. Dr. Hue relinquished her high position and went back to caring for patients and the sick. Whilst one would be tempted to say that Auntie Ba may have influenced the course of war more than any other people it does not diminish my impression and respect for the other 3. 
Vietnam gained political independence at a very high price but it has yet to gain economic independence. The leadership challenge is to address the issue of the market economy superimposed on a socialist infrastructure. Since the new generation does not appreciate enough the price that the previous generation has paid to win their freedom they tend to be allured with money and power. I imagine that the leadership faces the challenge of bringing awareness and appreciation of the post independence issues and having people confront them. And more importantly women need to be less self censoring  

The contribution of women to Vietnamese society needs to be highlighted. This contribution is more than that of a mother or a spouse. As we see in the film women in Vietnam have contributed to the freedom struggle and fought alongside men and paid a huge personal price. Women need to themselves foster their sense of dignity and strengthen their identity. This will be easier said than done in the absence of economic opportunities that both entrepreneurial endeavor and government assistance can create. Vietnamese policy makers can take cue from development initiatives proposed by UN, other successful examples to give women their dignified place in Vietnamese Society.

Jamaica and IMF

0

Problems:

1)      current account deficit 2) fiscal account deficit 3) debt ratio 4) slow GDP growth.

 Advantages of IMF intervention:

·         IMF’s  approval of
Jamaica  will have a positive impact on credit rating and thus lower the costs for international debt financing. Since Jamaican economy is export dependent a flexible exchange rate system could have a positive impact .The current difficult fiscal situation will depreciate the Jamaican Dollar more and makes exports competitive. IMF could help
Jamaica to find and maintain its target money base growth to adjust to some of the inflation that
Jamaica will import with a devaluation of its currency. The devaluation of its currency through free floating will make imported goods more expensive and therefore increase inflation. The IMF itself also softened its position towards the
Jamaica and acknowledges certain improvements. IMF will also bring valuable technical expertise especially in handling privatization of 133 companies.

 

 

On the other side: 

Since
Jamaica imports basic inelastic demand goods the currency depreciation might hurt the country initially, especially the poorer people and could lead to increasing political and social unrest. Offsetting of the FINSAC debts could lead to job cuts in the financial sector and therefore increase the vulnerability of the ruling government. The disagreement is on how fast the  fiscal adjustment must take place. Since the political economy may not be prepared  it can lead to economic instability
 


Jamaica is targeting a fixed exchange rate, especially towards the USD . In a fixed exchange rate environment, a reduction in money supply through monetary policy to reduce liquidity and therefore decrease inflation will result in a shift of the LM curve to the left along the IS curve . 
Jamaica has a small money multiplier. Also people hold considerable amounts of money in cash and keep it out of the money multiplication. The central bank can conduct open market transactions. This change does not effect real income inherent in the IS schedule, it only affects the real money balances. This shift to the left would increase the local interest rates in
Jamaica,  and might contract the GDP. However, the increased interest rate environment would attract investors, who seek investments in a higher interest rate environment. This money inflow will result in a balance of payment surplus that puts upward pressure on the Jamaican Dollar. Thus, we have successfully maintained a lower inflation rate, but on the cost of our domestic production.
 

Since
Jamaica is also maintaining a fixed exchange rate we already saw an increased interest of foreign investors and a resulting upward pressure on the currency. If the Jamaican central bank wants to maintain the target nominal exchange rate, this effect will make to increase money base again by reversing the transactions before. The increased money supply will shift the LM curve back to the right along the IS curve .
Jamaica will find itself back at more or less its initial level. This policy does not have any impact at all since it had to be reversed in the fixed exchange rate system. Therefore the changes in output, interest rate and current account were only temporary.
 



Y2

R2
R1=R*
A
B
I r
Inccom
Y1 = Y3 

IS
C
BP

 

 

A slowdown in
US economy will initially have a negative impact on
Jamaica’s exports as it imports Jamaican products which will result in contraction of the IS curve. However, to maintain the exchange rate,
Jamaica central bank needs to reduce LM to stay in equilibrium Also in repose
US will reduce its interest rate targets and
Jamaica can be seen as a price-taker on the interest rate market. Reduced interest rates in
USA will make
Jamaica more attractive for foreign investors since it still maintains its relatively higher interest rate level. This would result in increased investments from the
US mainly, which will result in a shift towards a positive balance of payment in
Jamaica. However, this positive development will result in upward pressure on the Jamaican dollar and will therefore push the nominal exchange rate. This will lead to a shift of the LM curve to the right along the IS curve.
 

 


Y1

R2=R2*
R1=R*
B
A
Interest rates
Income
Y2
IS
R3=R3*
C
Y3
IS’

We can address the Jamaican current account deficit in the long run by pursuing policies that help in shifting the domestic savings schedule . This will reduce current account deficit . One plausible method of shifting the savings schedule rightwards is by devaluing the currency. Currency devaluation would drive up the exports and reduce the imports. Since NX = X- IM is a very important component of total savings a +ve NX will shift the saving schedule right.  

 

A reduction in government spending would bring
Jamaica current account surplus and fiscal surplus.
 

It can be argued that govt. can switch to a floating exchange rate mechanism, which would finally result in a depreciation of the Jamaican Dollar. If this is too much of a change, it could at least swap to a crawling peg, which would depreciate the Jamaican Dollar at least according its excess inflation rate towards the . As argued earlier a devaluated Jamaican Dollar would have a positive impact on the export prices of Jamaican goods on the world market

more constructive US role in advancing an Israeli-Palestinian peace settlement

0

Issues:How to create a more constructive US role in advancing an Israeli-Palestinian peace settlement so as to mitigate anti American sentiment in the Islamic world. This engagement must be balanced against  fragmentations in domestic Israeli politics as well as  US foreign policy objectives in the Middle East.  Background:Being seen as an honest broker through resolving in an unbiased manner the Israeli Palestine conflict will improve our image in the Islamic world, reduce anti American sentiment that has been building for the last 5 years and allow us to win regional influence on behalf of peace. This will strengthen American predominance in Middle East and set the stage for subsequent focus on greater democratization in GCC countries.US National Interests:Vital:

  • Repairing relationships with the Islamic world to enable us to continue the war on terror
  • Reducing threat from WMD would all be easier to achieve after Israeli-Palestinian peace. (High Threat)

Important:

  • Improve relationships with a portion of 1.3 B Muslim consumers (Low Threat)
  • Encouraging democracy and political reforms in Middle east (Medium Threat)

Objectives:A two-state solution through negotiation, an end to Israeli occupation and enforceable security guarantees for Israel through:– Palestinian terrorist infrastructure to be thoroughly dismantled and Palestinean Authority reformed.– Israel to evacuate settlement outposts, freeze settlement activity and withdraw from reoccupied territory.– Both sides to cease acts of provocation. Discussions:

Given the historical failure of past conflict resolution initiatives we need to be cognizance of Israeli and Palestinian skepticism. Israeli domestic politics is fragmented between:
 a) “No choice/national camp”; towards whom we need to weaken alliances and US support
 b) “Peace Camp”; towards whom we need to support Sharon’s efforts through funding the development of modernizing programs, developing more secular values through reforming the education system, separation of religion and state, and integration of Jewish identity. Given the popularity of the current government this will strengthen support for the US led imitative.
  

For the Palestinian Authority we need to encourage and incentives them to:
 a) demonstrate peaceful coexistence with Israel by taking stronger measures to counter terrorism from splinter groups
 b) elect new leadership through a democratic process
 c) enact a constitution assuring the rule of law, independent judiciary, and respect for human rights d) take steps to bring transparent and accountable governance.
  

Option 1: Provide international security umbrella for negotiationsLet Israel and Palestine continue the current negotiation as well as phased Israeli withdrawal where we a) provide a third party security environment for Palestine Authority to functionb) manage disparate constituencies as described below a) Set an international NATO /UN/Palestine Authority led security force, post phased Israeli withdrawal, in the West Bank and Gaza for maintaining peace and building security and policing capacity in the Palestine Authority through training and support. After 9-12 months devolve authority and responsibility to Palestine Authority with a UN monitoring role. Having a peace background will allow for a climate of negotiation on final boundaries, build trust for an eventual settlement in 2 years time. Set an international panel to monitor and judge Israeli and Palestine Authority pre agreed milestones during interim periodb) Hold both Palestine Authority and Israel accountable for violations with clear. No further Israeli support for expanding settlements. Send strong message to Syria and Iran that support for Hamas and terrorist nations will not be acceptable. Negotiate with Palestine Authority that not all refugees can return to Israel for that will destabilize the demographics.  

Pros: a)Provide a peaceful environment for negotiations to proceed b) Allows climate of trust to be built c) Creates capacity for PA to govern Cons: a) Fighting peace disruptors will be seen as fighting Palestinians and alienate Muslims b) Fighting/subduing settlers /casualties will be very unpopular in Israel c) Israel may not trust its defense to outsiders d)Israel and Palestine, left to themselves, will probably not be able to achieve  lasting peace without a third party broker  Option 2: Push for new Palestinian Leadership before commencing negotiation Create new Palestine Authority leadership in 1 year time that marginalizes radicals and engages and wins Israeli trust through successful action. After this is done make efforts to renew the peace processa)Recognize that support for Arafat is waning and cultivate relationships with the next genre of Palestine Authority leadership.b) Put pressure on Palestine Authority for elections to allow for new democratically elected Palestine Authority leadership to emerge that is unconstrained by the past and vested interest. C) Alienate radicals, put pressure to reduce Palestine Authority support for militant factions such as Hamas and marginalize radicals in 1 year’s time. D) Reform Palestine Authority and build credible institutions and continue negotiations after this is done. E)Explicit monitoring for curbing Israeli excesses and Palestine terrorism in the interim period.Pros: a) Will be better for Palestine for the long term. b) Israel will be more open and trusting and may give larger concessions c) Has potential to break stalemate of last decadeCons: a) Will be seen as destabilizing and interfering in Palestine in the Islamic press b) No guarantees that elections can proceed under current climate c) No guarantees that radical elements will not come to power and this has the risk to  take the peace process back many years Recommendation: Provide international security umbrella for negotiationsTake option 1 while setting the stage for some elements of option 2 as described below in the implementation plan. 

Implementation:
a) Press to set up a UN/NATO led police force with an explicit mandate to maintain law and order in West Bank, Gaza and other pre-agreed territories.

b) Influence outcome of negotiation by instilling need for making concessions in key areas:

  1. Palestine Authority to recognize that all of east Jerusalem as part of the new Palestine may not be a viable
  2. Transfer of 90% territory from West Bank, Gaza to Palestine Authority and putting pressure on Israel to compensate for territory withheld /make alternate arrangements,  dismantle settlements
  3. Pressure on Palestine Authority that pre 1948 immigrant return would be unacceptable and seek a common date between 1948-1967
  4. Reiterate 2 state solution through negotiation
c) Announce in 2005 State of the Union speech the implementation plan
d) Make available funds for the Appropriations Committee for refugee and migration needs. Work closely with United Nations High Commissioner for Refugees, the United Nations Relief and Works Agency for Palestine Refugees in the Near East, the International Organization for Migration, and the International Committee of the Red Cross, as well as nongovernmental organizations.
e) Make available funds to develop institutions, further legal reforms in the West Bank and Gaza
f) Issue of Jerusalem to be resolved through negotiations
g) Continue US support conditional on a democratically elected Palestinian leadership
  

Sticks: Exports from Israeli settlements should not be treated as originating from Israel for confessional support. Further aid to Palestine Authority to be tied to it making the phased transition from a liberation movement to a government. Strengthen the Palestinian Legislative Council’s role in matters of aid deployment.  Carrots: Provide funding to alleviate the humanitarian crisis, and thus reduce the appeal of extremist groups

oped: constructive US role in advancing an Israeli-Palestinian peace settlement

0

  

Issues:How to create a more constructive US role in advancing an Israeli-Palestinian peace settlement so as to remove Palestine as an anti American symbolism in the Islamic world. This engagement has to be balanced against the fragmentations in domestic Israeli politics as well as the US’s foreign policy objectives in the Middle East.

Background:Being seen as an honest broker through resolving in unbiased manner the Israeli Palestine conflict will improve our image in the Islamic world, reduce anti American sentiment that has been building up over the last 5 years and allow us to win regional influence on behalf of peace. This will strengthen American predominance in Middle East and set the stage for subsequent focus on greater democratization in GCC countries.

US National Interests:

Vital: Repairing relationships with the Islamic world will enable us to continue the war on terror as Arab support for fight on terrorism, reducing threat from WMD would all be easier to achieve after Israeli-Palestinian peace. (High Threat)

Important: a)Improve relationships with a portion of 1.3 B Muslim consumers (Low Threat) b) , encouraging democracy and political reforms in Middle east (Medium Threat)

Objectives:A two-state solution through negotiation, an end to Israeli occupation and enforceable security guarantees for Israel through:– Palestinian terrorist infrastructure to be thoroughly dismantled and Palestine Authority reformed.– Israel to evacuate settlement outposts, freeze settlement activity and withdraw from reoccupied territory.– Both sides to cease acts of provocation.

Discussions:

Given the historical failure of such well meaning intentions we need to be cognizance of Israeli and Palestinian skepticism. On the Israeli aspect we need to recognize the fragmentation of Israeli domestic politics where for the a) “No choice/national camp”; we need to weaken alliances and US support b) for the “Peace Camp”; we need to support Sharon’s efforts through funding the development of modernizing programs, developing more secular values through reforming the education system, separation of religion and state, and integration of Jewish identity. Given the popularity of the current government this will strengthen support for the US led imitative. For the Palestinian Authority we need to encourage and incentives them to a) demonstrate peaceful coexistence with Israel by taking stronger measures to counter terrorism from splinter groups b) elect new leadership through a democratic process c) enact a constitution assuring the rule of law, independent judiciary, and respect for human rights d) take steps to bring transparent and accountable governance.

Option 1:Let Israel and Palestine continue the current negotiation as well as phased Israeli withdrawal and US to a) provide a third party security environment for Palestine Authority b) manage the other constituencies as described belowa) Set an international NATO /UN/Palestine Authority led security force, post phased Israeli withdrawal, in the West Bank and Gaza for maintaining peace and building security and policing capacity in the Palestine Authority through training and support. After 9-12 months devolve authority and responsibility to Palestine Authority with a UN monitoring role. Having a peace background will allow for a climate of negotiation on final boundaries, build trust for an eventual settlement in 2 years time. Set an international panel to monitor and judge Israeli and Palestine Authority pre agreed milestones during interim periodb) Hold both Palestine Authority and Israel accountable for violations with clear. No further Israeli support for expanding settlements. Send strong message to Syria and Iran that support for Hamas and terrorist nations will not be acceptable. Negotiate with Palestine Authority that not all refugees can return to Israel for that will destabilize the demographics.

Pros: Provide a peaceful environment for negotiations to process and trust building

Cons: a) Fighting peace disruptors will be seen as fighting Palestinians and alienate Muslims b) Fighting/subduing settlers /casualties will be very unpopular in Israel c) Israel may not trust its defense to outsiders d)Israel and Palestine, left to themselves, will probably not be able to achieve peace

Option 2:Create new Palestine Authority leadership in 1 year’s time that marginalizes radicals and engages and wins Israeli trust through successful action. After this is done make efforts to renew the peace processRecognize that support for Arafat is waning and cultivate relationships with the next genre of Palestine Authority leadership. Put pressure on Palestine Authority for elections to allow for new democratically elected Palestine Authority leadership to emerge that is unconstrained by the past and vested interest. Alienate radicals, put pressure to reduce Palestine Authority support for militant factions such as Hamas and marginalize radicals in 1 year’s time. Reform Palestine Authority and build credible institutions and continue negotiations after this is done. Explicit monitoring for curbing Israeli excesses and Palestine terrorism in the interim period.

Pros: a) Will be better for Palestine for the long term. b) Israel will be more open and trusting and may give larger concessions c) Has potential to break stalemate of last decade

Cons: a) Will be seen as destabilizing and interfering in Palestine in the Islamic press b) No guarantees that elections can proceed under current climate c) No guarantees that radical elements will not come to power and this has the risk to  take the peace process back many years

Recommendation:Take option 1 while setting the stage for some elements of option 2 as described below in the implementation plan.

Implementation:
a) Press to set up a UN/NATO led police force with an explicit mandate to maintain law and order in West Bank, Gaza and other pre-agreed territories.

b) Influence outcome of negotiation by instilling need for making concessions in key areas:(1)   Palestine Authority to recognize that all of east Jerusalem as part of the new Palestine may not be a viable (2)   Transfer of 90% territory from West Bank, Gaza to Palestine Authority and putting pressure on Israel to compensate for territory withheld /make alternate arrangements,  dismantle settlements(3)   Pressure on Palestine Authority that pre 1948 immigrant return would be unacceptable and seek a common date between 1948-1967(4)   Reiterate 2 state solution through negotiation

c) Announce in 2005 State of the Union speech the implementation plan
d) Make available funds for the Appropriations Committee for refugee and migration needs. Work closely with United Nations High Commissioner for Refugees, the United Nations Relief and Works Agency for Palestine Refugees in the Near East, the International Organization for Migration, and the International Committee of the Red Cross, as well as nongovernmental organizations.
e) Make available funds to develop institutions, further legal reforms in the West Bank and Gaza
f) Issue of Jerusalem to be resolved through negotiations
g) Continue US support conditional on a democratically elected Palestinian leadership

Sticks: Exports from Israeli settlements should not be treated as originating from Israel for confessional support. Further aid to Palestine Authority to be tied to it making the phased transition from a liberation movement to a government. Strengthen the Palestinian Legislative Council’s role in matters of aid deployment. Carrots: Provide funding to alleviate the humanitarian crisis, and thus reduce the appeal of extremist groups

oped: How to respond to an impending genocide in Rwanda

0

Issue: How to respond to an impending genocide in
Rwanda, in a manner that espouses
US foreign policy based on the President’s publicly stated humanitarian values
 

US Interests:Vital: a) Signal to world that human rights issues are important components of American policy and b) Strengthen
US ability to lead the uni-multipolar world
Very Important: Reduce future costs in aid, relief of refugees and potential spillover costs 

Objectives: a) Prevent impending massacre of Tutsis b) prevent conflict spillover to neighboring states c) Contain conflict without large loss of American lives 

Discussion: a) Preparedness and willingness to act unilaterally within days if required b) Prepare alternatives and establish case for legitimacy of the cause to prevent genocide while balancing against domestic public opinion in risking US lives c) ability to communicate case for our intentions as peace harbingers and not occupiers to international community  

Option 1:Diplomatic with threat of use of force : a) Involve UN to mediate with Burundi, Tanzania and Congo in regional emergency meet to prevent conflict spilling b) Create emergency conference with Hutu rebel leaders to address the causes of conflict c) Outlay 100M$ economic opportunities fund for Hutu youth conditional on peace d) Promise aid  to discourage Hutu youth for being recruited into predatory gangs and militias e) Make clear explicit US intentions to protect local civilians f) Communicate to Hutu warlords willingness to exert judicial action in  international court g)Mobilize political will of NATO, and U.N. Security Council Pros: (i) will nip the conflict in the bud (ii) strengthens the role of UN Cons: (i) will not work and will be too late to change course (ii) Danger of 1994 all over again 

Option 2: Deploy US troops along with international peacekeepers: a) rapid and overwhelming armed intervention b) Deploy 5000 person heavily armed US force to maintain peace c)Shut down Hutu communication through electronic means and ban hate propaganda d)Embargo against countries supporting Hutu intervention e) Freeze assets of leaders backing extremists and hold them accountable f)Heavy assistance to Tutsis in preparing for self-defense Pros : (i) will contain genocide (ii) be seen as proactive by international community (iii) will save lives Cons: (i) loss of American lives bad for impending elections (ii) risk of another Somalia (iii) inability to mobilize others in UN 

Recommendation: Option 1: Deploy US troops along with international peacekeepers 

Implementation: a) Send high-level team to Kigali to gain ground reality understanding and seek improved access to clear information flow b) create US public pressure to intervene by press briefings c) Organize humanitarian assistance organization for refugee influxRefugee d) escape corridors established with heavily armed international protection e) Action plan to implement option 2