Wooing HQ2 ? Yuk !

If you are an American, here's a a nice issue to distract you from your fixation about you know who and direct your attention to a different issue you can get all worked up about.

Witness each city falling over each other and doing the most stupid of things to land HQ2. Tucson Arizona, where one of the readers of this blog lives ,  uprooted a 21ft cactus and tried to deliver it to HQ1. The mayor of Kansas City actually bought one thousand items from the company in HQ1 and wrote a review of each one of them. Mayors of cities are looking silly in videos that they have made asking Alexa where HQ2 is going to come up and Alexa answering of course, the city they are mayors of. Shall I go on ?

If you are wondering what all this hullaballoo is  about, this is all to do with attracting Amazon's second head office. Amazon is based in Seattle (this is HQ1). They want to create a HQ2 somewhere else. And why are cities willing to stand in a line and kiss Bezos' ass (cue the nod to the awful American version of the Queen's English !). Because he is promising to invest $5 bn and create 50,000 jobs. How did they come to this magic figure of investment ? Because he says the average salary of the jobs created would be $100,000. 

The antics of Tucson and Kansas City are harmless on their own. HQ2 won't come there anyway. The real danger is the big cities offering tax breaks to Amazon. Without a doubt this will happen.

This is a terrible idea. Cities and states that do sweetheart deals to tempt businesses into moving are doing an appalling act of profligacy.  This is worse than a bribe.  Think about it - this is a perfect way of taking money from the poor (remember indirect taxes are not progressive and a fair amount of the state revenues in the US come from indirect taxes) and giving it to somebody who does not deserve or need the money. One city does this , and the next city will do the same for another company.  And before you say Bingo, everybody has been given a dole.

The right way to attract companies is to do the boring things - create infrastructure, make a talent pool available by vigorous education and training, attract outsiders by making it a great place to come and live, have a favourable business atmosphere in the form of ease of doing business and reasonable tax rates.  That is when companies will come and stay on. That's why New York in Finance and the West Coast Cities in technology are what they are.  Not because they gave tax breaks.

If you are an American, you should vigorously protest against your city doing a sweetheart deal with Amazon.  

For Indians, who can look at all this with an amused smile; we have of course been long guilty of doing such deals with companies. But I want you to get agitated in a different angle. The capital of the IT industry in the country did all the right things 30 years back - great place to live in, pleasant weather, abundance of talent, a cosmopolitan place for people to come, etc etc. It did not give a tax break. And yet every IT company worth it's salt came.

And then this city let it all go to seed and become the appalling wreck of a city that it is today.  This is the best way to drive every company out. No member of the Homo Sapiens species will ever come to this place again. Instead the entire population has mutated into Pithecanthropus Erectus, which being extinct, is delighted to be able to come back into existence even if condemned to living in a hellhole ! How does this blogger know of such a mutation ? Because he has mutated himself !

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Buy American and Hire American

When this blogger started blogging in 2009, his very first post was titled "What is American goods, anyway ? " Eight years later, when returning back from a two year hiatus in blogging,  the same theme resurfaces as the second innings of blogging is started.

The trigger for this post is of course Trump's executive order titled the same as this post, which he signed with much fanfare three days ago.  The order , of course, is pure bombast and is only meant to show that the President is doing "something". It simply orders the Secretary of Commerce to tell the world what the hell this means in 60 days and orders sundry other Ramamrithams to specify how it will be implemented  in 150 days. I was not aware that you need an Executive Order to tell people to do their jobs, but apparently in the world of alternative reality, that is required.

Precious little, other than nuisance value, will come of it. For you see, in today's globalised world of supply chains it is almost impossible to determine what is "American" as my first ever post argued.  If "value added" is the yardstick for measuring national origin, then your iPhones are as American as mom and apple pie even though they are entirely manufactured outside the US. If the physical act of manufacturing (read final assembly)  is the yardstick, then the iPhone is Chinese while BMW is American.  If the entire supply chain has to be in the US, most products will simply disappear off the shelves as some of the raw materials and components are simply not available in the US and have to be imported.

The Executive Order gives some clues to the warped thinking - apparently they would like  that "for iron and steel products,  all manufacturing processes, from the initial melting stage through the application of coatings, occurred in the United States ."  US iron and steel has been on decline for decades. Only an idiot will set up steel capacity in the US - after all the next President can sign another Executive Order to the opposite. Not a single new job will be created. What will only happen if this pig headed policy is even half tried is that the existing US steel plants will jack up their prices. The American consumer shall pay.

The problem of disappearing jobs is a real and serious one, but there are no easy fixes. It cannot be tackled by trumpeting economic nationalism. It certainly cannot be solved by sitting on the toilet seat and tweeting whatever comes to your mind.

By the way, the GOP was meant to stand for free markets and trade. It would have been appropriate if a President Sanders were to try something like this. But a Republican President ?

PS : Its nice to be back. Sorry for going away for two years - I was dabbling in a social enterprise in the interim, but am now back in retirement, and therefore back to blogging.

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The $1000 pill

How do you price a drug ?  Its a question almost impossible to answer without vehement and justifiable criticism, whatever your answer may be. Nothing typifies this better than the absolute storm raging over Sovaldi.

Sovaldi is a new drug introduced as a cure for Hepatitis C, which was hitherto very difficult to cure. Almost a miracle drug with something like 90% success rate.  In six months it has already become the largest selling drug in the world. In these six months, it has clocked sales of $5.7 billion. Its maker, Gilead, has seen a 50% jump in share price.  Fantastic, you would think.

The only fly in the ointment is that each pill costs $1000 in the US. Or Rs 60,000 if you prefer. You need to take the pills for a six week period, twice a day. That's a bill of $ 84,000. In the rupee equivalent it sounds even more expensive - Rs 50 lakhs.

A veritable storm of accusation and counter argument has arisen. $ 1000 a pill ?? That is criminal argue the opponents. The big bad corporate world is simply gouging the sick to make greedy profits. Bad Bad.

Counters the company - the $ 84,000 treatment bill is significantly cheaper than any alternative which can all be proved to be more expensive with lesser chances of success.  This is therefore a cost saving to patients and instead of being deified, the company is being villified, they say.The trouble with this argument is that the alternative is really liver failure.

This being the US of A, there are all sorts of complications. Medicaid, their programme for providing free medicines for the poor, estimates that it would cost it $ 55 bn if every person eligible for Medicaid and is suffering from Hepatitis C is given this medicine. And the law says no drug that has been approved by the FDA can be withheld from Medicaid.  Of course, there isn't the $ 55bn lying around.  It has also been estimated that the premiums for Medicare (their programme for the elderly) could go up by upto 8% on this single drug alone.

Free market and freedom of pricing is a fundamental tenet of the capitalist world. America, to its credit, defends this even under difficult circumstances. The pharmaceutical industry is a special one - most research results in failure and blockbuster drugs are extremely rare. For every success there are probably 100 failures. If you do not allow blockbuster drugs to make very high profits, there will not be the pipeline of innovation. For all the noise from the rest of the world, the fact is that most of medical innovation comes from the US.

What about the rest of the world, indeed. In previous cases phramaceutical companies have been pilloried for pricing drugs so expensive in the third world that the most needy have no access to them. Gilead, mindful of these pressures, has priced the drug at $11 a pill in Egypt. This has resulted in a storm of protest in the US. If you can sell it for $ 11 in Egypt, why are you charging me $ 1000, shout the American customers (insurance companies, actually, for it is they who foot the bill in the US). They are cursing that America is subsidising the rest of the world on medical innovation. Gilead is shaking its head saying heads I lose, tails you win.

So back to the basic question - how do you price a drug. Yes, free markets and freedom of pricing is important. Yes, huge profits are the attraction for costly R&D which mostly fails. And yet when something succeeds, it creates a monopoly and it is an accepted principle in capitalism that monopolies will be regulated by the government. It is also a fact that, unlike in other product categories, the consumer does not have freedom of choice and is in an extremely vulnerable position at the time of consumption.  Difficult issues to grapple with.

The last body you would expect to give a sane solution to this, is the US Senate, filled with pompous gasbags of doubtful literacy and questionable intelligence. But in this case, this blogger is actively looking to the US Senate to provide an opinion. For the issue has been taken up by Ron Wyden , one of the (only ?) respected, principled Senator from Oregon (Sriram take a bow for electing him). He is one of the few capable of producing a position of substance.

What do you think. Even this blogger, a champion of free markets and rewarding innovation, is blanching at the thought of a $1000 pill. The logic may be impeccable. But to swallow Rs 60,000 twice a day .......

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My sympathies are entirely with Argentina this time

Thomas Greisa is an ass. Thomas who , you might ask. This specimen is a Judge of the Southern District Court of  New York. Why should you bother about the "Southern District Court of New York", you might want to know. Unfortunately, the state of the world is that, we have to. For the USA is back to its old game - imposing its laws on the rest of the world.

The problem is Argentina. Remember the many times I have railed against Argentina, here , here and , on the same matter, here. This time my sympathies are entirely with them.

It all stems back to 2001 when Argentina defaulted on its international loan obligations. As is usual in such cases, an agreement was reached with most of the creditors , rescheduling the interest and repayment obligations. The operative word is "most". A few funds simply sold  their debts at a deep discount to whoever was willing to buy them. Up stepped a bunch of hedge funds, whom we shall justifiably call "vulture funds" as the Argentianians have labelled them. This lot have bought up the debt at a deep discount. They have then held out against any settlement and insisted that they be paid in full. They went to court in the US and thus entered  His Lordship  of Southern District Court fame.

Forget all the arguments about a petty judge of a "Southern District Court" imposing his will on a sovereign nation. The worthy has now ruled that the vulture funds should be paid in full, paid before the others who settled and no payment should be made to the others until the vultures have been paid. No less a body than the United States government has backed Argentina, calling Judge Griesa's ruling "impermissibly broad" and raising concerns that it could undermine U.S. foreign relations. The IMF has said that Griesa's ruling could make it easier for a handful of creditors to disrupt a country's efforts to reduce its debt burden. The  pedant is unmoved. He has ruled thus.

The consequence is that Argentina is in default again. They had a payment required to be made to the parties who settled yesterday. They duly deposited this amount which they had to do in a US bank. Unfortunately the judge has ordered that this money be frozen - because Argentina is in violation of his order and have not paid the vultures.

Argentina has basically said that they would honour the obligations of the rescheduled debt, but they are no way going to pay the holdouts in full. In this, they have a case. Restructuring of debt obligations is a common practice everywhere in the world, and more so in the US. The US bankruptcy law, on which the entire business system in the US relies in, has this as a fundamental precept. Business activity in the US, leave alone in the world, will come to a grinding halt if a few vultures are allowed to block any debt rescheduling process.

Why has the judge ruled like this ? Officially he has taken umbrage under the Ramamrithamesque parri passu clause, which is a technicality not worth elaborating. The real problem is that Argentina long refused to accept his jurisdiction over a soverign matter , and when it was forced to, basically showed him its finger. It is a dangerous strategy to show the finger at such a man. He has basically showed Argentina the finger back.

Pointed fingers apart, the original problem was of course Argentina's ridiculous management of its economy, piling of debt and reaching a point of default in the first place. In this, they are of course, not unique. Other notable members of the club - Greece, Portugal, Cyprus, Ireland keep them good company. India is also making every effort to join them. You could argue that the US is also an honorary member, given the levels of its debt. I wonder what the reaction would be if Judge Li Ping of the Second Sessions Court in Beijing ruled that the United States had to pay Chinese bondholders before Social Security cheques were despatched to US citizens. Perhaps he could cheekily rule that the bondholders must also be paid before the Medicare claim of Thomas Greisa is honoured.

The only beneficiaries out of this decade old saga are the lawyers. Imagine the fees they must be raking up.

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Burn the green card !

Beware, if you are a US citizen, or a green card holder,  living abroad. FATCA is on you !

FATCA stands for the Foreign Account Tax Compliance Act and is the latest weapon unleashed in the awful American tax code. On measures of awfulness, FATCA must be a contender for one of the worst pieces of legislation ever passed. It takes America's unilateralism - something this blogger has long railed about - to a new level.

Basically FATCA is an imposition of its tax laws on every financial institution in the world, wherever they may be. Every bank, even in Timbuktu, is required to report to the US authorities, details of bank accounts and transactions of all US persons (citizens and green card holders). If they fail to do so, they would essentially barred from doing any business in the US. Terrified of being shut out of US markets, almost every country of any standing has signed bilateral agreements with the US to this effect. Did I mention the word, bully ?

All this arises from the stupid concept that prevails only in  America, and in no other major economy in the world. America taxes its citizens on global income, even if they lived entirely abroad and earned all their income abroad. So such citizens pay taxes in the country where they live in AND to Uncle Sam.  In every other major country, depending on your residency, you are taxed on where the income arose only; not on global income.

The ostensible reason for FATCA is to go after US citizens who are hiding their income overseas and avoiding taxes. While that may be a fair objective,  it suffers from two major flaws - the first that you want to tax global income and second that you are simply trampling on every other country, just because you have the capability to do so.

FATCA came into effect three days ago. It will have major ramifications for anybody connected to the US, but living abroad. Consider the question of privacy. America requires every country to report transactions, irrespective of  the country's privacy laws. And yet if the same country turned back to the US  and asked it to report similar data for its nationals, the US will tell it to go away citing privacy considerations. Did I mention the word hypocrisy.

All sorts of unintended consequences are emerging. Some US citizens living abroad are considering surrendering their US citizenship. The rate of surrender, though still small, has quadrupled since FATCA came on the horizon.  Some foreign banks are basically telling US citizens  to go away and not have accounts with them - they simply don't want to get squashed by the strong arm of the US. Some employers overseas are turning away US citizens, considering them not worth the bother.

Consider the US green card holder living in India. Many take this only to escape the brutal visa regime. Parents of children now living in the US maybe. Now they are caught in the FATCA net.

This blogger is reminded of a famous cartoon in The Economist many years ago. The Economist was commenting on how desirable the US green card is even for ostensible haters of the Great Satan. The cartoon featured a rabid mullah, yelling Death to America in a protest somewhere in the Middle East - and he whispers as an aside to an American journalist - "Can you get me a green card "!

Maybe the time has come to change the punchline. Can you burn my green card !

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Yet again, the US pisses off another country

Why is it that I, an incorrigible Americophile, am ranting against the US every month in this column ? I have long admired the US, the society, the culture and, especially, the economics.  I continue to be an unabashed admirer of so much in the US. and yet readers of this blog could easily mistake me for a "burn the US flag" extremist, considering the number of times I am criticising US policy and action in recent posts.

Take the case of BNP, the French bank. Like so many banks before it, it has been caught up in investigations by the US on money laundering. The crime committed by the bank is that it routed transactions to Iran, Cuba and Sudan covering them up. Standard Chartered had a similar problem and I blogged about it here. Now it is BNP's turn. 

The problem is not the act itself (although I will question even that later). BNP admits fault, is prepared to pay a fine etc etc. The problem is the quantum of the fine - $ 10 billion - the largest fine in the history of the world and dwarfs even the BP fine for the oil spill ($4 bn) . That's a ridiculous quantum of fine, by any standards. The French are mightily pissed off. The French finance minister has termed it completely unreasonable and a diplomatic row has broken out. Obama visits Paris in 2 days and Hollande is going to raise this with all puffed up anger. This is another instance of US unilateralism. Yes, by the strict letter of the law, they can act unilaterally. A more rational way would have been to involve the French government and "negotiate" a deal. This is what happens in international diplomacy - if the shoe was on the other foot, the US would have done exactly that. In a global world, showing a finger at the French will  simply mean retaliation. General Electric can now kiss goodbye to any chance of acquiring Alstom.

Quite aside from the fine, my problem has always been the US attempt to impose its will on the world, through any means possible. There isn't any evidence that BNP actually laundered money of criminals or terrorists. What they did was do transactions with Iran, Sudan and Cuba, which is against US law sure, but is a matter of foreign policy. There is no United Nations embargo against trading with these countries - it is simply US policy. Take Cuba. Is there any rationale today for the US embargo ?? Just because the US's  nose was punched in the Bay of Pigs in 1961, is there any moral justification for an embargo 50 years later. Why should the world dutifully follow and refuse to shake hands with the Cubans. So the US dictates what is a crime and what isn't and the rest of the world simply has to follow.

Yes, I know the argument, the US is simply imposing its law on its land and every foreigner must comply. But  international finance flows simply do not exist in any place. The US dollar is a global currency and it is easiest to route all transactions through the US - that's all. The transaction is not taking place in the US, the parties are non US - all that has happened is the the funds have flow in and flown out, probably on the same date simply because that was the most convenient thing to do. For that a $ 10 bn fine ? When financial mayhem is unleashed on the world by US banks, there is a bailout. For this there is a $ 10 bn fine.

It has long been my belief that the truly powerful rarely display their power noisily, if ever. They don't need to.  In the coming world order, especially economically, the US will not be a "superpower". It may be the first amongst equals - that's all. If every other "power" acted like the US is doing today, it will cause considerable harm to the US itself . In its own self interest, the US should behave like a parent and not like a maniacal school teacher.

I wish there was something - anything - that the US would do which can make me gush in praise. I wait in vain. If this is the lot of an Americophile, imagine where the true "burn the US flag" idiot would stand.

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JP Morgan - you did that ?

JP Morgan ought to feel at least a modicum of shame.

Look at their sweeping action last weekend - they have reportedly closed every foreign diplomat's account. In fact they have closed every current and former  government official's account and frozen their credit cards if he was not American. The reason is that they are facing increasing compliance costs because of US government requirements that non US "politically exposed persons" have to be subject to added scrutiny. The logic behind the American government action is that every foreign diplomat is, of course, laundering money - since all non American diplomats are crooks while American diplomats are saints. JP Morgan has been facing penalties on this account and they have got so fed up that they chose to simply close every diplomat's account.

If this is not rank discrimination, then I am not sure what is. US government and officials are fine. Only non US government officials are in trouble. The good José Antonio Ocampo, former finance minister of Colombia and a past nominee for the President of the World Bank was one of those affected and he has complained to the regulatory authorities of discrimination. I hope a class action suit emanates from somewhere.

Actually the problem is not JP Morgan although they must be made to pay for this action. The real problem is the US attempting to impose unilateral laws on the world. This is part of a growing trend of holier than thou practices of the US government. Every foreign diplomat is surely a crook and must be dealt with on that assumption. The rule of law is paramount in the US and all lesser mortals please bend and obey. When reciprocity is meted out, then of course, the host country laws are not "fair". Bullshit.

The justification for all this is that this happens on US soil and therefore the US can pretty much do what it wants.  Fine, then we should simply extend that principle in every country. Ramamrithams of the world unite and go after American diplomats everywhere. Subject every diplomat to the same "added scrutiny" including the principle of guilty until proven innocent and very soon we can have a wonderful balkanisation of the world.

World diplomacy acts on give and take - not on pedantic and narrow minded imposition of unilateral laws. The US presumably acts in this manner because it has the power and therefore it can do so. That's against every principle that the US, a noble country, itself stands for. It is a measure of a strong and powerful man/community/nation as to how humbly it can exercise that power. The onus is on the strong to prove that it is fairer than fair. Soft power is often achieved by not exercising any hard power at all. There are a million ways of going after money laundering, much of which the US and many other countries do today. Blanket discrimination against foreign diplomats is not one of them. The thought that a non North American, non Western European, country invariably has lesser standards than them is exactly the stuff racism is made of. Find and punish the guilty by all means, but to assume that Asians, Africans and Eastern Europeans are likely to be guilty is, well, disgusting. The United States might wish to ponder why it is, despite all its extremely great qualities,  viewed with such disdain in most of the world.

There's a fine line between being powerful and being a bully. If it does not revoke this action, a just action by the rest of the world would be unchain Ramamritham and let him loose on American diplomats everywhere.

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The awfulness of PC

No; not P.Chidambaram , the outgoing Finance Minister of India. The PC I refer to is Political Correctness. I have a healthy disdain for politically correct expressions, usually the pet infatuation of the Left.  But what happened in Mozilla, the company which puts out the Firefox browser, is nothing short of outrageous.

What happened was this. Brendon Eich was appointed CEO of Mozilla. Within 10 days he resigned. Or rather was forced to resign. Why ? Because there was a backlash against his contributing $1000 to a campaign in 2008 on a referendum on gay marriage in California . He donated to the campaign that sought to ban gay marriage. The donation was made 6 years ago. The "Mozilla community" objected to a guy who was anti gay marriage being the CEO. So he had to go.

This is political correctness at its worst . There is absolutely no merit in sacking him, or if you would like it "creating conditions that led him to resign". Consider the following arguments

• The matter had nothing to do with his qualifications, experience or performance as CEO of Mozilla
• In fact it had nothing to do with Mozilla at all and it was a private act by him. As far as I know, making a campaign contribution, even though the stance may not be to everybody's liking is not a violation of the law in the US.
• He is not evangelising or actively lobbying for ban on gay marriage. All he did was make a donation to a campaign that reflects his personal views.
• There is zero evidence that he would not treat gays equally in the company . If a law was enacted allowing gay marriage,  and if he then discriminated against gay couples, then he is performing a criminal act and will be prosecuted. There is not even an accusation that he proposed to do anything like that
• The issue of gay marriage is not by any means a settled one in the US - this is a thorny social issue and there are lots of opinions for and against. The issue is coming up repeatedly in the Supreme Court. This is not an issue like say Nazism or Al Qaedaism where there is a near unanimous opinion.
• Brendon Eich has never said (nor is he even being accused) that he is anti gay. He is only against gay marriage. There is not a shred of evidence that he has discriminated against gays in his career.
• He is perfectly entitled to his personal opinion as long as he follows the law of the land and does not let a personal opinion be to the detriment of the company.

It is none of anybody's business, especially that of the Mozilla Board, to be dictating to anybody what his  opinion on non business matters should be . Companies should not be espousing for or against social issues. That is none of their business. They should simply follow the law . Social issues ought to be debated and pushed by individual citizens and enacted by elected representatives. Encouraging companies to lobby on behalf of social issues is the most dangerous step any society can take - look at the mayhem that political contributions by companies is causing in the US.

It is a crying shame that Brendon Eich has been forced out  by a bunch of PC obsessed fanatics. I may not agree with Eich's views, but I absolutely defend his right to have them. Isn't that what the definition of freedom is ?

Shame on you Mozilla.

Full Disclosure : This blogger is a dedicated user of Firefox and is considering abandoning that product !

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Let's go to Vegas

Next January, I am thinking of going to Las Vegas. No; not for the showgirls, but to go to the Consumer Electronics Show - the annual jamboree of the tech industry. This has been a feature for a number of years, showcasing all the new technologies that companies are working on, or the new products about to be launched. I have little interest in all this new technology (seriously, we can do with a little less technology), but I would love to ogle at the weird and wacko stuff that these geeks think of. Take a sampling of some of the crazy stuff that was displayed at the just concluded 2014 event.

Let's start with the Kolibree toothbrush that is blue tooth enabled ! Apparently it has accelerometers and gyroscopes to accurately analyse your brushing habit and then relay the results via bluetooth to a smart phone app that will then tell you how to brush your teeth better.

Would you like a Sen.se Mother ? Its apparently the controller that can sense everything that you do around the house - having coffee, snoring, whatever (I don't want to speculate  any further) and then nag you like a real Mother to improve your habits !

Ladies can opt for the Touchscreen friendly Elektra nails. Apparently lovely ladies who grow their nails have a tough time tapping at smartphones. Enter Elektra nails which can be fitted on and can do the job. Apparently you can colour them in whatever nail polish colour you fancy at that moment.

I also learnt that PointGrab which creates "gesture driven interfaces" , whatever that means,  has developed a new software solution that will enable you to mute your TV by saying Shhhh.

The big thing on the more serious side was the number of TV makers who were displaying curved TVs. I learn from reliable sources that seeing one will answer the question - Why on earth do we need a curved TV. One manufacturer went even better to showcase a flexible TV that can be curved and straightened. I haven't yet found if there is an explanation as to why on earth do we need a flexible TV.

What do you think of the Muse ? Its a brain sensing headband that can "calm your busy brain by seeing and hearing your brain activity". I think I need to buy that at this very instant.

You can opt for a Wifi enabled coffee mug. Not sure what this is for, but one wearable device  - a belt you put around a baby will monitor breathing, etc etc of a baby and  beam all this data to your Wifi enabled coffee mug.

People are obviously extremely keen to monitor their health all the time. Why else would something called Scanadu Scout be shown which can apparently detect 12 different chemical signatures in your pee by sniffing at it.

This blog is not an adults only space and so I will not elaborate on vibrating underpants that can apparently be controlled by a significant other through a smartphone app.

If you are tired by all the walking around to gaze at such wonderful devices, CES offered you free teeth widening (yes, widening and not whitening) for all delegates.

Now, do you see why I am saying Let's go to Vegas. Wanna come with me next January ?

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United States beware - you have twisted Ramamritham's tail

The recent diplomatic spat between India and the US, should normally not be the subject matter of this blog - it having nothing to do with economics or business. However, since the nuclear weapon of Ramamritham has been invoked by India, it now falls into the realm of comment here, considering rhe world beating expertise this blog has on that venerable gentleman.

In case you have not been following the events, the US arrested the deputy consul of India in New York on the grounds that she had underpaid her domestic maid (imported from India) and consequently committed "visa fraud". I don't wish to discuss the merits of the case here, although this pertained to an event in the past, is subjudice in an Indian court, and very likely debatable hinging on the obscure valuation of accommodation and food. But in true American government fashion, this was handled with extreme insensitivity - the lady was arrested as she was dropping her children to school , handcuffed in public, searched (allegedly strip searched) and taken to jail before being released on bail.  This blogger has long been a critic of how America handles such matters even when it comes to its own citizens - there is hardly a need to handcuff people , make them do the perp walk, hold them along with those accused of criminal charges etc, for alleged civil crimes. No civilised country does this  but that is the prerogative of American voters to decide if it is right or wrong.

India, or at least, the Indian government is mightily pissed and has retaliated. It has done such things as summoning the US ambassador in India and giving her a dressing down, refusing to meet a US delegation currently in India and such other diplomatic rebuffs.  But the real deadly move has been to let Ramamritham loose on the US embassy in India ! Ramamritham has now sought details of the activities of every diplomat and his or her spouse, asked them to furnish details of salaries paid to Indian staff, including maids, they employ here, etc etc. He has asked them to turn in their ID cards and has withdrawn their special privileges that breezes them through the every day bureaucracy that anybody in India faces. He has also hinted that gays in the US embassy could equally be arrested under the current laws of India !!

America does not know what it is risking by attracting the attention of Ramamritham. If he puts his mind into it, he will discover innumerable violations of the law that American diplomats have done, albeit in ignorance or involuntarily.  Such is the nature of India's laws and pedantry that it is impossible for any human to exist in India without having violated the letter of  one law or the other. The violation may be purely procedural in nature - for example not filing some form or intimating some trifling detail, but that is enough. Ramamritham will go after you with gusto. There is no power on earth who can stop him. For example if the diplomat and his family have stayed in a hotel somewhere and not taken great care to fill their nationality as US citizen on the hotel form (whoever looks at that form's fine print when checking in at 11 PM after a delayed flight) - he has committed a crime. Years ago, Ramamritham arrested Nusli Wadia precisely for this ! If the embassy has not displayed the Provident Fund rules on its notice board for the benefit of Indian staff (and there are rules on where the notice board has to be situated in relation to the office) , it has broken the law.  There are potentially 1,453, 678 violations he can look into. I have great pity for the American embassy staff and their families - they have no idea what they have gotten into - and all because of the actions of some insensitive pig headed Ramamritham equivalent in New York.

If the United States knows what is good for it, it will promptly meet with Ramamritham, beg his pardon, fall at his feet ,  do shashtang namaskar, recite Abhivadiye three times and beseech him to turn his kind attention back on the hapless Indian citizens who he has been torturing from time immemorial.

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No Tim, No

Caesar's wife must be above suspicion , as the saying goes. It is not just important to be right, you must also appear to be right. This is even more important for very public figures. That is why this post is titled No Tim, No .

Timothy Geithner, the former Treasury Secretary (in Indian parlance, Finance Minister) is going to become the President of Warburg Pincus, an investment banking firm. There is nothing legally wrong in what Geithner is doing. He was the Treasury Secretary during Obama's first term.  He left office in January 2013 and has been writing  a book since. Now comes the news that he is to become the head of Warburg. He is perfectly entitled to do whatever he wants once he steps out of pubic office.

The problem is the old one of Caesar's wife being above suspicion.The cosy nexus between businessmen and politicians is a significant problem today - especially in the US after Citizens United. The financial sector is in the eye of the storm of government attention and regulation , much of which Geithner himself started when he was Treasury Secretary. In his new role, he will have a considerable amount of interaction with the US government. While he may want to , and maybe even will, be prim and proper, it is inconceivable that he will apeear to be so in the eyes of the public. While we will be charitable to Warburg, it is not inconceivable that they hired him precisely for his political talents and connection.

This is the age old problem of government servants and regulators leaving their jobs, or retiring, and then joining the very corporates they regulated or oversaw.  In some countries there are statutory cooling off periods before they can do so. My belief is that it should never be done. It is impossible to ignore the conflicts of interest. Even if the individual concerned is meticulously honest, he will have to recuse himself from virtually any issue that has a bearing on his old job. That will make him completely ineffective. In effect, the very reason corporates hire them is to take advantage of their past connections. That is why it is wrong.

The reverse flow also happens. Corporate honchos join the government too - in the US many past Treasury Secretaries have been CEOs of Goldman Sachs. I would not go so far as to ban corporate types from joining the government - the flow of talent from the private sector to the government is one to be encouraged. But I believe, they should not take up a position that is in the same field as where they came from. I have no problem with say Henk Paulson becoming the Secretary of Education , but as Treasury Secretary, where his job would be to supervise his former employer Goldman Sachs , ...... that fails the test of Caesar's wife. I know this would not utilise his talent in his field of expertise, but if public trust in government is to be maintained, fairness must be above board. Do you really think Paulson's decision not to rescue Lehman Brothers, a hated rival of Goldman Sachs, can ever be whiter than white, even though it may have actually been so ?

I am well aware that such a view will be met with derision in today's circles as old fashioned, romantic rubbish. Yes, old fashioned values have little support in today's environment. But that does not detract from the merits of them. Pompeia, Ceasar's wife held a festival for women only in which Cloudius gatecrashed dressed as a woman, ostensibly for seducing her.  He was caught, but in the trial that followed, he was acquitted. And yet, Caesar divorced Pompeia, leading to that famous expression. Can you imagine in today's world, such standards being set by those in power. Alas, that is why governance today is at such a low point.  When values come to the fore again, we shall be governed by honourable people.

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The US Treasury should be ashamed of itself

There is nothing more irritating than somebody who pontificates. Even more irritating is if the guy has absolutely no credentials to pontificate on the subject in question. Imagine the Pontiff (if you'll pardon the pun)  lecturing on the merits of Viagra. Or Sarah Palin extolling the merits of Shakespeare. Or even this blogger blogging about Kollywood !!

That is how I can best describe the American Treasury's criticism of Germany's economic policy. The criticism is that Germany's current account surplus as a danger to the eurozone and the world economy. Germany runs a current account surplus - that is, it exports far more than it imports. This is , according to the American Treasury, a big danger to the world economy. This blog is not meant to be a technical paper - so I will desist from explaining this , which will make it too technical. Suffice to say some "leading economists" also share this view.

First let us play the man rather than the ball - after all this blog is refreshingly free of any responsibility and therefore can attack any which way ! Of all the people, America should not be lecturing on fiscal responsibility. If there is a prize for the most fiscally irresponsible nation on earth, surely the US of A would be a prime candidate. The land of the free has many redeeming virtues, but fiscal responsibility is not one of them. The US Congress hasn't even passed a budget for the last 3 years. The last time they balanced their budget was 1998-2001 and before that  1969. They have had a President who cut taxes massively and then started two wars. They are now flirting with a sovereign default every 6 months. They have promised Medicare and Social Security to their citizens, then inadequately funded it and have no plan to defuse the time bomb.  Because the dollar is the world's reserve currency, they take on levels of debt that most other nations would shrink in horror at the very thought. And collectively as a nation, they foisted the global economic crisis of the last few years. Even India, another prime candidate for the ultimate fiscal irresponsibility award would be hard pressed to match that.

And the country they are taunting is Germany. Post reunification, they were termed the "basket case of Europe". They lifted themselves out of that by their bootstraps. Their prudence is legendary - they are so scared of inflation that they follow the most conservative  monetary policies of all. They struck a deal with the unions when they were in a mess, to hold wages and little by little built up German competitiveness back again.  When the Eurozone crisis hit, they have been the chief (only ?) lenders bailing out every nation that is in trouble.  They don't manipulate currencies (unlike another country we know which also runs a big current account surplus). Can you imagine America bailing out other nations in today's world (to their eternal credit they did that after the Second World War, but that is 70 years ago - the America of today is a pale shadow of the America of those years).

What is the prescription. The Germans must stimulate their economy. They should take more debt. They should consume more and save less. Great.

The Germans have been more peeved at the newsy bugging of Angela Merkel's phone. They haven't reacted with fury  at the American Treasury. They should tell them to piss off and take their pontification elsewhere.  Perhaps the best way to do it is for "Mutti" to whisper on the phone that the US Treasury is a greater danger to the world than Al Qaeda (probably true) and leave it to the NSA spooks to relay that upwards.

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Big Mac, but no Heinz ketchup

Corporate battles are usually hard fought, but this really is the limit. McDonald's is blacklisting Heinz because they had the temerity to appoint the ex chief of Burger King as their CEO. Sure, some rivalries are legendary - Coke vs Pepsi, P&G vs Unilever, Apple vs Microsoft, Walmart vs every other retailer, and indeed McDonald's vs anybody else who sold burgers. But isn't this a step too far ?

HJ Heinz, the makers of Heinz Ketchup were recently bought out by Warren Buffet's Berkshire Hathway. The new owners appointed Bernando Hees as the CEO. The trouble is that Bernando is the ex CEO of Burger KIng. Apparently McDonald's is finding this objectionable. So the next time you buy a Big Mac they wouldn't give you those sachets of Heinz - one if you buy in in India, two in China and a fistful in the US !  Presumably it would be somebody else's - maybe Hunt's or whatever.

Yes, corporate rivalries are taken seriously. If you work for Pepsi and are seen drinking  Coke, well, let us say your career is not going to zoom. A long time ago, this blogger was invited to a Pepsi dominated party and thoughtlessly asked for a Coke (just as a generic term for cola) . The hush that followed , the incomprehension of what I had done wrong for a minute, the dawning realisation and then the flush of embarrassment - well; 20 years on, it is still fresh ! Equally vivid is the memory of hosting a Coke delegation at work and going to extraordinary lengths to ensure that Coke was the only cola seen for miles; only to discover one bottle of Aquafina - just one - at somebody's desk.

But that is relatively unusual in these days when corporate loyalties are somewhat passe. This blogger is a die hard alumni of one of the aforesaid mentioned companies and would really hesitate to buy the rival's products. But this is not some religious zeal - just habit formed over the years.

Which is why I am surprised at McDonald's move. They are not such hated rivals of Burger King. And ketchup is a small portion of their ingredients- after all there is a lot more to burgers and fries than ketchup. And Heinz is not doing something ridiculous of going to bed with competition. All they did was appoint somebody as a CEO. Does this warrant such an extreme reaction ? McDonald's is behaving like the proverbial school bully. Grow up, you lot.

Competition need not be a war. The other guy is not some hated tyrant who ought to be exterminated. Sure, you want to beat him, but you do not have to be a Genghis Khan. Cooperation, even with competition, is not unheard of. While Apple is slugging it out in a patent war with Samsung, they quietly buy chips from .

So shame on you McDonald's for issuing this press statement - "As a result of recent management changes at Heinz, we have decided to transition our business to other suppliers over time" . Here is my own statement - As a resulted of pig headed behaviour by McDonald's I am hereby declaring that I will not have a Big Mac ever. Anybody hahaing that statement on the grounds that I am a vegetarian will be hit on the head !

PS - Actually this post has taken somewhat extra liberties with journalistic licence. Heinz has been acquired by Berkshire Hathway and 3G Capital. 3G capital are also the owners of Burger King. So there is more to it than pig headedness. But then , a post is a post is a post and a blogger has to survive ....... :)

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T I N A

If there was, the dollar would be kaput. But there is really no alternative. So it has to be the dollar as the world's reserve currency.

It would be useful to go back to basics and understand what a currency really is.  A currency is really nothing more than a piece of paper backed by the promise of  a government. If you believe in the promise of the government , you hold that currency. If not, it is worthless. Remember the promise is only an act of faith - there is no backing of gold or a real asset behind the currency. Take out an Indian rupee note - any rupee note. It will say "I promise to pay the bearer the sum of xxx rupees" under the seal of the government of India. That's what it is - a promise.

Governments have the licence to print money. But if they simply keep printing on, it will lose its value. Beyond a point, the population will simply lose faith in that currency and resort to barter or to some other currency. That is precisely what happened in Zimbabwe sometime back - the Zim $ lost all value and the US $ became the de facto currency.

When it come to international trade and countries holding reserves, the only real currency of faith is the US dollar. Because the world had, and still has, the maximum faith in the US government above all. But that faith has been seriously eroded in the last two years thanks to antics in the US Congress. If there was an alternative, many would have fled the dollar. But there isn't. The Euro is on an even worse footing than the dollar - which country is the backer of the Euro ? Germany ? France ?  for there is no country called Europe. The Japanese Yen inspires very little confidence. The Chinese Yuan ?? - well the world has to go a long way before that happens - is everybody prepared to trust the Chinese government more than any other ?

China has called for a new global reserve currency. It has to, for after all, it is the largest lender to the world. Easy to say. But what will that reserve currency be ? And which government, or governments, will back it . And how can we trust that any more than the US dollar.

So there really is no alternative. But that should give those in the governance of the United States food for thought. The dollar retains its pre eminence only because the others are worse. Trust is hard to earn, but easy to lose. Those doing the antics  in the US for the last few weeks ( actually for the last four years) have done much to erode that trust. But the problem lies deeper. The US has been printing money like there was no tomorrow, for quite some time. It has come to the brink of default once before, and is now engaged in the same brinksmanship again. There is increasing evidence that sound economics is becoming a rare feature of the management of the US economy.

I am no economist and learned academicians ( are you there J !) have to design the future global reserve currency. But whatever that might be, it all boils down to trust. Alas, there is little to trust in today's world. Whose word can you trust when the only economy that is practiced is that with the truth.

The US dollar note says "In God we trust". I'm not sure if the irony strikes the governing class in that country.

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Who has jurisdiction over me ?

The principle of jurisdiction is a basic tenet in law. Jurisdiction refers to the  law, the court, the authority that is applicable to you . You are then required to follow that law and be subject to  oversight by that authority and that court. In the good old days, jurisdiction was simple - where you were decided who had jurisdiction over you.  I live in India and so the laws of India apply to me. The government of India is the authority that has jurisdiction over me and the courts in India  are the forum I can go to. Simple.

As the world started to globalise, the issue of jurisdiction started to become more complicated. If I did a commercial transaction with say an Australian company - who would have jurisdiction ?  Australia ? India ? That is why in contracts involving multiple countries it is always stated which law would apply and which courts would have jurisdiction. But physical presence or assets always enables that country to have jurisdiction . Although I am an Indian citizen, when I travel to say Burkina Faso, the laws of that country shall prevail - If the law there says that I have to yell Abracadabra loudly three times at 4.27 AM, I better do so.

The arrival of the internet completely destroyed the fundamental principles of jurisdiction and unfortunately there are no legal treaties or conventions that seem to have decided this. Which is why jurisdiction has been "usurped" by the country that is powerful - the US of A. I am an unapologetic Americophile and have great admiration for that country;  yet I find the behaviour of the United States utterly deplorable and downright repulsive in this matter.

I am referring to the famous NSA and the spying it is doing on the world. All the hullabaloo in the US has been about spying on American citizens. But what about foreigners like me - the US has no jurisdiction over me and yet it intercepts every email of mine and reads it, if it wishes to. Forget a non entity like me; the US has been hacking   Dilma Rousseff, the President of Brazil. Now, it is fairly certain that she is no security threat to the US and yet the NSA has hacked her, simply because it could. Brazil is furious and she has cancelled her visit to the US triggering a diplomatic row.

It all boils down to jurisdiction. Google, Microsoft, et al - virtually every internet company of any note is headquartered in the United States and its servers where data is stored is physically based in the United States.  The NSA is therefore claiming jurisdiction and forcing these companies to turn over every data to it - of you and me as well, although we may have nothing to do with the United States.

The danger of balkanisation of the internet is obvious. Brazil is the first to respond (it is really pissed off that they hacked Dilma Rousseff). Brazil is contemplating a law that will force the likes of Google and Microsoft to store any data that originates from Brazil in servers in Brazil itself. Then the likes of the NSA have no jurisdiction and can be told loudly to %$#^ off.

It is easy to turn a blind eye to the NSA's shenanigans and argue that they are welcome to pore every inch over my boring life and inane communication. But that misses the point on civil liberties - a prize that over the centuries, generations have fought and guarded zealously.  If I decide to post my mug shot publicly on Facebook, then I have no right to claim privacy. But if I send a private email to a friend in India, then it is none of the NSA's business to snoop into it. I have no problems if the government of India wants to read it (although I would vigorously oppose that without a court warrant), but I will not tolerate the government of the United States reading it under any circumstance.

What about the NSA argument that this is necessary to combat terrorism and is for security considerations. Bullshit. That may have been how it started, but it has gone way beyond that now. Is Dilma Rousseff or the German embassy in Brussels remotely connected with terrorism - and yet both have been hacked into.  The sanctimonious nonsense of the US objecting to organised Chinese hacking is now exposed - they are no better than the Chinese and even the Chinese did not go far enough to hack Dilma Rousseff.

Why this post in a politics free business blog ? Simply because I am amazed that the fury over the NSA actions is not greater around the world. I may be an insignificant individual but I must speak my mind that the US has absolutely no jurisdiction over me.

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When you pay to sell a business

Mergers & Acquisitions are often the glamorous side of business. CEOs love  them - you go through the excitement of doing a deal, get on to the papers and TV, become famous etc etc. Most of the haggling on the deal is on the price - how much the buyer is willing to pay the seller. But how about a M&A transaction where the seller has to pay the buyer in order for the buyer to buy the business !! Fanciful ? Well, that's exactly what has happened with the sale of Fresh & Easy by Tesco to Ron Burkle.

Tesco is an UK based grocery retail giant; it is the third largest retailer in the world. From the UK, where it is a household name, it has expanded in Europe and Asia. But in the US, the largest retail market in the world, Tesco was non existent. In 2006, it decided to foray in to the US with the branding  of Fresh & Easy - in small store grocery format, primarily in the Western states. It never took off and Tesco faced mounting losses despite opening some 200 stores. Its investment and trading losses cumulatively mounted to some £ 1.8 bn. Something had to give.

Tesco tried to sell, but there was no buyer. Finally it found a buyer willing to take it on, but only if Tesco lent him £ 150 m in loans. This is unusual - we have heard of companies being sold for $1, but for something to be sold at negative value is rather unique. The reason why Tesco was willing to do this was simply that the cost of closing the stores and making all the employees redundant would have been far greater than what they were able to finally strike in the deal.

Why is Ron Burkle doing this deal. Evidently he believes he can make a success of this business. You have to be somewhat sceptical about this - If Tesco, a great company, could not succeed, could he ? But then in the retailing world, the US is for Americans and Europe is for Europeans. Even Walmart has not succeeded in creating a great business in Europe despite acquisitions. And no European retailer has really succeeded in the US.  Not sure why this is so, for you would expect retailing to be a pretty similar business anywhere, but that's the way it is.

It must have been extremely humiliating for Tesco to do this deal. Quite apart from paying somebody to take away a business, it represents a failure of their strategy to enter the US. They are admitting defeat and walking away, perhaps not to enter back for a long time, if at all. Its actually a more far reaching retreat for Tesco - they recently announced that they were in negotiations to put their Chinese business in a joint venture with a Chinese company. Retailing is a pretty brutal business.

I'm sure Tesco's boss Philip Clarke is not going to be on TV or on the newspapers for this one.

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I want to be a garbage collector

The story that two garbage cleaners in New York were fined and forced to retire after being caught accepting a tip of $ 5 caught my eye.  Not for the reason you might think. This story would provoke hoots of laughter in my country where nothing happens in the public service without a gratuity.  Even in NY, this must be an incredulous story - every man and a dog demands tips shamelessly for just existing in the same space as you. But the real reason this story has prompted this post was buried somewhere in the middle.

 

The two garbage men apparently netted $100,000 each, including overtime. Granted that they had put in long years of service. Granted that they probably earned lots of overtime. But still a wage of $ 100,000 for a garbage collector shows everything that is wrong about the United States. No wonder they lose jobs by the droves to India and China. No wonder unemployment is a stubborn problem.

 

But this post is not to highlight the completely unrealistic pricing for labour in the US, as compared to the world. This post is instead about a global problem - automatic salary increases every year.

 

If you spend enough years on any job, even that of a garbage collector, you will reach levels of $ 100,000. If you start at $ 20,000 a year and get a 5% rise every year , you'll land up with a $100,000 salary in 33 years. That is presumably what happened to these two guys. Imagine the situation in India where anything less than a 10% raise a year leads to a strike. If you start at an annual salary of Rs 5 lakhs, an entry level salary for a qualified graduate,  and keep demanding 10% salary rises, by the time you retire after 35 years, your salary even staying in the same job, will be Rs 1.4 crores.

 

Now you see why there is age discrimination in employment and the older you are, the quicker you are fired. Now you see why there are large scale job losses.

 

Salary levels have to follow some form of a normal distribution over the years, if you stay on the same job.  You start low and as you gain more experience and you become more efficient, your salary should increase. It should probably reach a peak when you are say 40, and then begin a slow decline so that you can remain competitive with the younger folks who are trying to displace you. I know this sounds heretic, but I would rather take cuts in my salary than lose my job altogether. The trick is to price yourself, just a shade below the market rate (not go for the highest salary possible). If that involves annual salary decreases, then so be it.

 

Of course, you can, and should, upskill and move on to a higher value job. But if you stay in the same job, automatic salary increases every year is a one way ticket to losing the job.

 

So, how about negotiating a salary reduction, instead of a raise. At first read this might seem like an insane idea. But think about it .....

 

Its an altogether different matter as to why somebody who was earning $100,000 a year, asked and took a $5 gratuity !

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Everybody bashes the Taxman

If you have been following the news in the US, you might have noticed an almighty hullabaloo over the the IRS (their tax man) having targeted Tea Party and Conservative groups. Much hot air and righteous indignation is being spouted and Obama has fired the IRS chief yesterday. Almost everybody on earth loves to bash the taxman (rightfully so !) and this is all good fun.

Except that I believe that in this case the bashing is wrong. Or at least much exaggerated.

What happened is this. The IRS admits that it subjected groups which bore the name tea party, or patriot to extra scrutiny. The fact that such groups are exclusively Republican and that the President is a Democrat seems to indicate political targeting. That is, of course, against the law. Hence all this noise.

But why did the IRS do this - after all, they are not fools. If you try and answer this question, a different picture emerges.

The problem all started with, in my view,  the appalling judgement by the US Supreme Court in the Citizens United case in 2010. In layman terms the Supreme Court decided that organisations were people and had the same right of free speech as you and me. Therefore there could be no curbs on their political activities and donations.

Overnight, all sorts of action groups sprung up and the money started being being poured into US elections of all kinds.  Many of these outfits do not want to disclose who really gives them money. The way to achieve this is to register as a social welfare organisation under the tax code which then grants you tax exempt status - something called Sec 501(c)(4) exemption !! You are not prohibited then from indulging in political activity - its just that the primary activity has to be social welfare in nature. The main purpose of these groups is not to avoid tax (for they do not really seek to make a profit). The primary purpose is to avoid disclosing who is giving all the money.

It is probably a safe bet to say that the majority of these groups (Republican or Democrat) have zero interest in social welfare and are primarily there for  political activity.

From 2010 to 2012, the number of such organisations doubled to some 3400. A large number of them were "tea party" or "patriots". Do you really expect the IRS to sit tight and watch all this. After all, it is their job to check whether these outfits really were primarily involved in social welfare. 

The IRS did not prosecute them or withdraw their status. All they did , in true Ramamrtiham style, is to harass them with lengthy requests for information, do audit reviews, delay decisions on their applications and commence painstaking procedures. In this my sympathies are entirely with the said groups as we all know what the incredible capabilities of Ramamritham are.

The real culprit is the political donations sloshing around consequent to that awful Supreme Court verdict.  In true US politics style, this will not be addressed - instead the IRS will be hauled over coals. Yuk !

I never thought I would ever write a post in defence of Ramamritham, but there you go ... !

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Not interested in the US anymore ?

So says Huawei. Really ?? No, not really. They are very interested in the US. Its just that they have realised that the doors to the US are simply shut for them. There has been a spat going on between the US politicians and Huawei for some time. It looks like the politicians have won.  And it begs the bigger question - can any company in the world be exclusively in one country or region (however big that might be) and hope to be a major player in the world.

Huawei is a telecoms company. They sell networking equipment significantly cheaper than say Cisco. They used to be crappy ( Cisco would snigger at the mention of their name). Not any longer. Same quality, half the price. In an uncomplicated world, companies  should be falling over themselves to buy from them.  But then, the world is not an uncomplicated place.

Huawei is a Chinese company. So what, you might ask ? Huawei's founder and leader was formerly in the Chinese army. Still so what ? Well, the ties with the Chinese government/army/party (same thing) never go away and its quite possible that Huawei will do whatever the Party in China asks it to. Huawei is not a transparent company. It largely refuses requirements that it be so.  And cyber espionage and hacking are weapons that the Chinese government uses against other countries constantly.The world's chief bugger (if you will pardon the bad pun) is China.

So Huawei is a pariah right. Wrong ? The US, and possibly every other major country does the same thing. Except that Obama cannot order Cisco to spy on his behalf while Xi Jinping can so order Huwaei. But then there is enough regulation and oversight in the US to prevent that from happening, or at least knowing that it is happening. And its not at all certain that Huawei would do anything major in the spying arena - its a $35 bn company. If its shown that it is doing something underhand, overnight, it would be expelled from the entire wold. But pompous Senators have repeatedly blocked Huawei from winning major deals in the US. Huawei has tried hard, but has won nothing. In frustration, they have simply given up. The beacon for capitalism and freedom, of course, does not think of the US consumers' interests (of getting things cheaper) and, of course, Cisco and other US competitors have been scrupulously fair , have never lobbied to stall Huwaei and surely windbag Senators have only the national defence of the US at heart.

Begs a question - why is only the US so paranoid. Every country in Europe has no problems dealing with Huawei . Even India, normally a completely paranoid country has plenty of Huawei here. The Chinese brass of Huawei in India go around with names like Ashok Li and Sundar Zhang. By the way, I have to recommend that Ramamritham Liu and Rajalakshmi Wang would also be worthy additions to their team. The only offense they have done to India is to start a Chinese canteen of their own on the grounds that what goes for Chinese food in India is unrecognisable by them and surely Gobi Manchurian is an abomination !

So what will happen to Huawei. They have admitted that they will have to revise their growth plans downwards. Without being truly global, no company can aspire to the big league. 

Or is that really true ? Could a company that's almost exclusively in one country be the largest in the world in its field ? We'll examine that in the next post.

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Bye Bye New York Stock Exchange

OK - the title is pure hyperbole. The New York Stock Exchange (NYSE) is going nowhere. But the company that owns NYSE is just being bought over. The curious part of the story is that the acquirer does not really want the NYSE, but it comes as part of the package- so he has to take it !

Here's the deal. NYSE is part of a conglomerate called NYSE Euronext. The conglomerate consists of NYSE itself, Euronext, which is a combination of three European stock exchanges and Liffe which is a London based derivatives exchange. NYSE and Euronext are ugly spinsters nobody wants. The beauty amongst the beasts is Liffe. For it is the sexy new hottie - a derivatives exchange.

And therein lies the story. In the modern day casino , that is finance , equity exchanges like NYSE are worthless as businesses. Margins are supposedly low. Stock exchanges are the places where almost all companies that require capital list and that's where investors channel their savings into productive investment. One would have thought that  the raison d'être for financial markets was to fulfill that objective, but obviously I am an old foggie.

In today's world, the money is all in running commodities exchanges,  derivatives markets etc - not boring old equity. The acquirer is a company called ICE that did not exist before 2000 (for the record NYSE was founded in 1817). ICE purely handles derivatives trading. The career of Jeffrey Sprecher, the CEO of ICE says it all. He started his career building power plants.  But he realised that there was more money (in facts tons more money) playing on financial contracts relating to power than in generating power itself. So he started ICE , obscurely in Atlanta, in 2000. See where he has got to in 12 years.

We've now come to a stage where even the NYSE is an unattractive prize - in fact positively repellant. Given a choice Mr Sprecher would probably spin off NYSE, or sell it off somewhere or simply forget about it. Unfortunately that is politically simply unthinkable. So he has to live with it and make pious noises of how important it is.

Its a symptom of where the world is going.  This post is one sided and biased (whoever said that a blog has to be objective !). Derivatives markets are not all evil and equity markets are not all saints. Both serve useful economic purposes. But you can see where this is headed. Esoteric, ununderstandable financial structures are getting to be more important than the underlying asset itself. That's why, a wise old fox from Omaha, back then in 2003, called derivatives a weapon of mass destruction.

Many years ago, when the world was a simpler place and when this blogger was a young man (!), he went to 11 Wall Street, entered the visitors gallery of NYSE and gazed at the trading floor in awe.  Little did he know that not in the too distant future, this lovely lady was going to be thrown out into the street as an ugly old crone.

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