China n Cars!!!

The automobile market in China is expanding at breakneck speed. Factories are churning out cars 24/7 but still unable to meet the Chinese demand. China overtook the U.S. last year as the world’s largest automobile market with sales surging 46 percent to 13.6 million, according to the China Association of Automobile Manufacturers. Nissan, Ford Motor Co. and Honda Motor Co. are running their Chinese factories at full capacity, with overtime and weekend shifts, and still can’t deliver enough cars. Cars are no longer a luxury item, but more of a basic necessity. Although China has made significant investment in infrastructure, more needs to be done to support the booming car market and to aviod huge traffic jams like the one above. Cars have not only affected the domestic landscape they are changing China’s role in the world. Increased resource requirements have led Chinese companies to scour the globe for commodities, no matter the ecological costs. Two weeks ago, for instance, a Chinese company bought a $4.6 billion stake in Alberta’s Tar Sands, which is among the world’s dirtiest sources of oil.
Until the mid-1990s China was oil self-sufficient, a position that has changed dramatically. China is now the number two consumer of oil worldwide and the country has been responsible for a great deal of the world’s total oil growth in recent years. With less than two percent of the world’s oil reserves, most of its growing needs will be imported. Fifteen years ago automobiles in China guzzled about 10 percent of the country’s much smaller total oil usage. Today cars and light trucks consume about forty percent of all China’s oil. So long as the country continues along the North American ‘development’ path, there’s no reason to believe that cars won’t someday consume half of the country’s oil. The ecological consequences will become increasingly severe. Is this really the development we need?

The Conscience of Capitalism

I recently read a very moving article from Forbes India:

At a meeting in Sweden recently of young people from around the world, a Nigerian woman shared the grief of her people. She said that, every year for the past 20 years, large quantities of oil, as much as that leaking into the Gulf of Mexico from the broken BP oil rig, have been spilling in her country from an MNC’s leaking pipelines and broken rigs. The waterways have become completely contaminated. The waters are so oily they even burn! Water for drinking and bathing is hard to come by. The health of the people has been badly affected. There are no more fish to catch. Agriculture is impossible. Livelihoods are destroyed. The US media is full of anger with BP for the oil spill in the Gulf of Mexico. She sympathized with the people of Louisiana whose concerns are known to the whole world now, but she wondered if they even knew what had been happening in Nigeria all these years?

The Indian media is filled with anger with Union Carbide and the tragedy of Bhopal. When a rare brown pelican was smothered in oil in Louisiana, the US President said he was looking for someone’s ass to kick in BP. The people of Bhopal, where thousands of human beings were killed, ask the Indian government why no one’s ass has been kicked.

These tragedies have raised emotionally charged issues of justice: Of who should be punished; and of double standards — one for the rich and another for poor countries. Beneath these issues are important questions about the responsibilities and liabilities of business corporations, especially multinationals, and about the roles of governments in regulating their behavior and protecting public interests. These are also questions in the recent debates about who was responsible for the global financial crisis whose fallout has affected many common people. To these questions let us turn.

Thomas Friedman, author of the paean to globalization, The World is Flat, had written an earlier book, The Lexus and the Olive Tree, that explained how the world is not yet flat. The Lexus car was his metaphor for globalization: A universally desired product of technology, produced by a multinational corporation. The Olive Tree represented the deep roots in traditions and identities which resist the forces of globalization. His conclusion was that the Lexus would prevail. It may some day, but it will be a struggle. Because the last few years have shown the strength of the Olive Tree’s roots in the demands of communities and nations for their rights to land, resources, dignity and respect.

With information and money sloshing across the world, accelerated by new communication technologies, institutions and ideas of globalization are spreading across national boundaries. Meanwhile, governments — especially elected governments — must respond to the demands for justice and protection from people within their boundaries. Such are the demands for tribal rights and affirmative action, and even demands for new states.

Many of these demands, springing from histories of injustice, may not sound ‘rational’ to the economists and technologists propounding globalization. However, with the rapid spread of ideas of human rights, multiplication in the numbers of NGOs fighting for various causes, an explosion of access to information, and very active media, governments ignore these demands at their peril.

At the same time, governments are urged by the global finance lobby and multinational corporations to open their boundaries further to attract investments. In the view of these lobbies, governments that do not make life easy for them are not progressive. Indeed, the chairman of Dow Chemicals, irked by new regulations imposed by the US government after the Enron and WorldCom scandals, said he dreamt of shifting the headquarters of his corporation to an island not subject to any government so that he could be free to make more profits for his shareholders! Thus the stage is set for clashes and governments must intermediate between the forces of the Lexus and the Olive Tree.

Ronald Reagan had said that government is not the solution, it is the problem. Too much rolling back of government contributed to the recent financial crisis in the US. Government did too little. It should have tamed the animal spirits in the market, its critics now say. Let us look, therefore, into the nature
of the beast that is to be tamed, viz. corporations.

The limited liability corporation is an invention of man: A device created to attract capital. The liabilities of investors are limited to encourage them to invest and take risks with their capital. Abraham Lincoln wrote in 1864 after the Civil War, “I see in the future a crisis approaching that unnerves me and causes me to tremble for the future of my country. As a result of the war, corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavour to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed.” Over the next 150 years, through a series of legal and ideological battles, corporations acquired all the rights of citizens to protection of properties and other freedoms. In addition, they obtained privileges of limited liability and other protections that human citizens do not have. This history has been documented by Ted Nace in an excellent book with a provocative title, The Gangs of America: The Rise of Corporate Power and the Disabling of Democracy. Thus we have institutions and laws whereby corporations can internalize and privatize profits while costs of damages to communities and the environment are externalized and socialized.

Image: Sean Gardner/ Reuters

Woes Continue The BP oil spill in the Gulf of Mexico

When a citizen does wrong, you know whose ass to kick. When a corporation causes harm, who exactly should take the rap? Moreover, unlike a person, as Nace points out, a corporation can do the Houdini — disappear and reappear in another body with a new name — and avoid being punished.
Such are the questions that President Obama and the American people, and also the Indian government and Indian people, are grappling with. Whenever the leaders of the US and India come together, as they will again when President Obama visits India later this year, they proclaim the partnership between the two largest democracies in the world. Along side such visits, business leaders from both countries also meet to promote investments and trade.

Should not these dialogues between government and industry leaders also be about the evolution of better institutions of democracy, and capitalism, and within that, the role of corporations? Because, as leaders of the largest democracies, they must also show leadership in the evolution of ideas and institutions.

Mankind has developed many powerful ‘dual use’ technologies that can do great good but, in the wrong hands, can do great harm too. These include nuclear energy and bio-genetics. Who can be trusted with their power? What safeguards must be in place? The large, limited liability corporation is also a powerful ‘dual use’ concept invented by man. The agenda for co-operation between the US and India is fraught with debates about these ‘dual use’ technologies.

Business needs freedom to take risks, innovate and increase wealth. Governments must protect their citizens and promote the common cause. Therefore, even as governments promote business, they must also regulate it. Business leaders resent regulation. They would rather be trusted to regulate their own behaviour. They must always remember that corporations are given a licence to operate by society, and that society can curb or even withdraw that license. The most egregious illustration of this is the conduct of the East India Company. It was given a charter by the Crown to trade in the East. The minutes of its board meetings in London show that the board was hardly concerned about the conditions of the people in the places in which the company operated. It was concerned about financing the missions; it charged its operators abroad to make profits; and it decided the dividends for the investors. When the conduct of the Company’s operators became intolerable, the people rebelled, and the Crown was compelled to withdraw the Company’s charter.

Self regulation requires a conscience. Corporations are the engines of capitalism. Wherein lies the conscience of the corporation — an inanimate, legal construct devised by man? That is the question at the heart of corporate governance. Does it lie in the board, which society should trust to ensure that the corporation causes no harm? If so, is the board equipped with the moral precepts, intellectual ideas and norms of conduct that will enable it to discharge its responsibility to society? The responsibility of the chairman of the board is to ensure that the board is so equipped. A capable board with a conscience can ensure that the corporation’s executive management is well equipped to act responsibly too.

Finally, as the woman from Nigeria said in Sweden, the people want the buck to stop somewhere. They are tired of buck-passing. Great leaders admit the buck stops with them.

Lonngest Ever Tennis Match!!!!!

After 11 hours and five absorbing minutes on court, John Isner wrote his name into the record books as the winner of the sport's longest ever battle when the giant American finally clinched the epic three-day, 183-game thriller 6-4, 3-6, 6-7 (7-9), 7-6 (7-3), 70-68.

After the two men resumed on Thursday at 59-59 in the fifth set with exactly 10 hours on the clock, the conclusion came an hour and five minutes into the third day when Isner threaded a backhand pass up the line. The final shot of the match handed the 23rd seed what had proved an elusive break of serve that finally brought to an end an eight-hour, 11-minute final set.

The last break of serve had come two days earlier when Mahut had taken Isner's serve in the first game of the second set early on Tuesday afternoon. That meant the two gladiators had held serve for an astounding 169 games before Isner collapsed to the turf after converting his fifth match point.

As the two men embraced after the final, 980th point of the match fans, media and players rose as one to applaud their heroic effort.

For the record, the match eclipsed the previous longest - a 2004 French Open duel between Frenchmen Fabrice Santoro and Arnaud Clement - by a massive four hours and 32 minutes. The combined ace tally stood at 215, with Isner hammering down 112, just nine more than his opponent on 103.

As the crowd waited for part three of this absorbing battle, there was a buzz of anticipation in the air. All those involved were ready. Swedish umpire Mohamed Lahyani was back refreshed, as were John McEnroe and Tracy Austin, both courtside to witness the drama. Even the scoreboard was in better shape, patched up and back in working order after conking out at 50-all on Wednesday night.

The first key moment came after only a couple of minutes as Isner delivered his 100th ace on his way to holding for 60-59. Fifteen minutes later Mahut matched the statistic as he held to bring the scores back to 62-62.

The match clock ticked over the 11-hour mark just as Isner made it 69-68, and in the next game the match was decided. A miscued drop shot from the Frenchman left him at 15-30, and although a brilliant serve and volley point made it30-all, the end was near.

An Isner forehand pass took him to 40-30 and his fifth match point, and a laser-like backhand that left the Frenchman rooted to the spot brought down the final curtain.
Isner's reward is a second round meeting with Dutchman Thiemo De Bakker, himself the winner of a marathon first match when he beat Colombia's Santiago Giraldo 16-14 in the deciding set. Perhaps they should be made to play best of three sets.

Vital statistics
Match duration: 11 hours, five minutes
Fifth set duration: Eight hours, 11 minutes
Total number of games: 183
Fifth set number of games: 138
Total number of points: 980
Isner aces: 112
Mahut aces: 103
Combined aces: 215
Isner winners: 246
Mahut winners: 244

Why China Can't Cool Its Overheated Real Estate Boom

Even among Western analysts who live and work in China, the major role played by municipal governments in fueling China's increasingly speculative real estate boom is underappreciated. The actions of those local authorities are at the heart of China's property bubble, and they explain why the central government's attempts to cool lending and construction are failing.

China's central government has attempted to douse the speculative flames of its real estate bubble -- prices rose 9.5% in January alone -- by calling on banks to curb real estate lending and by increasing the level of reserves banks must maintain. But those moves are offset by the incentives local governments have to put money into real estate speculation.

The key difference between China's current real estate bubble and the U.S. bubble that popped in 2007 is this: In the U.S., it was individuals and lenders who made overleveraged, speculative bets via subprime mortgages. In China, explained Northwestern University researcher Victor Shih to NPR, the leveraged debt fueling the speculation comes from local governments, which have borrowed trillions of dollars worth of funds from China's banking system to develop real estate projects in their jurisdictions.

Shih has found that almost 50% of the Shanghai government's revenues come from land sales, and local governments have come to rely on this income.

"Local governments now are forming their own real estate developers and would actually buy land from themselves. As this becomes more common -- and it is becoming very, very common -- then local governments have a high stake in maintaining and increasing the value of real estate in their own jurisdiction," Shih observed.

Unsurprisingly, these incentives to boost land values have led to sky-high prices. The right to develop a plot of land in downtown Shanghai was recently purchased for a record $1.35 billion.

Beijing's Own Policies Undermine Its Fiscal Goals

The incentives to local governments start with targets set by the central government. Respected analyst Andy Xie, formerly of Morgan Stanley, observes that local government performance in China is measured by GDP and fiscal revenue -- and both of those numbers can be quickly boosted by real estate development. This makes pouring municipal funds into development a "win-win" for local leaders, even if there's no consumer or business demand for the new buildings.

Xie says this has led to a politically driven bubble, supported by local governments' need to meet the central government's growth targets.

The dependence of local governments on development fees and skyrocketing land values is also fueling a "moral hazard" dilemma. Speculators sense that the government will never let values fall, which encourages further reckless speculation.

In Terms of Real Growth, the "Boom" Is a Bust

Paradoxically, this channeling of China's capital into real estate development is hurting the country's long-term prospects by diverting the capital from other more productive uses. Ultimately, Xie says, this decreases capital efficiency and thus lowers domestic consumption. Though China has been trying to promote domestic consumption for a decade, private consumption as a percentage of GDP has declined every year.

This overreliance on real estate development also threatens the nation's financial stability by increasing debt levels and by relying on overvalued land as collateral. And it creates another systemic risk: Because property prices have increased faster than middle-class income, many otherwise-prosperous households have been priced out of the housing market. This fosters resentment as hard-working people see a handful of local officials and developers becoming wealthy from a bubble that has left housing unaffordable for the vast majority of wage earners.

Moreover, as the white-hot property market creates winners and losers based solely on speculation and political influence, other determinants of income such as education and experience have been marginalized: Ordinary people feel their own efforts won't bear fruit because the system appears to reward only speculators and insiders.

A Feedback Loop of Ever-Inflating Values

All land in China remains government-owned; developers get only leases. But while ownership is clearly in the hands of the state, which level of government is authorized to grant a lease on a given parcel can be unclear. As a result, leases may be negotiated at the local level and essentially rubber-stamped without much oversight by higher-level agencies.

This ambiguity gives local authorities leeway to negotiate leases with companies they partly own and lets them transfer the land at inflated valuations.

Since local governments generate revenues from transfer fees when they lease land to developers, this feeds two bubbles: First, local governments inflate the land prices in order to increase the transfer fees they collect. Then, those ever-inflating values encourage individuals to try to get rich quick by speculating on ever-rising housing prices.

Local governments don't just sell land leases to developers, they also invest directly in developers. That creates additional "one hand washes the other" incentives to play fast and loose with loans and land valuations.

See full article from DailyFinance: http://www.dailyfinance.com/story/real-estate/why-china-cant-cool-its-overheated-real-estate-boom/19371786/?icid=sphere_copyright

Why Asset Bubbles Will Always Surprise Us

Below is a nice article on price bubble i read recently on the Harvard Site:

It would be nice if we could predict bubbles; even nicer if we could prevent them. Unfortunately, this would violate the laws of nature: asset bubbles occur because of the limits of our ability to process information and coordinate activity in a market setting, where no-one is in charge, and no-one has a complete view of the big picture.

Here's how it works. On occasion, the enthusiasm for some growth opportunity or new technology attracts interest from people in the capital markets. Financing is suddenly available. Sooner or later the flow of new money starts to have an impact on the value of the assets being financed. But it takes time for people in the market to become fully aware of that impact.

In the case of the US housing market, prices began to accelerate beyond their sustainable path sometime around, say, 2003 thanks to global capital flows from savings-rich economies, advances in securitization technology, and an insatiable appetite for housing on the part of American consumers and investors. But it took until 2007 for the securitization markets to shut down. It took the broader equity markets another year to understand the severity of the housing crash and the resulting damage to the banking system. The government finally took steps to stabilize the system with TARP in late 2008 and stress tests for the banks in early 2009.

Why did it take so long for us collectively to come to our senses? Because consumers, mortgage brokers, lenders, investment bankers, regulators, CDO managers, rating agencies, and investors in distant countries didn't understand individually what the totality of their actions would mean for US home prices, the financial system, or the global economy.

We may criticize individuals, firms, leaders, and regulatory policies. But it would be unrealistic to think we could expect immediate, collective self-consciousness on the part of any group of people operating in a market setting. Each individual faces a practically infinite quantity of information in our complicated world. And we all have extremely limited resources with which to process this information. No system can be perfectly self-conscious. The kind of immediate social awareness that would prevent bubbles from forming or bursting is a physical and mathematical impossibility.

The inevitability of surprise does not mean that our financial system cannot be made more resilient — the key is to prevent the build-up of leverage (which makes outcomes more severe) and react more quickly during the crisis so that we can speed on our way to recovery. Here are some steps we can take now:

• Make sure public leverage does not become excessive. In addition to bringing down US Treasury debt levels, we should put Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System into run-off, which would help pay off roughly $3 trillion in so-called "US Agency" debt (a close cousin to Treasuries).

• Identify sources of "hidden leverage," such as the reliance by many institutions on similar statistical models (like Value-at-Risk) or credit ratings. We should reform the rating agencies so as to break up the oligopolistic market position of Moody's and Standard & Poors.

• Impose shorter term limits on certain public officials, for example the chairman of the Federal Reserve, to prevent the build-up of excessive investor confidence in the power of personalities or institutions to forestall economic crisis.

• Develop systems to recapitalize the financial system more quickly, with less taxpayer exposure, such as so-called "contingent capital," which consists of debt that automatically converts to equity during a crisis, stabilizing an institution without requiring protracted negotiations among investors or enactment of emergency government programs.

• Develop better corporate governance protocols, so that boards of directors can react more quickly to crisis including, if necessary, replacing CEOs who are caught in the grips of "cognitive dissonance" and unable to react to crisis or change.

Here is the link to the original article:

http://blogs.hbr.org/finance-the-way-forward/2010/06/why-asset-bubbles-will-always.html

My thoughts on Bhopal Gas Tragedy

The TV channels have worked themselves into a lather about Warren Anderson, and I don't see why. The then Chairman of Union Carbide need never have stepped on Indian soil after the gas leak. He obviously came with some deal having been struck in advance. Even without such a deal, he'd have been bailed after a few days of custody.
It's always convenient to blame the foreigners. So what if the Bhopal plant was entirely under Indian management, as required by Indian law? So what if we don't yet know what triggered the leak? So what if we've put no measures in place to cope with another such accident?
We've never been too fussed about safety. What sense does it make to press charges of culpable homicide when what happened was clearly negligence? Criminal negligence, no doubt, but nonetheless negligence. Unless, of course, we accept the Union Carbide theory that it was sabotage.
Intention is central to culpability. Absent an intent to kill, it makes no sense to put people away for ten years, even if their negligence resulted in 10,000 deaths. The problem lies not with the sentence but the delay in getting to this point. It has made India an international laughing stock.
The other issue relates to the compensation of 470 million dollars. I don't believe it was such a trivial amount as is being made out. The government should've accepted the initial offer of 350 million dollars and used it to build health care centres, and disbursed it quickly to victims. Instead it demanded over 3 billion and finally had to accept the 350 million plus interest. And after it got the 470 million, it kept most of it in a bank account, like it would do any good there!!!!

Urban Warfare

Urban warfare is a different style of warfare because an enemy could be hiding anywhere, each house must be cleared out individually, and no powerful weapons may be used out of fear for collateral damage. However, it is disadvantageous to use because of the danger it puts your own civilians in. Despite this, however, many weaker enemies resort to urban warfare in order to combat a powerful enemy. For this reason, the US has developed MOUT (Military Operations on Urban Terrain) training.

The Battle of Stalingrad (1942-43) in WWII is a prime example of urban warfare. It was initiated due to Operation Barbarossa, the German push eastward towards Moscow. Stalingrad was a key target due to its symbolic name and its industrial capacity. Initially, the Russians under Zhukov were almost completely pushed out of the city by Paulus's Sixth Army. However, powerful Russian tank, skilled Russian snipers, and masses of Russian soldiers (whose life expectancy was less than 24 hours) fought back and even surrounded the Germans in Operation Uranus. Eventually, after a failed rescue attempt by Manstein's German Army, Paulus surrendered and the Russians won the battle.