Interesting readings

• Tackling systemic risk is no job for the status quo by William Donaldson and Arthur Levitt, in the Financial Times.
• Short-Selling Bans around the World: Evidence from the 2007-09 Crisis by Alessandro Beber and Marco Pagano. The abstract reads: Most stock exchange regulators around the world reacted to the financial crisis of 2007-2009 by imposing bans or regulatory constraints on short-selling by market participants. We use the large amount of evidence generated by these regime changes to investigate their effects on liquidity, price discovery and stock returns. Since bans were enacted and lifted at different dates in different countries, and in some countries applied to financial stocks only, we identify their effects with panel data techniques, and find that bans (i) were detrimental for liquidity, especially for stocks with small market capitalization and high volatility; (ii) slowed down price discovery, especially in bear market phases, and (iii) failed to support stock prices..
• A story on regulatory impact assessments.
• Mahesh Vyas on improving disclosure.
• Let bidding begin in the market by Rajesh Chakrabarti, in Financial Express.
• Ashok Desai in Business World on the scandal that is ULIPs.
• Sanjeev Sanyal in Business Standard on making Bombay work.
• At 250 kph, the Bombay-Delhi distance of 1200 km is covered in 5 hours. At 376 kph (which the Chinese are implementing today), it's roughly 3 hours. If that sounds exciting, read Bullet trains for America? by Mark Reutter.
• A pair of articles from The Economist on India and capital controls: A world apart, and Raining on India's parade.
• Anita Bhoir in Mint on the proposed Standard Chartered IDR.
• Looking back at Indira Gandhi: Ila Patnaik in Financial Express, and Shekhar Gupta in Indian Express.
• A great collection of pictures about the Berlin Wall. Do not miss the symbolism of #34, where Lech Walesa starts the toppling of the dominos.
• New York Times blogs on weight loss and exercise; you might like to also see my page on this which has a framework within which the NYT blog post can be placed.
• India's dirty role in Sri Lankan war by Brahma Chellaney in [covert].
• Terror in Mumbai, a documentary on HBO on 19 November.

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The problems of big banks

I wrote an article in Financial Express titled The problem of big banks. On this subject, also see:

1. In the world of banks, bigger can be better, Charles Calomiris in the Wall Street Journal.


2. A three-way split is the most logical, by John Gapper in the Financial Times.


3. Narrow banking is not the answer to systemic fragility by Charles Goodhart.


4. See the section titled Regulatory and legislative reaction and the foreign exchange market in Lessons for the foreign exchange market from the global financial crisis by Michael Melvin and Mark P. Taylor on voxEU.

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Prescience

Count Sergei Witte was an important figure in czarist Russia in the early 20th century. In October 1905, he wrote a memorandum to the Tsar summarising his view of the political unrest in the aftermath of the Japanese war. In it, he said:

The idea of civil freedom will triumph, if not by way of reform then by way of revolution. But in the latter event it will come to life on a thousand years of destroyed history. The Russian rebellion, mindless and pitiless, will sweep everything, turn everything to dust. What kind of Russia will emerge from this unprecedented trial exceeds human imagination: the horrors of the Russian rebellion may surpass everything known to history. A possible foreign intervention will tear the country apart. Attempts to put into practice the ideals of theoretical socialism -- they will fail but they will be made, no doubt about that -- will destroy the family, the display of religious faith, property, all the foundations of law.

How many other paragraphs can you think of, where someone peers into the unknowable, and largely sees the next 100 years right?



I saw this in Nicholas 2 Signs the October Manifesto by Richard Pipes, in I wish I'd been there, edited by Byron Hollinshead and Theodore K. Rabb, Pan Books, 2008.

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Mobile phones and economic development

The CMIE Consumer Pyramids data shows that in all their income categories, more than 50% of households have a mobile phone. It is only in their bottom category `Lower Middle Income - II' that only 37.5% of households have mobile phones. From `Higher Middle Income - III' upwards, the incidence is above 80%. If you had asked anyone in 1999 or 1989 whether this could be done by 2009, the answer would have been in the negative.



With broadband Internet, in contrast, India has not got such breakthroughs.



The September 2009 issue of Finance & Development has a story on the impact of mobile phones for development. In India, there is a lot of merit in using new technologies and players to break with the comfortable stagnation that's enveloped finance.



The Economist has a beautiful section on mobile phones and development: on Chinese progress on network hardware, broadband, on the impact on development, a retrospective, looking forward, and an enthralling piece on the cost reductions by firms in developing countries. Now all we need is for Indian finance to go the way of Indian telecom (and airlines).



Anand Giridharadas, writing in New York Times, describes new developments in distance education. India is the place in the world which would be the biggest beneficiary from distance education, given the combination of lots of young people and a dismal education system. This does require broadband to go the way mobile phones have. I often joke that the task of an economics undergraduate education in India should be to get a person to the point where he or she can read my blog :-) (and cynics respond saying that most of the teachers of economics in India can't parse my blog).



Anne Eisenberg has an article in New York Times about researchers at UCLA trying to use cell phones to do medical diagnosis. Given the ubiquity of cell phones in India, these could be useful lines of attack for us.

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East Europe after 1989

I have an article in Financial Express where I look back economic development in Eastern Europe in the last 20 years, and compare and contrast with India.



In recent weeks, a lot of very interesting writing, looking back at 1989, has come out. My suggestions for further reading follow. Readers of age 40 and below should try particularly hard to read these and other materials so as to comprehend these earth-shaking events. These events matter because they have had a huge influence on the world that we see today. And, they matter because they help us think more effectively about the drama that will come about in China in coming years.

1. 1989! by Timothy Garton Ash in The New York Review of Books. Am eagerly waiting for part 2 of this. Also by him in The Guardian: This tale of two revolutions and two anniversaries may yet have a twist (May 2008) and 1989 changed the world. But where now for Europe? (now). 


2. A great story of the big day by Alison Smale. Also see Serge Schmemann.
   


3. The unknown war by Matt Welch on reason.com. We feel this intuitively, but the statistics are stunning:
   
   
   
   
   

   
   In 1988, according to the global liberty watchdog Freedom House, just 36 percent of the world's 167 independent countries were `free,' 23 percent were 1partly free,' and 41 percent were `not free.' By 2008, not only were there 26 additional countries (including such new `free' entities as Croatia, Estonia, Latvia, Lithuania, Serbia, Slovakia, and Slovenia), but the ratios had reversed: 46 percent were `free,' 32 percent were `partly free,' and just 22 percent were `not free.' There were only 69 electoral democracies in 1989; by 2008 their ranks had swelled to 119.
   
   

   
   
   
   


4. A beautiful section from The Economist:
   Walls in the mind;
   So much gained, so much to lose;
   The man who trusted his eyes;
   A globe redrawn;
   Less welcome;
   Keep calm and carry on;
   Wall stories;
   Down in the dumps


5. The peaceful revolution of 1989 by Adam Roberts in The Independent.


6. Brain drain in reverse behind fallen Berlin Wall by Carter Dougherty, in the New York Times.


7. A slideshow by Erik Berglof which summarises the Transition in crisis? report released by the European Bank of Reconstruction and Development.


8. My take on the new dangers that we face today.

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Governments taking over banks

Jerry Caprio and Ila Patnaik, at two ends of the world, on the same subject.



The UK Special Resolution Regime has excellent documentation on the web.



There is a lot of talk in India about financial stability, where basic ideas are distorted to defend the status quo. Financial stability is, sadly, not interesting to the establishment when achieving it requires undertaking economic reform. One example of this is the problems of closing down failed banks or other financial firms: few things are more important to financial stability than the machinery of the bankruptcy process for financial firms. The best thinking on how to build deposit insurance is found in Chapter 6 of Raghuram Rajan's report. In the mid 1990s I was member of an RBI committee on reforming deposit insurance. There hasn't been any movement on this in decades.

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Recent RBI moves in finance

On 30 October, I had written a response, in Financial Express to recent RBI moves on financial reform. Here are a few other responses:

• Anil Padmanabhan in Mint on the big picture.
• An editorial in Business World, and Tamal Bandyopadhyay in Mint, on the PLR controversy.
• An editorial in Financial Express, and a blog post by Bagdu, on freedom to open branches.

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