Ten stories from a down and up year: Financial Express 25th December 2009

Shakespeare had said: “All the world’s a stage...” Yes, we are mere players but irony often enters the characters when we say our lines, especially in the theatre of finance and economics. The year 2009 will be remembered for several such ironies that are in the realm of the theatre of the absurd, and the focus here is on the top 10 stories that add spice and intrigue.
The financial crisis that started in 2007 was still the subject of continued debate. Institutions were blamed and finally it was decided that the culprit was Alan Greenspan who loosened the strings too much and too soon, which engendered the bubble. But once the crisis came in, memories were taken back to the Depression when nothing was done and the crisis was exacerbated. Not surprisingly, Ben has lowered the rates again to virtually zero. Is this the beginning of another bubble?
The RBI basked in its own glory by behaving as if it knew all the time that securitisation and collateralised debt obligations (CDOs) would lead to a financial crisis. They claimed that India came out unscathed because we were prudent. Was this really the case or was it that we have now gone in for sophisticated products because we could not understand them? Few knew beyond the textbook what CDOs were all about, and hence not being affected by the crisis could be simply because we never tried them out. With RBI controlling every aspect of banking right from interest rates to where money should go, we can actually never go wrong. Right?
A fallout of the crisis was that CEO salaries came under the scanner. CEOs of some of the companies that were bailed out through public money had the temerity to give themselves hefty bonuses, which is the ultimate arrogance of capitalism. Indian government officials hence had a field day getting back at the private sector, which had objected to the Pay Commission’s proposals a couple of years back by lambasting the CEO pay structure.
Next, Dubai was a case in itself. Once touted as being a potential global financial centre, we had a case of the government refusing to honour the debt of one of its own undertakings. Clearly a financial centre in the 21st century cannot be created by building Taj Mahals.
The monsoon became a major issue, and right up to September all our leaders kept saying that it would revive which was based on optimism rather than belief, until the IMD declared 2009 a drought year. Not to be deterred, we have been told to carry on with our chins held high as the rabi crop will be good. Do we have any reason for such an assumption?
Notwithstanding the fact that agriculture has failed, we have taken solace in the double-digit industrial growth rate and the fiscal stimulus package to now believe that GDP growth will be closer to 8% than the more humble 6% just one month back. A rare display of the conjurer’s magic wand in North Block?
The capital market matched our irrational mood swings. It was down to 8,000-levels in March when we claimed we did better than the world through the crisis. Then it soared to cross 17,000 when we had more bad news pouring in such as inflation and drought. But, good news like good industrial and GDP growth failed to excite it further. We still have to understand the way the Sensex and Nifty move.
Inflation was a crazy phenomenon and debates ranged over whether this was deflation or dis-inflation, and as economists had a roll on this subject, we have suddenly seen prices shooting upwards and no one knows what can be done as one has realised that banning futures trading, imposing strict stock limits, lowering duties and taxes can just not increase production. There are evidently no short-term solutions here.
The derivatives markets had a mixed package. While the commodity market rejoiced when wheat futures was restored, it had to sulk when sugar was banned. Interest rate futures have once again run into rough weather unlike currency futures, which have been a major hit clocking volumes of close to Rs 25,000 crore a day. Can there be a derivative product on risk of failure?
Lastly, while the mood seems to be upbeat (for the right or wrong reasons) a major shadow has been cast by Suresh Tendulkar, who has estimated that 37.2% of our population is below the poverty line. Is he right? We’ll have to wait a while to find out.