“When Going Gets Tough, Tough Gets Going”

Life unfolds all sorts of challenges, obstacles, in your path each day and if you get bewildered with those, much unexpected situations which maybe difficult to handle, you are only making the situation more knotty.
If you think deep you would realise that each day with its new set of difficulties, brings in numerous unaccounted learning’s which keep adding to the existing set of tools, thereby strengthening your existing defensive system, making you immune to similar kind of situations in future.

However, it is not just difficulties that life offers; it also brings a complete set of new opportunities each day. No matter, however long and dark the night maybe, there is always a morning equally bright which unravels a complete new world each day, a day which is unique, a day that has never been earlier and a day that would never be again and it is all up to us to see the opportunities it offers and take it in our stride more confidently.

“SMILE TODAY, TOMORROW WOULD BE WORSE”
- Anonymous

Everyday you would come across people who disbelieve you, who are afraid of you, however they are strong and conscious enough not to portray their fear on you face. They try to get you down and influence you with all sorts of negativities around, its you who has to stand steadfast amidst them and prove your mettle. Let them not bother you, because as long as you believe in yourself, no matter what happens or what anyone else says and does, you would make your mark.
Let not the imbecile influence you with their short sighted and crippled thoughts, let them not inflict and plague you; -- You have come to this world with ambitions which are poles apart, an ambition to make a difference to this world, no matter however small that change maybe, a change is a change for the betterment of tomorrow.

Life can turn out to be as unpredictable and capricious as much as one can imagine, and all expectations, decisions, plans however well they may have been gauged, can falter. It is then that you need to take control of yourself and not fall apart due to the situation, only then can you make the difference, a positive difference to yourself and to the society that needs you.

Be the independent to bring the change, a change which no one has thought before, a change which can change the state of thinking of others. You be the change, you want to see in the world, give it a new shape, a new colour, a new thought, a new direction which is brightened with your verve, enthusiasm, potency, and creativity --- you can bring the about the change the world needs.

Next time when you get frustrated with the situations at hand, think about you making a difference, think about you rectifying it rather than being a mere spectator to the disorder. Be on the other side, even if you are the only one there.
So do not wait for things to happen on their own or for some one else to fix it --- make them happen.

“ALL POWER IS WITHIN YOU;
YOU CAN DO ANYTHING AND EVERYTHING, BELIEVE IN THAT.
DO NOT BELIEVE THAT YOU ARE WEAK.
STAND UP AND EXPRESS THE DIVINITY WITHIN YOU”
- Swami Vivekananda

Money Market funds infected by Subprime

Money Market funds were invented 37 years ago to offer investors better returns than bank savings account while providing higher degree of safety. The size of the money market funds as of today is around $2.5 trillion, of which most of the investments have been made in assets like US Treasury Bills, Certificate of Deposits (CDs), Short Term Commercial debts and such low risk investments.

However, due to the growing pressure of yielding higher returns to its investors, some of the largest money market funds today are parking a part of their cash into some of the riskiest debt instruments of the world: CDOs (Collateralised Debt Obligation).
CDOs are package of bonds backed with loans. However the soreness is caused by the fact that almost half of the loan belong to the subprime debt category.

Money Market funds with total assets of $300 billion have been invested in sub prime debt this year. There is danger owning even highly rated CDOs, who definitely contain subprime loans.
There are around 38.4 million money market funds in the US. People use money market both to hold savings and serve as an account to buy securities, however the prime motive of it is to maintain safety and reasonable rate of return.

Money Market Managers are required to determine that their investments are safe and have high credit ratings; however Money Market managers buy CDO commercial papers to boost returns and make their funds more attractive to investors, which in turn increase their income.


With the default growing and sub prime crisis transmitting its unhealthiness, the fund managers have found a scapegoat in the Credit Rating Companies such as S&P, Fitch, and Moody’s whose irresponsible ratings definitely cannot be overlooked, however the fund managers and the various fund houses employ some of the most perspicacious people who charge the most hefty emolument, how can they shrug their responsibilities completely on someone else’s shoulders?
Investing in firms with Price-Earnings ratio of more than 500, does not hold water even if the most premier Investment Bank of this world grades it with a “BUY” position.
Similarly lending money to poor people with a record of not paying their debts is risky, regardless of what rating a credit rating company gives on the bond issue.
This is more effective incase of money market funds, where investors treat them at par with bank savings account and the last thing they (investors) would want is their money being lost in subprime debt furor.

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Money Market fund is a mutual fund that invests solely in money market instruments. Similar to a mutual fund, it issues redeemable units to investors and must follow guidelines set out by the SEC. Money Market funds NAV (Net Asset Value) is also determined at the end of each day.
These funds have some special properties:
1) Safety: the instruments these funds invest in are by and large some of the most stable and safe investments.
2) Low initial investment: Money market instruments have large minimum purchase requirements, thereby dissuading the personal investors from buying them. However money market funds have lower minimum purchase requirements thereby easily affordable by small investors.
3) Fixed NAV: the NAV for money market funds is usually fixed at a constant value of $1 per unit, giving investors more flexibility than mutual funds.
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The Private Equity Boom has not Sedated

With the worlds largest banks participating in the LBO (Leverage Buy Out) funding, the PE (Private Equity) boom was leading the global financial liquidity. Earlier in an LBO, the buyer issued junk bonds to pay for the acquisition, however today it are the PE firms who are doing the LBO financing.

The turmoil caused by Subprime disorder, under normal circumstances should have been a ground frail enough to restrain the large PE firms from making any further investment. However some of the large PE firms like KKR and Carlyle Group are among more than 50 PE firms looking to raise atleast $52 billion LBO funds, apathetic towards the existing crunch in the credit market.
While the activity of the PE firms has slowed, they still are eager to raise fresh funds for considerable buying opportunity being created due to the price falls in the companies they buy, brought by the credit market furor.
Despite the difficulties in the credit market, the willingness to invest in buy-out funds from long-term investors, such as pension funds and insurance companies does not seem to subside.
The KKR IPO which was scheduled to raise $1.25 billion this year seems to be slightly difficult due to the mortgage crisis, which is worsened more with KKR booking losses worth $400 million in its sale of $5.1 billion in residential mortgages.

However amidst all woes, KKR is seeking to raise $10.3 billion for its new European buy-out fund. Last week, Blackstone closed the world’s largest buyout fund at $21.7 billion. Similarly, couple of days back the size of buyout fund closed by KKR was $16.5 billion.

In their quest to acquire stakes in the companies, not only have the various PE firms (especially Blackstone and KKR) been constantly raising the cost of acquisition for each other but also seem to be heading towards a self destructive mode where delivering returns to customer expectations’ would become increasingly difficult due to the very high cost of purchase.


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PE funds raise money from rich investors who are willing to play with high risk for a fixed period. Followed by which they buyout undervalued public companies and take them private. Over the next 4 to 6 years, these funds work to unlock the value in these companies by cutting cost and improving operations.
The restructured companies are then sold or publicly listed again, and the funds return their capital with profits to their original investors.
***** *****

What worries South East Asia

Emerging markets are especially more sensitive during times of doubt & uncertainty because of their higher risk profiles and hence the large sell-off being initiated is not really a surprise.
The Emerging Asian economy is hugely dependent on exports for its income, and to mention the fact that US is one of the largest market for them is clichéd.
Direct exposure to subprime crisis is not the big concern for these economies because the exposure what they have is negligible compared to other economies. South Korea’s banks, for example have announced a mere $567 million of aggregate exposure to credit derivatives.
Instead the fear is that credit crunch which is already affecting the US growth prospects would soon trickle down to other economies, in turn diminishing the demand for Asian goods drastically. In Thailand for example, export contributes to around 74 percent of its GDP.

The upheaval in currency markets is drawing particular attention because, if it intensifies, it can shatter the expectations of manufacturers and exporters, even in countries such as Japan where companies have been predicting their earnings on conservative foreign exchange forecasts.
The Yen strengthened to as much as Y115.71 against the dollar on Thursday, August 16, its highest level since March. A stronger Yen decreases the value of Japanese exporter’s dollar denominated sales when converted back into local currency.
Incase of Indonesia, the currency has fallen to its lowest level against US Dollar since June last year and hence the central bank has promised to intervene to prevent any further drop in the Rupiah (Indonesian Currency).

In the longer run, any currency advantage for Asian exporters would be offset by the impact on the US economy and lower demand there for their goods. A lot would depend on whether intra-regional trade holds up, but a slowing US economy would affect that as well. And the fact that nearly two-thirds of exports still ends up in the US, European Union and Japan makes it more poignant.

Affect on China & India as of now (During the Sub Prime Crisis)

China
China seems to be much more stable and least affected by the sub prime crisis, compared to other economies. There has been much lesser sell-offs in China as compared to other low-income countries around the region.
Even if China sees a slowdown in its export markets, its strong fiscal position and profuse domestic liquidity would help it overcome the situation.
China has always invested all its money in US treasury. In the short term, keeping Renminbi low by buying US Dollars is good for the economy because it helps to boost the export. However, the export earnings get converted to US dollars and spent on US Securities leading to a virtual cycle. This diminishes the purchasing power of China, leading to a lower standard of living.
After the last crisis in 1998, the Chinese government started spending massively on infrastructure which helped China become export oriented and facilitated labour intensive industries. (US is China’s major export partner)
The low purchasing power of China has resulted in a mountain of cash and bulk of this wealth is denominated in US dollar, a weakening currency. If this wealth which is dollar denominated is sold for renminbi, it would appreciate the Chinese currency and thereby make it less competitive towards export in the international market. This disables China from spending its own money.
The Chinese wealth which is accumulated in US dollars is depreciating too fast for it to be accumulated, however the Chinese government has been excessively dependent on export and to let it go is not easy for them.

At some stage the leaders would be forced to invest more domestically and have stronger domestic market, which would appreciate the renminbi and thereby improve the purchasing power of China.
If also a part of forex reserves is converted into renminbi and used on the two under funded areas: health and education, it would in the long term have immense beneficial effect on the economy. This would reduce the tendency to save and kindle consumption.
It would also help them in importing their essential needs from other countries due to the increased purchasing power.

India
Incase of sharp risk aversion in the global financial markets, India tends to be more vulnerable than other Asian economies due to the large FII influx in the country.
Just 18 percent of the $98 billion of capital invested in India over the past four years has been in the form of long-term FDI, leaving it more exposed than other emerging economies where FDI accounts for about 75 percent of the total capital invested.
Atop this, similar to other western countries, Indian banks too have been undermining the risk associated with the credit making it more susceptible to the sell-offs.
Outflow of funds from India will help in the fall of rupee which would be of some relief to the exporters who are suffering from the sharp appreciation of rupee, which has led to the steep downfall in India’s export growth, now running at its lowest levels since 2003.
It would also assuage the US-centric IT companies, who have suffered from the pangs of recent rupee surge.

A Quick Run over the last few days in the world of Finance

The financial markets around the world have gone in complete chaos after the exposure of sub prime mortgage crisis and the resultant loss looming over the investment houses. This has caused panic amidst the investors who have grown nervous and don’t really know what to do with their money. This has been caused primarily because the investors bought anything and everything during the Bull Run at prices which did not reflect their true risk.

Late payments and defaults on US mortgages have reached their highest level in more than five years, prompting sharp falls in the value of mortgage-related securities and severe funding problems for lenders.
Economists predict that disorder in the financial markets has diminished the chances of recovery by the US housing sector after figures showed home construction activity fell last month to its lowest point in the decade which would prolong the housing slump.

The commodity prices led by Oil, Nickel and Copper declined on concerns of slow economic growth and demand for raw materials due to the growing losses in the credit market.

Investors are favouring Government Securities over Mortgage Backed Securities, Asset Backed Securities and also high grade corporate bonds, as they are moving towards more defensive position. The fear in the markets is making investors pile up short-term US government debt, thereby tumbling the yields on the Treasuries.
As on July 26, the Corporate and High Yield bond issuance stood at $31 billion (with 80% denominated in USD) in the first half of 2007 compared to total volume of $38 billion last year.
The ever-increasing demand for Treasuries due to the relative safety on government bonds has pushed 2 year yields to the lowest in 22 months. The yield on the 3 month T-Bill has fallen to 3.73 percent, it’s lowest since July 2005.


The situation has worsened due to the rise in Japanese Yen, where Dollar has fallen to 4 months low against Yen on growth concerns which have resulted in the discontinuation of carry trades from Japan. The more the Yen appreciates, the more the people would square off their investments which would further deteriorate the situation.
(Money borrowed in Japan where the benchmark interest rate was 0.5 percent, was being invested in economies offering higher returns, weakening the yen. New Zealand, where the key rate was 8.25 percent, had seen its currency driven to a 22 year high by the Yen Carry Trade. Thailand baht had surged to its highest since the Asian financial crisis a decade ago, as had the South Korean won.)

The turmoil in the currency markets which has led to the strengthening of the local currencies in the South East Asian economies would leave them disadvantaged against their competitors towards export. This would be further worsened by the lowered demand caused by the slowdown in the US economy.

The Fed, European Central Bank and other Central banks around the world have constantly been pumping cash to maintain the liquidity in the system. They have added more than $300 billion in their financial systems through distressed banks. (Till now US central bank has pumped in more than $76 billion to help troubled banks).
Russia’s central bank also joined the efforts to ease fears over the global liquidity crunch; by injecting $1.67bn into the country’s banking system on Thursday.
Russia was likely to withstand the turmoil in global financial markets due to the relatively low leveraging of Russian companies and also due to the high oil prices which has helped to fuel its economic boom.

The Fed Reserve has unexpectedly cut the discount rate to mitigate the damage to economy from the disorder in global credits markets. The central bank reduced the rate at which Fed makes direct loans to banks by 0.5 percentage point to 5.75 percent.

Investment Banks across the world are having real hard time trying to cope with losses due to hedge fund operations. Goldman Sachs was trying to rescue its $3 billion from one of its hedge funds which had suffered losses following slump in equity market.
JP Morgan & Chase, the biggest lender in the LBO market, is expected to lose about $1.4 billion on loans it can’t sell because of the credit crunch.
JPMC is stuck with $40.8 billion of LBO debt, while Goldman Sachs is holding $31.9 billion and Deutsche bank has $27.3 billion. JPMC and Goldman Sachs were among banks that last month failed to sell $20 billion of loans for the LBOs of UK drugstore Alliance Boots Plc and carmaker Chrysler LLC.

London experienced the biggest one day loss in past four years, ignited by selling on Wall Street amidst fear of US slowdown, plummeting FTSE by 250 points, which is more than 4 percent decline.
Investors have been fleeing Asian and European stocks, pushing the markets in red.
Amid this crisis the Bombay Stock Exchange Sensex nosedived by 642.70 points (more than 4%) – the largest single day fall in over 4 months. The FIIs (mainly Hedge Funds) had sold around Rs 3100 crore on Thursday – the highest single day sales by foreign funds as of date.
South Korean, Taiwanese and Indonesian markets also closed 5 to 7% lower.
However bankers and investors in Asia have been quite confident about the resilience of the region from the current mess due to the strong fundamentals and limited overall exposure to US sub prime mortgage market. Therefore there is little sign that this trouble would cause a great slowdown in the emerging markets.

INDIA Shining

It’s been a long and cumbersome journey for one of the world’s largest democracy to cover the span of sixty odd years past its independence since 1947. It grew at an average rate of 3.5 percent from 1950 to 1980, at 6 percent in 1980s and 1990s, around 8 percent after that and at slightly more than 9 percent in the past two years.

Today it is on the verge of becoming the key drivers of the World economy, surpassing the most dominant and unswerving countries of this world.
It’s become a country which cannot go unnoticed, no matter which forum it is.
• It is the 4th largest economy in the world (on the basis of purchase power)
• It has the 12th largest consumer market in the world, forecasted to become the 5th largest by 2025
• The Indian IT-ITES industry is expected to cross $50 billion this fiscal
• It is the fastest growing Mobile Telephony market in the world, with about 6 million monthly additions to the subscriber base
• It has the worlds sixth largest crude oil refining capacity – 2.56 million barrels per day; 3% of the world’s capacity
• Its forex reserves are $214 billion which is equivalent to a years import which was equivalent to a days import in 1991
• It is the youngest country in the world with more than half population (54 percent) 24 years of age and below
• The Market Cap of the Stock Exchange is around INR 34,000 billion (i.e. around 96% of GDP). Bombay Stock Exchange had 7,707 scrips as on June 2007
• SMEs (Small and Medium Enterprise) today have 40% share in industrial output and contribute to 35% of direct exports and 45% of overall exports. India has 3 million plus SME units
• India’s gross national savings rate stands at 32.4% as against 12.9% of US

The fact that India is growing at an excitably fast speed cannot be disputed, however similarly is the rift between the “have’s and have not’s” mounting. The rich are getting richer much faster than the poor.
India needs a growth which is Inclusive and Holistic.
There is one strata of the society which has cars, computers, washing machines, pays through credit cards, and travels by planes; possess all means required for hedonistic living completely oblivious to the contrarian equivalents who struggle hard each day to sustain their existence.
• 60 percent of the people in India belong to the underprivileged category
• India’s population would reach 1.35 billion by 2025
• 65 percent of the labour force is not even matriculate
• Half of children below 5, suffer from malnourishment
• Agriculture contributes less than 25% to GDP which is expected to become 10% by 2015, however more than 60% of the labour force remains dependent on it.
• Out of 100 million children ( in the age group of 6 to 14) worldwide who do not go to school, 20 million live in India


Rural India has a population of 700 million spread across 600,000 villages and hence they contain a mass which cannot be ignored or neglected if we want the absolute development and progress of this country.
Despite the bulk of the population being dependent on agriculture, the production/ output received is overly meager. Last year India had to import 72 lakh tonnes of wheat at very high price.
To boost agriculture we need to get large investments in rural and backward areas and create means for successful agriculture which is not only about farming but also about food processing and its storage. This would also require to be supported by proper channels of water supply with water management methods and irrigation amenities to prevent the farmers from relying on rain for their crops. We need to replace our olden methods of cultivation with technologically advanced methods which would boost the production.
For this the government needs to have more proactive Micro Finance Institutions who would help the farmers for their financial needs through low cost credit.
The levels of ground water is declining by 5 percent every year in the North Western states of Punjab, Haryana, Western UP, parts of Maharashtra and Gujarat and if it is not tackled immediately and pondered upon it may exacerbate the already existing woes of the farmers.
In a situation like this what is needed is superior water management, because we face floods in large parts of the country and then face water scarcity after some time. We need more dams and reservoirs which can hold water for the period when required and can be effectively used.


Only 28% of Indian population lives in towns which is expected to touch around 41 percent by 2030.
2/3rd of urban population is living in small and medium sized cities (less than 1 million population); services and infrastructure in these cities are coming under tremendous strain in terms of housing, infrastructure, transportation, sewage water and other basic services. This would result in a very large chunk of this very rapidly urbanising population to be forced to live in slums and temporary settlements.
An apartment in South Mumbai comes for around Rs 50,000 per square feet, and surprisingly has large number of takers for itself making moolah for the builders. The actual problem is of demand and supply which is pushing up the price, however this should not be interpreted as land scarcity in urban area. The trouble is we are not using land in proper way and also laws such as Rent Act are not allowing authorities to release the land thereby underutilising existing resource and shooting up price.
This problem of enormity if not dealt soon would dilapidate the entire system of these cities which are already struggling with the influx of huge population.


India is the worlds 6th largest consumer of Crude Oil after the US, China, Japan, Russia and Germany. India imports 70 percent of its crude oil needs which is expected to increase to 80 percent over the next decade.
To counter inflation and provide stability from the extremely volatile global oil prices, the government provides huge subsidies on oil which results in enormous loss for the oil companies even though the loss is soothed through the issue of Oil bonds by government.
Today Public sector Oil companies are losing Rs 5.88/lt on petrol and Rs 4.80/lt on diesel which results in a loss of Rs 90 crore per day for the Indian Oil company.
We need to restrain the usage of oil and along with that migrate to the usage of gas at slightly faster pace to shrink our dependency on oil.


India’s public debt to government revenue was 400 percent in 2004, which is about 83 percent of GDP. High government debt implies a significant interest payment which means lesser funds available for development expenditure. It also crowds out private investments because when the government borrows heavily, the private entities are unable to access credit easily or cheaply enough, which in turn impacts growth.
We need to accelerate economic growth by spending in areas of development such as infrastructure, services, education and keep the non-developmental expenses under check which leads to higher stress by raising unproductiveness and also increasing inflation.


20 percent of children not going to school worldwide belong to India.
India needs to focus on its primary education and be true and committed to its mission rather than creating a farcical situation for itself. It needs to establish more primary schools and have better facilitators/ teachers rather than the existing ones who barely turn up. The concerned authorities need to be sterner while dealing with such situations rather than be carried away for electoral reasons.


Based on the number of people finishing high school, India would need 12 to 14 million jobs a year for the next 20 years.
There is disparity in incomes and regional development. Employment in the organised sector is not growing commensurate with the rates of its growth thereby giving rise to jobless growth.
India needs to promote Small and Medium Enterprises through tax incentives and easy credit facilities which can be extremely beneficial for the overall development of the country.
Government needs to promote industries in its SEZ (Special Economic Zone) which actually provide job to the inhabitants in and around that place rather than causing mass relocation of people from other states for those jobs. Sectors like manufacturing can provide mass employment and hence they should be given priority in SEZs.


India has to eradicate poverty, corruption and bureaucracy from every corner of this country.
We need to transform and restructure our government also along with economic policies. This can only happen with the valuable effort of every individual; the minimal one can do is exercise his fundamental right to vote and elect his leaders more judiciously, unruffled by trivialities of religion and caste. Today more than half of the population does not exercise its voting right, and majority of these people not voting belong to the educated and self-sufficient lot who show their unconcern towards their fundamental right for petty reasons.
India needs a government which is sincere and committed in providing health, education and physical infrastructure to all its citizens.


India needs to cover several miles more before it can be really proud of itself.
To continue the existing growth momentum and meet the ambitious expectations of millions of eyes all around, it needs a real inclusive and holistic growth which would make it a country free from corruption, illiteracy, and poverty
It’s only then can we have a TRUE SHINING INDIA, an India which Gandhi dreamt of, Bhagat Singh and millions of unnamed freedom fighters sacrificed their life for.

How Should RBI (Reserve Bank of India) deal with Forex Inflows ?

Recently RBI intervened in the Forex market to curb ECBs (External Commercial Borrowing).
It announced restriction on ECBs, limiting their use for rupee expenditure. Companies will now be able to raise only up to $20 million abroad for rupee expenditure and only with prior RBI approval which in turn means companies can at best, raise Rs 80 crore abroad via debt for domestic expenditure. For the rest, they will have to look for local financing.
This comes at a time when companies are facing higher interest rates at home and there is a growing demand for external funds to take advantage of the interest rate arbitrage.
The move is aimed at containing the huge inflow of dollars, which puts inflationary pressures on the economy. RBI has to release the equivalent of rupees to absorb the dollar inflow, so as to neutralise its effect on the money market which leads to an increased money supply in the economy, adding to inflation.
This move would also prevent the Rupee appreciation and excessive money dumping in the economy; however this move would shoot up the borrowing rate.

There is large inflow of foreign funds happening today due to the interest rate arbitrage which is primarily governed by high output growth and weaker dollar which has built up the confidence of the investors towards future expectations and potential appreciation of present investment.

India is facing tremendous pressure due to the enormous foreign inflows and thereby needs to increase its absorption capacity to stay firm on the growth path and prevent any digression from its mission of 9% growth in GDP, without which it would become a flaccid economy incapable of endurance.
We need to accelerate our process of rewarding infrastructure tenders, open sectors in retail, education and any/ all other sector where there are lesser players. This would open up the economy and provide optimal USE to the SOURCE of funds.

Should China Revalue its Yuan to counter inflation ?

China’s inflation rate has hit a 10 year high of 5.6 percent in July, a leap which has raised expectations of further tightening measures and increased concerns about an eventual impact on the economy.

The rise in the CPI was mainly due to the higher food prices, a result of a shortage of staple meats, (especially pork, following an illness which killed millions of pigs later last year), and higher feed costs.
Food prices have jumped by 15 percent driven by 45 percent surge in meat and poultry prices, however the Non Food prices have risen only by 0.9 percent


The impact/ role of money flowing in China through trade surplus cannot be ignored while considering the rise in food costs due to the excess liquidity in the economy.
Chinese Interest rates have increased three times this year to curb the growing money supply in the economy.

To prevent the rising liquidity in the economy, China may have to resort to revaluation of Yuan. As long as the Yuan is undervalued, China cannot increase the interest rate because it might end up attracting even higher quantities of capital inflows for interest arbitrage.

China is trying to tackle the food inflation impact by enticing farmers to raise pigs by subsidizing it by 80%.
However this may not turnout to be the permanent solution, because excessive liquidity would still remain in the economy and hence the inflationary effect would shift to other some other areas such as services and manufacturing.
It is time for the Chinese government to revalue Yuan to reduce its salability in the global market which would cut down China’s export, however would help China counter inflation much easily and comprehensively.

China and India (ChIndia) --- An Engagement, the World looks at

Since the reform and opening up of Chinese economy in 1978, China has grown at a steady rate of 9.4% annually. Their growth relies heavily on manufacturing while services industry is relatively underdeveloped. Due to this there was over consumption of energy and raw materials, excess capacity and associated excessive competition in investment goods, induced export, external account imbalance, and rapid built up of foreign exchange reserves.
Now there is an importance being attached to equality in income distribution and take measures to lower the domestic savings rate and increase consumption by boosting domestic demand. Unlike other countries China cannot depend on Short term investments to raise domestic demand. Rather, they need to encourage household consumption. According to statistics, household consumption accounts only for 40% of China’s GDP which means there is large potential for further expansion. However due to limited land and energy resources, adjustment of consumption structure will have to rely on service sector growth.

A simple comparison of India and China:

China has an extremely flexible labour market because a large number of farmers look for jobs in cities and coastal areas, which is similar to India where there is a large influx happening today in the cities from rural areas; however we still have a colossal population depending on agriculture in our villages.

China and India have an advantage of huge population. However China has a population which is aging fast. Its “One Child” policy while putting break on population growth, has given rise to a unique “1+6” problem. With the increase in average life span, old folks are living longer resulting which an average young man/ woman in China has to produce enough to support two parents, and four grandparents.
On the other hand, India is aging slower and would continue to have younger population for the next 50 years at least. However the actual problem in India is the high illiteracy rate which needs to be countered.

China is driven by government and supported by people hence has a government which is more effective than Indian government, whereas Indian economy is driven by the motivated individuals and supported by government.

China has started allowing foreign investors to buy stakes in domestic financial institutions and become participants in the domestic financial market, thereby liberalizing its financial sector.
Commercial banks are developing soundly in India with low NPA ratios, proper order, and a good legal environment. In terms of Capital market development, India also has relatively advanced stock and equity markets. Despite the fact that China has a high saving rate and the Chinese financial sector maintains a comparatively high liability ratio, there exists a great potential for growth of financial industry.
Financial ecosystem” comprises not only environment at the macro level such as the legal, supervisory, regulatory, and government intervention policies, but also micro conditions related to efficiencies of the financial institutions’ business operation.
The banking sector performance in India has improved greatly, however further reforms are needed, including improvements in the financial services infrastructure, reductions in the cost of intermediation, and scaling up of banking services to provide broader access to financial services mainly in rural areas.


Where are these Economies heading?
The two Asian giants want to regain their economic supremacy. Indian economy is driven by services while the Chinese is manufacturing. With India’s leadership in IT and Chinese strengths in hardware and manufacturing the economies are complementary.
The two economies are beginning to understand and re-engage each other. Trade between them which has grown from practically nothing is expected to grow to $20 billion by 2010.
India’s service industry makes more than 50% of GDP whereas China has it around 40%, thereby making it evident that China has huge potential to expand its services industry.

No wonder, India and China would account for 50% of the world’s GDP in just a few decades time.

The Real Estate Market of US and Global Economy

The real estate market in the US does not seem to be recovering which may prove to be somewhat risky for the global economy.
Central banks in the US, Europe, Japan, Australia and Canada have pumped in billions of dollars in the proximity of $136 billion in their banking systems due to the liquidity shortage created from the subprime mortgage problem, which was done to prevent the overnight rates from surging and ensuring banks have access to funding. The Bank of Japan injected Y600 billion yesterday (13 August, 2007) into the money market following its Y1000 billion emergency injection on Friday, to help reduce the pressure on inter bank lending rates amidst global jitters in financial markets due to the huge demand of funds from the various players as credit has dried up. Central banks in South Korea, Philippines, Singapore, Indonesia, India and Malaysia said they were prepared to add cash into their financial systems.
Indian banks have not yet faced a liquidity crunch, however if the global panic persists, soon Indian banks too may have to look upon RBI for support.
The support of central banks has been able to enforce investor confidence which rallied the Asian stock markets modestly.

However the current situation would have impacts in dimensions more than obvious such as incase of Bank of Japan which was expected to raise its interest rates from 0.5% (lowest of the major economies) to 0.75% later this month may not happen now since the GDP rose by 0.5 % which was weaker than expected during the second quarter due to drop in exports to the US, and also drop in housing investments and public spending. A sharp withdrawal of FII from the Indian stock market may raise panic and bust the market here too, if the situation gets worse.
The effect of downtrodden housing and subprime lending market of US which has shot the excessive withdrawal of the credit would constrain the growth in spending (US spending) and output of this can be contagious thereby leading to a snag in the other economies worldwide; however the extent to which these financial events would affect global growth remains uncertain.

Banking Sector Reform in India – Since 1990

(Reference: Based on a paper from IMF)

The banking regulatory that was put in place in many countries following the Great Depression of 1930s had two broad goals: first to reduce the risk inherent in banking by imposing restrictions on the way the banks operated and controlling the cost of deposits, and the second was to protect the depositors from bank failures.

Prior to 1991, the system of licensing was prevalent in India which protected the borrowers from meaningful economic competition and even the possibility of run was remote on a bank due to the nationalization of the bulk of banking sector in 1969 meant an implicit guarantee from the government.
Banking regulation followed the classical path under which the regulator specified detailed guidelines on each aspect of the banking business, there were fixed borrowing and lending rates and a completely fixed set of interest rates and slowly moving exchange rates in the larger economy. Lending was directed towards certain priority sectors such as agriculture and small scale industries.

The economic liberalization of 1991 under Prime Minister P V Narsimha Rao demolished Industrial licensing and entrepreneurs were free to set up any capacity by obtaining minimal clearances. However because there were very few business houses and even they had very little capital, the only real constraint became the availability of finance from the DFIs (Development Finance Institutions).
DFIs are established and funded by the government to develop and promote certain strategic sectors of the economy, and to achieve social goals. They are expected to fill in the gaps which the banks do not enter.

In particular on the lending side of non priority sector debt, commercial banks and DFIs were given complete freedom to lend money at the rates of interest that they could freely determine. However the rates of interest in Savings and Current bank account were regulated across the banking system and only commercial banks (not NBFCs and DFIs) were allowed to access these low-cost funds. Commercial banks were required to maintain a part of their liabilities (deposits) as SLR, CRR and invest heavily in government securities.

Neither the bankers nor industrialists had any experience operating in liberalized environments; almost every project that was submitted for financing was accepted. As a consequence, the system created excessive capacity in all industries mainly steel, man made fiber, paper, cement, textiles, hotels, and automobiles which received a major share of the loan given by the DFIs and partly by Commercial banks.


The yield on 10 year government bond fell from 13.9% in April 1996 to a low 5.15% in April 2004. Banks continued to invest heavily in government securities even though interest rates on these securities fell steadily because interest rates on savings account and current accounts were tightly regulated and kept well below risk free rate.
This helped in maintaining solvency in the system; however the poor understanding of risk management and maturity profile produced excess capacity as stated earlier.


The factors responsible for the current healthy banking system in our country are namely:
1) The implied government guarantee ensured that the public never lost confidence in the banks and hence there was never a run on a bank.
2) The large difference between the cost of demand deposits (current and savings) and the rate of return on the government of India securities helped banks to maintain profit..
3) High level of explicit capital injection into DFIs and banks helped these banks to remain liquid.


There have been a lot of changes since the liberalization of the economy such as:
• A rapid buildup of retail finance since 1996 due to the strong demand for retail loans.
• Increase in commodity prices since 2000 due to the Chinese demand and the domestic retail financing boom.
• The volatility level in financial assets have increased (interest rates in government securities have started to rise)
• There has been increased level of volatility in commodity prices due to the global shocks
• Demand for credit from manufacturing, infrastructure and agriculture has surged
• Enhanced levels of competition from Insurance companies and Asset Management companies for Bank deposits


However, the Indian Banking system still has a long way to go and needs reforms which focus on banking outcomes for the banking system as a whole. The various reforms which need to be implemented include:
• Shifting focus from detailed processes that banks use to monitoring outcomes which would help banks to standardize their processes and also result in more timely and accurate disclosures which would be beneficial for the customer as well as regulator
• Lower the cost of intermediation by increasing the penetration of electronic payments on a nationwide basis and move towards national settlement in payment systems.
• Improve access to financial services:- In over 600,000 villages in the country the total number of rural bank branches of Scheduled Commercial Banks (SCB) does not exceed 30,000. The distance from a bank branch can be many more kilometers for some residents. Both regional rural banks (RRBs) and cooperative credit institutions suffer from poor access for customers, low levels of capitalization, and high default rates. We need to develop more number of Micro Finance Institutions which are more potent and committed to the goal of their inception.
• Banks need to be provided more freedom in terms of building outreach models (franchisee, branch, correspondent) with a focus on outcomes and not on uniform processes across banks, the way it happens in Brazil where banking services are offered from retail outlets such as drugstore, superstore, petrol stations which include deposits & withdrawals, bill payment services, and insurance products with the formally licensed bank taking complete responsibility for the correspondents business conduct.

Asia is growing and so is its Forex Reserve

IMF has forecasted the US to grow by 2% this year and the world economy to grow by 5.2% which in turn means the growth in Europe, Japan, and emerging markets including China and India would compensate for a weaker US.

Industrialised countries are facing more and more competition from Asian emerging markets where Asian products are not just competing on price alone but trying to become market leaders in their respective areas.

The increased FDI and FII investments being made in these Asian economies (particularly India and China) attracted by high growth has led to very high levels of Foreign Exchange Reserves with these countries which is getting difficult for them to handle.

Asia has come a long way since 1997, whereby banks have become more stable, currency reserves have been amassed, and governments are modernizing and integrating financial systems. Russia has a reserve of $450 billion up from $7.8 billion of 1998; South Korea has $250 billion from $52 billion of 1998, China has more than $1.2 trillion and India has more than $200 billion which is further growing.
Most of the forex reserves of these Asian Economies (especially China and India) are invested in US short term treasury. China controls its inflation through investing in US debt instruments which is known as Chinese Sterilisation effect.

It is quite evident that the government due to various reasons such as depreciating US dollar and also desire to receive higher returns want to invest their forex reserves in more efficient way, a recent example of which was the Chinese government invested $3 billion out of their $1.2 trillion reserves in Private Equity firm Blackstone based in New York.
However, India still needs to start on this front.
The rationale for building high reserves is to prevent financial crisis caused by sudden and large outflow of capital.

State of India:
India to some extent is still not potent enough to make investments in PE or Hedge Funds like other countries such as Singapore and UAE who have independent investment arms and China who has started investing recently.
This is mainly due to the risk averse nature of the government and public sector and also due to the heavy inflow of FIIs who may start exiting at the slightest indication of a negative market. Hence to prevent another crisis from occurring, the country needs high reserves, however definitely a portion of this colossal reserve can be put in investments yielding higher returns, however the big question which is haunting the RBI is how much? How Much of the reserves if invested in riskier investments would not harm the economy, is the question which needs to be answered.

(RBI is trying to cap the External Commercial Borrowing (ECB) to prevent the huge inflow of Dollar, which puts inflationary pressures on the economy. RBI has to release the equivalent of rupees to absorb the dollar inflow, so as to neutralise its effect on the money market. This leads to an increased money supply in the economy, adding to inflation.)


Implications for US:
Things can change abruptly if US economy enters recession; even the slightest insinuation that the Chinese investments are at a risk would run fast incase of a slight fiscal problem.
The abrupt withdrawal of all the money in the tune of trillions of Dollars can be a real run which can collapse the US bond market. The yields on a sudden can shoot up to 10% or higher. The stocks will crash immediately. The financial meltdown will occur in the trillion dollar meltdown that will be unstoppable.
The surging Current Account deficit of US has always been aggravated by the investments in US Treasuries from developing economies.

Conclusion:
Ten years ago, it would have been difficult to believe that the developing countries of Asia would finance the old world with their foreign exchange reserves accumulated through current account surpluses. However, today it is a reality which cannot be disregarded.
Asian emerging markets and commodity exporting countries will continue to finance the mature economies.
This unnatural phenomenon of funds moving from developing countries to developed countries should be the other way round for the better development of the global economy and also the improvement of developing countries.

US still dominates the Global financial markets.

The fall of the Share markets around the world, triggered by the US Sub Prime Mortgages default, have once again reinforced the dependency of the world markets on US.

Markets from London to Shanghai plummeted on Wednesday (1st August, 2007) amid worries that problems that began with US Sub Prime Mortgages (loans given to borrowers with lower credit rating) would start infecting other assets.
The Sell off was initiated by Macquarie Bank (Australia’s largest security firm), continued by Bear Stearns which later trickled to other financial markets around the world, pulling them down by 3 to 4%.
Macquarie has dropped by 6.6 percent since Wednesday, due to its earlier announcement of losing 25 percent of its money because of the turmoil in the US credit markets.

The Asian stocks fell extending a global equities sell off, on concern losses in the US Mortgage market which will slow growth and drive up global financing costs.
The Carry Trade (borrowing from place where Interest Rates are low and investing at places where returns are high) through Japan is also diminishing due to the appreciation/ strengthening of Japanese Yen to a four months high.

Investors have already started seeking the safety of Government Bonds over equities and corporate debt thereby raising the demand for US Treasuries.
The sub prime related losses and related activities would put PE deals and also new listings on hold for the next few months.

The Share Markets around the world have been impacted with the sub prime related losses thereby reinforcing the significance and potential of the American Economy.
A slowdown in the American economy pinches Europe and Asia. Any impact on US is contagious and is spread throughout the world market.

Wall Street is Losing its Leading Competitive Position --- A Review (As on 1st Jan, 2007 )

Hi Friends,
This particular article was written by me at the beginning of this year, however i feel it still has relevance and hence would be fruitful to post.
The article goes as follows:

Introduction

Hank Paulson, the US Treasury Secretary started his speech to a lunch of the Economic Club of New York, as is customary, with a joke: "It's good to be in New York City, the financial capital of the world."
As his nervous audience knew, New York is not the world's financial capital any more. It is one of the world's leading financial centers, certainly, but not the only one.

United States is losing its competitive position as compared to stock markets and financial centers abroad.
A key measure of competitiveness, one particularly relevant to the growth of new jobs, is where new equity capital is being raised.

The chairman of the New York Stock Exchange, told earlier this year that the American market "remains the market of choice." But, he said, the loss of competitiveness is "real and growing."

Wall Street is "losing its leading competitive position" compared to financial centers in other countries, and the federal government must take steps to curb lawsuits and overhaul market regulations to improve New York's standing.


Why is Wall Street losing to its competitors?


In the past year, many of the world's largest initial public offerings (mostly of Chinese and Russian companies) have taken place in London and Hong Kong, building concerns over Wall Street's lack of competitiveness in the emerging global financial marketplace.

New York's status as a financial capital is at risk because of excessive litigation and regulation, which are scaring firms away from the United States.
The Securities and Exchange Commission (SEC) is good at the tough stuff, bringing plenty of “enforcement actions”. But in its zeal to keep pace with crusading state attorneys, who exploit high-profile campaigns to win votes, it has lost sight of its other supposed goal—ensuring that markets run smoothly and efficiently.
Alternative Investment Market’s have developed in London and the fact that London and Hong Kong now host many of the world's initial public offerings have dampened spirits of any further enlistments.
In US, more companies are "going private"- signals the "regulatory and liability costs and burdens," are on the rise. In fact, while foreign companies are tapping into America's wealth they are doing so increasingly through private, not public, markets.
Earlier the firms used to come naturally to the United States, however today the forces at work are increasingly different where firms must choose to come to United States to raise capital, rather than them coming obviously.
Sarbanes-Oxley has simply amplified a much broader trend of the firms treading away from US.

Alarm Bells:
In 2000, the record year for IPO’s, $13.2 billion, or 33 percent, of the $40.3 billion raised in initial sales of shares, units and depositary receipts on U.S. exchanges was by foreign companies. This year, foreign issuers account for only $5.24 billion, or 13 percent, of the U.S. IPO’s. Of the 25 largest companies to go public outside their home markets this year, six chose U.S. exchanges. That compares with 22 in 2000.
In 2000, around 50% of the global value of IPO’s was raised in the US, whereas the same figure was just 5% last year.
For the second straight year, more money is being raised from European and Asian IPO’s than in the U.S. Companies sold about $72 billion of new stocks in markets stretching from Finland to Spain and another $72 billion on exchanges throughout Asia so far in 2006, compared with $36 billion in the U.S
In the first nine months of 2006, 11 American companies opted to list on the London Stock Exchange instead of going public in New York. Those companies raised about $800 million that would have otherwise been raised in US.
That, coupled with the fact London has snared 25% of the global pie for initial public offerings from the 5% it commanded three years ago, highlights a trend that sounds an alarm.


Key reasons for Wall Street not looking as valuable as before:
• Capital is becoming more abundant worldwide, so listing in the U.S. isn't as necessary as earlier it used to be.

• Global investors are more willing to look at companies that are listed outside of the U.S. They don't look at a U.S. listing as a litmus test for whether or not to invest in a company

• Wall Street underwriters offer issuers who shun U.S. markets a way to maintain access to American investors

• The strong growth in emerging markets and the development of their capital markets keeps them away from US.
Which in turn indicates that new issuance in Europe and Asia is likely to grow at a faster rate than in the U.S. for some time to come.

• U.S. markets suffer from over-zealous litigation and regulatory overlaps.

• The cost of converting from international accounting standards to U.S. methods is another impediment.

• Completing a listing on the LSE's alternative market can take 12 months to 18 months less than on a U.S. exchange.

• SOX (Sarbanes-Oxley) compliance in US

• Diversifying internationally is an effective strategy for dealing with problems such as Sarbanes-Oxley.

• Lower fee rate outside US:
IPOs pay underwriting commissions of about 2 percent in Europe and 3 percent in Asia, compared with the seven-year average of 6 percent in the U.S., according to Bloomberg data.

• The biggest foreign companies used to come to Wall Street because that was where the money was. They could tap into the US institutional and retail savings pool, and gain the attention of many New York-based hedge funds, only by obtaining a listing on NYSE or NASDAQ.
This is no longer true. More money is managed in other financial centers, particularly London. In a report for the London Stock Exchange, a consultancy estimated that London had $US7.6 trillion in equity assets under management last year, compared with $US8.2 trillion in the four top US centres combined, including $US3.1 trillion in New York.

• US money has flowed abroad, rather than the other way around.
The weaker US dollar and expanding investment opportunities abroad led to Americans holding $US3.1 trillion in foreign equities last year, compared with $US700 billion in 1995. Industrial & Commercial Bank of China did not need to list in New York to raise $US19 billion in its recent IPO; Hong Kong had the capacity.

• The expansion of US investment banks over 20 years has exported Wall Street know-how.
Earlier, US techniques such as book building were greeted with awe and suspicion in London in the mid-1990s. Even the term IPO was alien. Yet, London is now at least equal to New York in innovation, particularly in derivatives.

• The spread of globalization and technology helped the rest of the field play a stellar game of catch-up.

• Companies listing in the U.S. tend to get a higher valuation than in other markets, but this premium is narrowing.

• U.S. regulations make it tough to leave, for a company listed in US.

• Longer-term global shifts among markets themselves point toward a less U.S.-centric future

• The ascendancy of the Euro against the Dollar's dominant position is yet another sign of more globalize times
(With the currency falling, it is natural for IPO’s to go to other, stronger markets,")

• Very high compensation being paid to top executives in American Exchanges raises the operating costs of US Exchanges as compared to other European and Asian exchanges, further supports their cause of charging more fees from firms

• The regulatory structure is too atomized. Too many agencies monitor the markets.

• Hong Kong’s proximity to mainland China’s booming economy was a huge help for it.

• London has been able to pick the best aspects of US practice and discard others

• Companies listing in the U.S. tended to get a higher valuation than in other markets, but this premium is narrowing.

What is SOX and what are its impacts?

Sarbanes-Oxley Act of 2002 was enacted after the Enron and WorldCom financial scandals, designed to protect shareholders and the public from accounting errors and fraudulent practices. Administered by the U.S. Securities and Exchange Commission (SEC), SOX sets deadlines for compliance and publishes rules on requirements, covering a wide range of rules. The consequences for failing to comply with certain provisions range from fines to imprisonment

Section 404 of the act requires both the management of publicly held companies and their outside auditor firms to report on the effectiveness of the company's internal controls. Another requirement, Section 302, mandates that executives be personally responsible for financial reports, requiring their signature on the documents.

The cost of compliance is now trickling down to the end user, the investor, and can be classified as direct and indirect. This tax on the market and its participants is having an adverse impact on the US economy.

Direct Costs: Direct costs consist of the reduction in earnings, earnings growth, and dividends that result from the high cost of complying with SOX. The increased accounting and auditing fees that are required in order to comply with SOX are new and sizeable expenses that increase with the size of the company. In an efficient market, the reduction in earnings and growth potential will be reflected in the stock price.

Financial Executives International (FEI), surveyed 217 public companies and found that it took an average of 26,000 additional staff hours and about $4.3 million to fully comply with Section 404.
The cost of being a public company is lower by more than a third in the U.K. It costs as much as $3.5 million a year to comply with the vigorous reporting requirements in the U.S. For a $100 million company, that's 3 to 4 percent of gross revenue.

Public companies with less than $1 billion in annual revenue shelled out nearly $3 million in 2005 – almost triple the amount before reforms were enacted.
There are also “soft dollar” direct costs, the biggest of which is reduced productivity. While some of the hard dollar costs noted above may include an estimate of the hourly cost of management’s time, I think the real soft costs are understated. How can one quantify the opportunity cost of the time management spends on determining how to comply, implementing new systems, and constantly monitoring these systems instead of growing the business? The thousands of hours spent on compliance divert managements from focusing on becoming more competitive and profitable.
Indirect Costs: Indirect costs are those that result from the unintended consequences of SOX. These costs consist of the reduction in research coverage, the growing number of companies that chose to de-list, a decline in productivity, and the inability of companies to access the capital markets. It is these costs that could have the greatest detrimental impact on the US economy.
In all this uproar, it is the small businesses which are hit the most. This has caused some U.S. companies to argue that Sarbanes-Oxley regulation requirements lead to them being less competitive than their global peers.

Bottom Line: SOX, despite having some very good points, may turn out to be doing more harm than good.
SOX was enacted in an attempt to correct systemic wrongs but has had unintended consequences. SOX and other post-bubble regulations have changed how the markets function in a way that may actually reduce the future growth potential of the US economy because they have reduced the ability of small entrepreneurial firms to tap the capital markets. This may prove to be the biggest cost to investors.


The Fee Tradeoff (Benefit of presence in US market):
To be sure, there are downsides to going public outside the U.S. For companies, there's less liquidity on many European and Asian exchanges than on the NYSE or NASDAQ, meaning stocks tend to get traded less frequently and in volumes so small that investors can have trouble selling. Meantime, investors don't get the protections against misconduct that Sarbanes-Oxley offers.

Recommendations for Wall Street:

• The federal government should consider exempting small companies from the much-discussed Section 404 of the SOX law because they are getting crushed with the expense of complying.
• The regulatory structure is too atomized. Too many agencies monitor the markets. There are four separate banking regulators. State and federal regulators tread on each other’s toes. The SEC’s duties overlap with those of the Federal Reserve, the Commodity Futures Trading Commission (CFTC) and others. Since it no longer makes sense for the increasingly entwined cash and derivatives markets to be policed by separate regulators, a sensible first step towards streamlining would be to merge the CFTC and the SEC.
• Leveling the regulatory playing field would help, as would shrinking the number of regulators overseeing the markets.
• Competing in the global economy will also require getting America's fiscal house in order by reducing the huge current account and budget deficits while boosting personal savings
• Some of the extensive and far-reaching set of actions would be improving cost-benefit analysis by the Securities and Exchange Commission, allowing shareholders to vote on takeover defenses, and having the Department of Justice revise its prosecutorial guidelines. Criminal prosecution of corporations should be only a last resort.
• The US Government and regulators can do things to make Wall Street a more welcoming place for foreign companies. They can ameliorate the worst aspects of how Sarbanes-Oxley was implemented, and simplify the overseeing. The NYSE and NASDAQ might also hold investment banks to account for charging far more at home than abroad.


From any standpoint, America dominates public capital markets, with the US exchanges accounting for more than half of the world’s stock market capitalisation.
Furthermore, even if the US were to win more listings, the questionable quality of many of the Russian companies that are financing themselves in London and the Chinese companies that are going public in Hong Kong – including lack of disclosure, opaque ownership structures, poor protection for minority investors and behind-the-scenes government manipulation – would force the US Securities and Exchange Commission to weaken its protection of American investors.

Recent measures taken:
The New York Stock Exchange is cutting prices. It's ending the $150,000-$200,000 fee it charged companies to switch from rival exchanges.

The issue of Section 404 of Sarbanes-Oxley Act, has already been taken up in Washington, where a Democrat of Queens, is co-sponsoring a bill wherein companies with a market value of less than $700 million and meeting other requirements would be exempted to comply with Section 404.


Conclusion

This is the leading industry in New York. It's an industry that thrives on transactions and if more of those transactions move off shore, New York's economy will suffer and unless US improves its corporate climate, it risks allowing New York to lose its preeminence in the global financial sector.


A "proper balance" between costs and benefits of the rules, including more protection for companies from class-action suits, greater shareholder rights and more slack for smaller firms needs to be established soon.

America needs to reposition itself as cities such as London and Hong Kong are gaining ground. If the Wall Street is not able to do something tougher, then it has to become accustomed to its diminished place in the World.