With developed economies struggling and emerging markets thriving, more and more financial deals are being cut well away from the traditional centres.
Rising trade between emerging economies, cross-border mergers, acquisitions by Indian and Chinese companies and moves by developing world businesses to raise capital in each other’s markets will spur growth of financial centres in the fastest growing economies, according to industry experts who addressed the Reuters Emerging Markets Summit in Sao Paulo last week. For the bankers clustering in cities like Sao Paulo and Mumbai, the intra-emerging markets movement of funds represents an alluring chance to make money.
“We see flows between Africa and India, India and China, India and Korea being much bigger,” said Neeraj Swaroop, CEO of Standard Chartered’s India business. “Not just big companies but also small- and medium-sized companies are making outbound investments. For banks like Standard Chartered, these are immense opportunities to pursue.”
Stephen Jennings, CEO of Renaissance Capital, a Moscow-based investment bank, told the Reuters Summit “In our M&A practice, 80 percent of our deals don’t have a Western face. And the same thing will happen with financial flows.
Technorati Tags: south-south, banking, M&A
Simon Johnson documents how Wall Street lobbying to obtain favored status with US politicians, not only precipitated this financial crisis, but also is preventing an adequate resolution – policy decisions are being made to favor banks at the expense of taxpayers, thus setting the US up to follow in the footsteps of Russia and Argentina.
The Atlantic Online
the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.
But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.
the U.S. is unique. And just as we have the world’s most advanced
economy, military, and technology, we also have its most advanced
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One of the most outrageous example of lax U.S. lending practices was someone making $14,000 a year approved for a $720,000 mortgage with no down payment!
“In India, we never had anything close to the subprime loan,” said Chandra Kochhar, the chief financial officer of India’s largest private bank, Icici. (A few days after I spoke to her, Ms. Kochhar was named the bank’s new chief executive, in a move that had long been anticipated.) “All lending to individuals is based on their income. That is a big difference between your banking system and ours.” She continued: “Indian banks are not levered like American banks. Capital ratios are 12 and 13 percent, instead of 7 or 8 percent. All those exotic structures like C.D.O. and securitizations are a very tiny part of our banking system. So a lot of the temptations didn’t exist.”
Part of the reason is cultural. Indians are simply not as
comfortable with credit as Americans. “A lot of Indians, when you push
them, will say that if you spend more than you earn you will get in
trouble,” an Indian consultant told me. “Americans spent more than they
Mr. Parekh said, “Savings are important. Joint families
exist. When one son moves out, the family helps them. So you don’t
borrow so much from the bank.” Even mortgage loans tend to have down
payments in India that are a third of the purchase price, a far cry
from the United States, where 20 percent is the new norm.
But there was also another factor, perhaps the most important of all.
India had a bank regulator who was the anti-Greenspan. His name was Dr. Y.V. Reddy, and he was the governor of the Reserve Bank of India. Unlike Alan Greenspan,
who didn’t believe it was his job to even point out bubbles, much less
try to deflate them, Mr. Reddy saw his job as making sure Indian banks
did not get too caught up in the bubble mentality.
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All future visualizations of complex issues should emulate this example. With input by Jess Bachman of Death and Taxes fame. As an aside, a compelling graphic of the spike in US home values driven by easy credit and their projected deflation with the popping of the credit bubble.
via Mint Blog (20%)
Technorati Tags: credit bubble, financial crisis
Microcapital has identified the following six microfinance “pioneers,” individuals who have made long-standing contributions to the evolution and promotion of microfinance practices and/or technology. While not all of these pioneers hail from Latin America, all have been instrumental to the development of microfinance in that region. These pioneers are: Álvaro Dávila of Colombia, Joseph Blatchford of the USA, Theodore C. Ning, Jr. of the USA, Mercedes Canalda de Beras-Goico of the Dominican Republic, Clara Serra de Akerman of Colombia, and José Ignacio Avalos Hernánde of Mexico.
Technorati Tags: microcredit
Long article worth a patient read by master-storyteller Michael Lewis of Liar’s Poker and Moneyball fame. It’s always the incentives, stupid!
A lot of people, now, will nod their heads in agreement to Federico Garcia Lorca‘s words from 1929: ”Time for the cobras to hiss on the uppermost levels,/ for the nettle to jostle the patios and roof-gardens,/” he wrote in ”Dance of Death,” ”for the Market to crash in a pyramid of moss,/ time for the jungle lianas that follow the rifles — / soon, soon enough, ever so soon./ Woe to you, Wall Street!”
To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. The essential function of Wall Street is to allocate capital—to decide who should get it and who should not. Believe me when I tell you that I hadn’t the first clue. I’d never taken an accounting course, never run a business, never even had savings of my own to manage. Sooner rather than later, there would come a Great Reckoning when Wall Street would wake up and hundreds if not thousands of young people like me, who had no business making huge bets with other people’s money, would be expelled from finance.
In the two decades since [the 80s], I had been waiting for the end of Wall Street. The outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility. Read the rest of this entry »
Just-in-time supply chains are geared for efficiency not resiliency. With no slack built in, any disruption in international shipping, due to collapsing trade finance, can leave store shelves empty of essentials, especially food. A scary thought.
In times like these, the Cuban success with urban farming (forced upon the island by the end of the Soviet Union’s largesse after that country’s implosion) is worthy of emulation, at least partially, in many Indian and LatAm cities. For those who will not adopt any idea not originating in the United States, the Cuban urban farming model is in line with the Victory Gardens that U.S. Americans were asked to maintain during both World Wars. Book Alert: Food Not Lawns
The recent 93 percent collapse of the obscure Baltic Dry Index – an index of the cost of chartering bulk cargo vessels for goods like ore, cotton, grain or similar dry tonnage – has caused a bit of a stir among the financial cognoscenti. What is less discussed amidst the alarm is the reason for the collapse of the index – the collapse of trade credit based on the venerable letter of credit.
Letters of credit have financed trade for over 400 years. They are considered one of the more stable and secure means of finance as the cargo is secures the credit extended to import it. The letter of credit irrevocably advises an exporter and his bank that payment will be made by the importer’s issuing bank if the proper documentation confirming a shipment is presented. This was seen as low risk as the issuing bank could seize and sell the cargo if its client defaulted after payment was made. Like so much else in this topsy turvy financial crisis, however, the verities of the ages have been discarded in favour of new and unpleasant realities.
The combination of the global interbank lending freeze with the collapse of the speculative, leveraged commodity price bubble have undermined both the confidence of banks in the ability of a far-flung peer bank to pay an obligation when due and confidence in the value of the dry cargo as security for the credit if liquidated on default. The result is that those with goods to export and those with goods to import, no matter how worthy and well capitalised, are left standing quayside without bank finance for trade.
Controlling access to trade finance determines who loses their jobs, whose children go hungry, who riots, which governments fall. Without dedicated focus on the issue of trade finance and liquidity from those in the emerging world most interested in sustaining the growth of recent years, little progress can be expected. Trade finance is rapidly communicating the stress on bank liquidity to the real economy. It presents a systemic risk much more frightening than the collapsing value of bits of paper traded electronically in London and New York. It could collapse the employment, the well being and the political stability of most of the world’s population.
Technorati Tags: trade, food security,
President Bush has invited the heads of state of the Group of 20 (G20) nations for a summit on November 15 in an effort to continue responding in a coordinated way to the unfolding financial and economic crisis. The G20group, which accounts for 90% of global GDP, includes 10 major emerging economies – including Brazil, China, India, Saudi Arabia and South Africa among others, along with members of the G8, Australia and the European Union.
Reaching a consensus on international regulatory reform will likely be one of the key issues at the meeting. While the 27 EU leaders earlier failed to agree on a joint economic strategy to tackle the coming recession in Europe, the member countries worked out a joint five-point action plan for the G-20 with the following very specific proposals:
1) Submit rating agencies to registration and surveillance, especially with a view to credit ratings’ prominent role within the Basel II capital requirement framework.
2) Adopt principles to ensure the ‘convergence of accounting standards’.
3) Decide that no market segment, no territory and no financial institution should escape regulation or at least oversight.
4) Establish codes of conduct to avoid excessive risk-taking in the financial sector, including on the ‘remuneration’ of executives.
5) Give the IMF the ‘initial responsibility’ and ‘necessary resources’ for ‘recommending the measures to restore confidence and stability’ in the international financial system.
Technorati Tags: regulatory reform