JOHN GALT IS SMILING

So I am back....

Its been a while since I wrote on/in cyberspace (haven't figured out the right preposition to use for this) and it wasn't until I read that Budhau has started blogging that I got 'inspired' enuf to start typing...quite strange actually as most people wouldn't utter budhau and inspiration in the same breath :) (Sorry Budhau...it is quite mean to demean some helpless old bugger but that's the fun of blogging)

As usual, have strong views on everything under the Sun..from poet-politician Varun Gandhi's hate speech (just don't understand why is he called a poet as i have read/tried to read his so called poetry and it wasn't something i would write home about) to Team India's phenomenal-yet-clinical win (there was something Australia-ish about it..no swagger, no flash just putting the ball in the right areas and putting the bad balls away) and the unbelievable lyrics of Gulaal (Piyush Mishra has scored a home run with Aarambh and Sheher) to Nawaz Sharif becoming a champion of Iftikar Chaudhury's cause to train the gun on Zardari (and unthinkably naive of Pakis not to realize it..think it was Pakis when Einstein said “Two things are infinite: the universe and human stupidity; and I'm not sure about the the universe.”) but then being a terribly reserved person and politically correct to a fault, I will say nothing of the sort...

Lemme vent my frustration on the so called "90% bonus tax" that Obama Administration has come up with to "take back what is rightfully theirs" in the case of the US$ 165 MM which has been paid to some officials of Financial Instruments Group at AIG as it was in their contract, yes this is the very same group that wrote the CDSs and CDOs that got us into the mess we find ourselves in. As an aside am terribly disappointed by the way Obama has managed this whole process. To me its as bad as giving in to Taliban in the Swat Valley or giving in to the views of majority even when you know that they are not right. When men and women "of mind" are not assured that they will be able to get the fruits of their toil, it will lead us further down and not out of this mess).

The issues here are two fold and while one brings the basic essence of capitalism into question (honouring a contract), the second strikes at the very foundation of the economy (financial services industry)...

We can carry on with our lives because there is an implicit assumption that counter-party risk is minimized and that firms, people and above all Governments would honour the contracts that they get into...when we write a cheque, there is faith that your bank would honour it, when you use currency of a country, there is comfort that the central bank would make good on the promissory note if called upon to do so, there is an implicit agreement to provide a fair trial to even murderers and criminals. Once that faith, that comfort and that implicit agreement is violated and you have a government who is trying to subvert the constitution to appease the majority, you are asking for trouble. This leaves the room open for the Government of USA to repudiate all debt (this can solve all the problems of the fiscal deficit) or to even snatch the property of the rich to distribute to the poor ala Robin Hood...after all why stop at measly $20bn Wall St. bonus kitty when you have decided to go all out and violate the inviolate...

For appreciating the second point, we need to understand the very basic fibre of the business model of a financial services firm. Like a manufacturing firm, which uses land, labour, capital and organization as its factors of production and for which you pay rent, wages, interest and profit as payment, a financial services firm uses Capital and Talent as its factors of production (have a look at any bank's balance sheet and you will see 97% of assets/liabilities are financial products and then they have people which they cannot put a value to) and that the firm needs to use what it earns to pay these factors of production be it in form of interest/dividend for its capital and compensation or the so called "bonus" to its talent and roughly the ratio between the two has been 50-50 over the years (and has come down to 40-45% for talent for most firms this year)...the manufacturing firms cannot not pay rent or wages or interest...and thus why should the financial firms be asked to hold back they payment to theirs... If the government decides that a factor of production should not be paid in case of one specific industry, it just beats all logical explanations...

Just cant help but notice the similarities with Ayn Rand's Atlas Shrugged and desperately hope that "the motors of the world" don't stop....