IPL Notes

We watched the IPL T20 Finals yesterday. Some random musings:

  • We had subscribed to Willow.tv but YouTube quality was way better even though free. Willow.tv was $60 for the entire season. I wonder if advertising can pull in that kind of revenue per viewer. There was a lot of wastage, I thought. That dual SIM ad with Gambhir and Sehwag is now deeply etched on my brain for no useful purpose at all.
  • We were supporting Chennai but not really with any passion (I didn’t have a hoarse throat at the end of the game). We have supported an Indian team for so long that it is difficult to take sides when Dhoni and Tendulkar are on different teams. I wonder if this happens to other folks too. A friend from Bangalore was actually supporting the Chennai team just because they liked Dhoni. Another one, also, from Bangalore supports KKR for similar reasons. Is it because we so much identify with the Indian team or is it because we are all rootless, economic migrants who don’t identify with a particular city?
  • When Raina [corrected from Tendulkar] was dropped off Zaheer Khan, you could read his lips so clearly it should have been bleeped out.
  • The whole Shashi Tharoor matter has got me foxed. I cannot make head or tail of it. Some woman who had some connection with Tharoor got sweat equity in a company that was part of the consortium that won the bid for the Cochin IPL team. Now, I don’t watch Indian TV. Nor am I part of the grapevine on this kind of a thing. But from just reading online, I couldn’t make out why he had to leave. To leave he either had to have used his position as a minister to influence the selection process or there was some hanky panky going on between Tharoor and the woman which could not be denied. Or he chose not to deny it. If anyone can illuminate this clueless NRI with some links in the comments, it will be much appreciated.
  • The IPL has too much money involved for politicians to stay away from it. BCCI is already in their clutches. Cricket is too important to mess around with. How about if someone with unimpeachable credentials who also cared deeply about cricket became interim Chairman of IPL. Just long enough to put a new charter in place and hire a Commissioner with great credentials. Running IPL is like running a mega corporation. Experience with regional sports bodies has no relevance to the job. The new charter should put the players and owners in charge with some other people on the board who will make sure that short-term greed doesn’t destroy the national pastime.
  • The stats could be much, much better. The IPL website was pathetic on stats. Cricinfo was better, but not quite there. Or maybe I wasn’t looking in the right place.

The Politics of Financial Reform

Frank Rich writes a hard-hitting piece in the NYT. But he gets one piece wrong:

.. Those who shorted the housing market shorted the country.

There were many things that went wrong with the housing market – people were being given loans who had no chance of repaying it, homeowners were outright lying and the lenders were encouraging them or looking the other way, Wall Street was concocting securities that were several layers of complexity away from the real, underlying assets and the credit rating agencies were designing their models so that they could stamp their approval on these securities. And a bunch of other stuff related to Fannie and Freddie and the absence of any regulatory checks.

But the thing that was not going wrong, enough, was that there weren’t enough people shorting the heck out of these securities. An asset bubble is created when there are too many people in the market willing to buy at higher and higher prices and not enough people betting on the prices to go down.

Goldman Sachs and Paulson & Co. made money as the sub prime market was collapsing around it. Good for them. There’s nothing wrong with that. Goldman didn’t make much since they were late in the game. Paulson made out like a bandit because he was betting against subprime when no one else was. Unless these deals involved cheating or fraud, there is nothing wrong with making money in a collapsing market.

To the common voter, this won’t make sense. It isn’t fair, it isn’t right to be able to make money off of other folks’ misery. To get huge bonuses when people are losing their houses. You can almost see the special feature on CNN – an interview with an old couple who lost their home and their savings immediately followed by some charts on average bonuses at Goldman Sachs (assuming that nobody at Goldman will be stupid enough to give an interview to CNN on this subject).

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Its Getting Warm in California

It was a nice day to be in the backyard. It was a riot of colour. The rainbow picture is from a few days back. We had quite a lot of rain this winter in Norther California. I think the flora like it.

Innovation and Complexity in Finance

This week the business news was dominated by Goldman Sachs. The SEC charged it with securities fraud. While Goldman denies any wrongdoing and will “vigorously defend its reputation”, it is actually its reputation that may be permanently damaged. The SEC may find it difficult to pin Goldman down in court, but in the court of public opinion, Goldman may find it hard to redeem itself. Felix Salmon does a great job of covering this. John Gapper has a nice piece in the FT that sums it all up rather well.

Here are a couple of observations about the Goldman Abacus deal. All parties involved – Goldman, ACA, IKB, ABN Amro and Paulson – are financial firms. While the assets being packaged into the CDO were mortgages, they were far removed from the houses that were bought using mortgages. There was no purpose that this deal served in the “real” economy.

George Soros in an op-ed in the FT today:

Whether or not Goldman is guilty, the transaction in question clearly had no social benefit. It involved a complex synthetic security derived from existing mortgage-backed securities by cloning them into imaginary units that mimicked the originals. This synthetic collateralised debt obligation did not finance the ownership of any additional homes or allocate capital more efficiently; it merely swelled the volume of mortgage-backed securities that lost value when the housing bubble burst. The primary purpose of the transaction was to generate fees and commissions.

The deal was a complex deal. So complex that ACA and IKB didn’t understand it well enough to ask the right questions. Neither of them are bit players. ACA was happy to let Paulson pick the mortgages that went into the structured product since they thought he was long and on the same side of the deal as they were. IKB, similarly didn’t look at the underlying assets too closely because they thought Paulson was investing too.

There are many occasions in business when trust compensates for an incomplete understanding of the parameters of a deal. In such situations you prefer working with a specialist with a reputation, like say IBM for technology. But in this case, ACA and IKB, both financial firms, couldn’t deal with the complexity of the transaction and trusted (or at least ceded control to) Goldman. And they got taken to the cleaners. ACA is no more and IKB had to be bailed out by the German government. ABN Amro is now part of RBS which was bailed out by the British government.

And here’s my point. Maybe there is such a thing as too much financial innovation. Maybe too much of this innovation is to create complexity for its own sake, to keep changing stuff just to keep clients confused and uninformed. Low information clients are the most profitable clients.

In the consumer finance world complexity creates fine print. Fine print creates profits. Credit cards, banks – they don’t make money by being upfront and transparent. With financial institutions the game has to change, since they have lawyers who can read the fine print. So what do you do? You “innovate”. You create structured products that are mind-bogglingly complex. You avoid transparency. You avoid instruments that can be marked-to-market.

Besides clients and counter parties, constant financial “innovation” also keeps the regulatory bodies confused. They don’t understand these new financial instruments to effectively regulate or police them. In the meanwhile, the smart players on Wall Street are raking it in.

Which is why Wall Street doesn’t like exchange traded derivatives. Products would have to be simplified, standardized. Change would slow down. Spreads would come down and so would bonuses.

Innovation in services is hard to pin down – is it useful or is it smoke? Again, looking at credit cards business, developing a product that allows your teenage son to use your credit card at certain merchants to a certain limit – that’s useful innovation. But a product that has low APRs but gives you only 5 days to pay your bill before hitting you with late fees – that’s innovation that is designed to make more money off of customers who don’t read the fine print.

The problem is that it is very, very difficult to make rules such that the good kind of innovation is unimpeded while preventing the bad kind. That’s why we need ethical business leaders. Today, the credo in the corporate world and especially on Wall Street is – maximize your bonus without committing an unlawful act. In many cases this is stretched to “without getting caught”. Regulation can’t keep up with this. There has to be some self regulation.

We need more companies like Google. “Do no evil” might sound corny but it says that the company tries. That’s more than you can say about Goldman Sachs.

The Best Names are Gult Names

Gaurav Rastogi has a very interesting take on the inadequacies of human naming conventions.

A naming convention designed for a planet with 100 million people (as on 500 BCE) is hopelessly useless in the world where the number of people to be named has expanded 70-fold. What was designed to be a unique identifier (viz. “Gaurav”, son of the “Rastogi” family) is no longer unique now. By my reckoning, there must be another 5-600 people called “Gaurav Rastogi”, and another 5-10,000 people called “Amit Garg”. Living. Today. Waiting for their unique names.

I completely concur that this is a problem that needs a modern day solution. Many an email has been sent to the wrong Gaurav Rastogi or S. Raghavan. Sometimes, said Raghavan may not even be in the company. When said Raghavan got my second email meant for the internal Raghavan, he said something like “You think I left the company just to keep getting your stinking emails?!”

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Growth and the IT Services Pyramid

This appraisal cycle has been rough for Infosys. Unfortunately, at over $5B in revenues, everything it does becomes a media circus. Or in this case a social media circus.

Economic Times published a few stories in February and March of this year on a new appraisal and promotion policy at Infosys. The stories were their usual unremarkable fare, but what was truly remarkable was the sheer volume of comments (452 on this article as I post this) and the apparent rage of the commentors.

There are many interesting lessons one can learn from this episode. For one thing, this must have been quite an education on social media to many company managements in the industry. But the thing I find most interesting is that, unfortunate as the situation is, there is very little that Infosys or any other company can do about it. As growth slows down in the IT Services industry, career growth must also slow down.

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Why are IPL Cheerleaders all Firangis?

Back home from a rather hectic week in India. The IPL fever is raging. You can’t meet anybody in India in business circles and not get into the economics of IPL. Corporate India is just fascinated by the money gushing out of IPL. It is actually a complex economic system which is unfolding in front of our eyes. Capitalism at its best. There is a book in the making there. I would buy it in a flash – I hope someone good writes it.

Everything in the IPL seems to be well thought out and well executed, for an operation that’s in its formative stages. So there must be a good reason why all (or at least most) of the cheer leaders are firangi (I hate the term ‘non-Indian’ which is more PC. Here firangi is more apt anyway.)

I asked a few friends why this was so. There’s a cap on the number of foreign players that a team can play. But when it comes to cheer leaders, there are no rules. Nobody knew exactly why this is so. But some of the hypotheses were:

– Indian women would never do this. Goes against the grain of our culture. Besides, who would marry them after they did a gig with IPL?

– Indian women can’t do it. The problem is not that they can’t do the moves. It’s that with their body types, those moves would send the men folk amongst the spectators into orbit. That’s not good for business. Just ask the English football clubs about their rampaging drunk male fans.

– Security reasons. Shiv Sena and other cultural police pretenders threaten physical harm to women who showed that much leg and midriff. The culture cops apparently have no problem with firangi women debasing themselves.

– Economics. If you have the figure and the moves, becoming a Bollywood item girl pays much better. And is less hazardous.

– Cheerleader positions have been offered to cricketing nations whose players have not found enough spots on the IPL teams. (OK I made this up)

None of these ring true to me. But if I had to pick one, I’d go with the “afraid of Shiv Sena” reason.

Any thoughts?

Photo by S V Jagadeesh

No Google Voice on iPhone – Competition or Corporate Spite

David Pogue writes about Line2 in the NYT. Line2 is a service that gives you a separate phone number from which you can make calls, receive calls, get voice mail etc. etc. on your iPhone over cellular or WiFi. Everything that my Google Voice does today – with one important exception. Google Voice is not available on the iPhone as an app.

Pogue himself points this out

…Apple rejected the Google Voice app because, as Apple explained to the Federal Communications Commission, it works “by replacing the iPhone’s core mobile telephone functionality and Apple user interface with its own user interface for telephone calls.” That is exactly what Line2 does. Oh well—the Jobs works in mysterious ways.

From out here I can see no rational reason why Apple banned GV from its App Store. In what way does it serve their purpose? If there are any users out there who use Google Voice as their primary number, they are unlikely to be iPhone customers. I would probably have plumped for an iPhone instead of the Android phone I have now.

So you’re losing customers. Maybe not too many, but still, and this is important, you are leaving the door open for a competitor. Android phones are the only real competitor to the iPhone today aside from Blackberry in the US market. Palm Pre is history and Nokia was never a player. Blackberry, by the way, allows the GV app on its platform.

The GV ban can’t be about protecting AT&T either. Why then would they allow Line2?

I don’t think there are any reasons linked to strategy or competition for the GV ban. It is just spite. Apple is now in the “We don’t like Google anymore” phase. And now that you have the patent lawsuits that Apple has filed against
HTC, it’s only going to get worse.

I love both companies’ products. I think a lot of people do. For the most part they don’t compete with each other. It’s a shame that the Android-iPhone fight has to spill over into other things. I wish they’d behave like adults about this.

Why Pre Existing Conditions Must Go

In response to my previous post on healthcare reform, a reader writes in from India

…Why should an insurer agree to insure a pre-existing condition? It does not make sense to expect a business to agree to a proposition wherein it knows it will have to pay out 10x on a premium of x….

Insurance by its very definition is protection against the unknown. If the condition and its medical costs are known why take such a customer on board?

Methinks that the reason insurance premiums went up at your small business is because these guys figured out that they will now have to shell out treatment money for everyone and hence they are trying to do a CYA before overall costs go up.

For medical issues, I think either
– a public run healthcare or
– government rights to a percentage of facilities/medicines at institutions that it then distributes among the needy works best.

If there is no government healthcare in the US, it is only logical that average insurance premiums will go up for everyone if the insurance business is expected to mix humanitarian issues with cold-hearted business decisions.

The humanitarian side is actually the governments job. Making money is the private insurance business’s job. Why mix the two?

The main argument the reader makes is perfectly rational. Why should an insurer take on a pre-existing condition when they know they are going to make a loss on it?

They don’t have to today. And that is why we have over 30 million people uninsured.

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My Personal Tale of Healthcare Insurance

I wanted to get this story out before the Sunday vote in the House. If you believe in healthcare reform, call your Congressman. Most of them will have their offices open tomorrow.

Here’s my personal experience with healthcare from this week. Our healthcare insurer Aetna informed the company that our premiums were almost tripling. For a family of four, our premiums would go up from just over $1000 to over $3000. Why?, we asked. That’s just the way it is, they said. We’re going to have to drop our insurance, we said. Yes, they said, we expected that. And that was that. If you are a business with a small payroll, you and your employees are at the mercy of the healthcare insurer.

So, now I have to go out and get insurance for the family. My wife’s employer, also a small business, offers insurance, but I thought I’d go out and see if I could get insurance directly.

I called Anthem Blue Cross. Nice lady at the other end. Took down all the details. Then we came to pre-existing conditions. I said my son had one and described it. She said that she’d have to put me on hold. She was back in less than 10 seconds. Anthem Blue Cross could not offer any insurance at all. Sorry.

I then called Kaiser Permanente. My wife’s employer offers Kaiser and I thought I’d see if I could something directly with them. Kaiser doesn’t decline on the phone, you have to put in an application, which may be declined (it’s more polite, but everyone spends much more time making and reviewing applications). The guy on the phone was helpful. If you get Kaiser at your wife’s company, take it, was his advice.

Now, we have options. Even if we didn’t have my wife’s insurance, we wouldn’t be out on the streets, if something were to happen. But for many Americans (over 30 million of them) there are no options. If they don’t have a job or they have a job that doesn’t offer insurance, and they have a pre-existing condition, they won’t get insurance. Hospitalization in this country can cost $20,000 and up. Which means that they could be just one major illness away from bankruptcy.

Now, about this bill. It’s a very, very long bill. If you really want to understand the issues it tackles, go read Ezra Klein. But basically it boils down to a few things. Health insurers should not be able to deny insurance based upon pre-existing conditions. It also bans recissions (kicking an insured person out) and life time caps (another cute trick to limit payouts). To make this work for insurance companies there has to be an individual mandate (everyone must get insurance).

Six months after the bill is passed, denying insurance based upon pre-existing conditions for children will become illegal. That’s when I’m going to call Anthem Blue Cross again. I can only imagine how many people are waiting with far more desperation for that six month boundary to be crossed.

Here’s where you find out who to call http://www.congress.org/

If you are calling right now, call your Congressman. If you read this blog, and you live in the US, you probably have a nice job and healthcare at work. If I were you, here’s what I would say to his or her aide on the phone:

Congressman (or Congresswoman) I have a nice job and healthcare insurance. I am calling you in spite of the fact that I have nothing to gain if this bill passes. That’s because I feel for those people who do not have insurance today or can’t get it. We cannot be a great country if we let our people sink into misery because we’ve let healthcare become the monster it is today.

Please fix healthcare by voting yes on healthcare reform.