Thursday, December 29, 2011

All about Rating Agencies

The role of some of the major rating agencies has been under immense scrutiny since the global meltdown of 2008. In this blog I wish to make clear what these rating agencies are all about. That is, Who are they? What is their job? How they do it? How do they earn money etc.

Who are they?

There are a number of them but the major ones are Standard and Poor's (S&P), Moody's and Fitch. These are all from the USA. The first 2 control approximately 80% of the ratings market. One of the reasons that their word is taken for granted is that they are recognised by the Securities and Exchange Commission (SEC) of the USA. In fact, SEC requires some investment agencies/funds to get their investments rated by these agencies.

What is their job?

Their main job is to rate a borrower, be it an organisation or a government. This rating signifies the risk a lender takes while lending the funds to the borrower. For e.g., if a company is rated AAA (which is the highest rating), its borrowing costs would be comparatively lower.

How they do it?

They rate an entity based on various parameters that they consider important. For eg., while rating a country they might take into consideration the economic, geo-political environment of the country.

How do they earn money?

It is infact the borrowers who pay money to get themselves rated.

Whats the controversy?

Before the 2008 meltdown, the mortagage backed securities were given very high ratings which infact caused the meltdown. Thus there is this question of accountability. Most goverrnments esp in Europe feel that these agencies have immense power to dictate the borrowing costs of a country. The market is dominated by these US firms. Europe feels it needs to have its own rating agency.

Thus most analysts believe that there is a need to enforce accountability on the part of these agencies.

Saturday, December 10, 2011


This is probably the worst I ever felt in my whole life. Everyone wants a piece of me. Feel like disappearing from everyone I know of for sometime. Oh Faridabad, here I come in a week.

Wednesday, April 06, 2011

Not feeling great

And so I am listening to the song that always cheers me up. Cant the link

My Civil Services Interview 2

So, I had to undergo my second personality test under civil services mains exam on 2nd april 2011. Herz is my first one. I wasn't very eager to attend it for the following reasons but it is not as though I had a choice there!

a) It was a Saturday and my interview was in the afternoon session. Infact I was the last one to be interviewed by my board. Just imagine the agony!
b) It was THE day of the finals of the world cup.

I showed up at the UPSC and was sent in immediately. I was assigned to Lt General Nirbhay Sharma's board. People kept saying he gives average marks but I knew that's all TALK. U do well, u get ur marks. So I amble in at 4 PM into the room and herez how it went!

Chairman (from now C): So Gopi, what else is happening today apart from ur interview.

Me: Dude! World cup finals.

C: Do u know the score?

Me: I gave him the exact score at the end of the 15th over and he was surprised!

C: Completely surprised, he asked me how in the world I knew the score

Me: Told him I overheard. But I was continuously asking the UPSC office people there for the score

C: Are u more interested in the interview or the match (jovially)

Me: Said interview of course! (but match actually)

C: Passed on to M1

M1: U are going in a train which is traveling at 80 kmph. Whats ur speed?

Me: Relative to the person sitting next itz 0 but relative to the person outside the train, itz 80.

M1: Whats BOP?

Me: Explained

M1: Whats the current current account deficit?

Me: answered

M1: Whats our GDP growth rate?

Me: answered

M1: But the growth rate is over 10%. Why are u saying 8.6?

Me: Explained him diff between real GDP growth rate and GDP at market prices.

M2: Whats recession?

Me: answered

M2: Explain the economic cycle

Me; I said Booms amd Busts.

M2: There are 4 stages!

Me: I Donno dude!

M2: Whats sensex? Gimme 5 stocks on it.

Me: answered

M2: How many stocks u have in TCS?

Me: WTF! I gave him anyways.

M2: NASSCOM says only 10% of graduates are employable in the IT BPO sector. Explain!

Me: answered thoroughly. Used my personal exp as manager at Oracle.

M2: What are Mergers and Acquisitions?

Me: answered

M3: What are ethics? How are they ingrained?

Me: Ingrained by parents, education.

M3: How abt religion?

Me: Yes. Religious scriptures are codes of conduct that specify Dos and Donts

M3: Are u religious?

Me: Sort of

M3: Whats ethical leadership?

Me: examples. Not very satisfying!

M3: Gimme examples of 2 corporate leaders from India who are ethical.

Me: I said I could give names but they could be involved in scandals tomorrow. Gave Azim Premji, Anand Mahindra. Later, I was like Anand Mahindra? How did u come up with that? How did u forget Narayan Murthy? Dumb me!

M3: Some incomprehensible questions.

Me: Tried to keep her happy by blahing. No clue what she was asking!

M4: What are FTAs?

Me: answered

M4: What are SEZs and STPIs? Explain the diff!

Me: answered. Told him how STPI is closed now after the recent budget (March 31).

C: Took the word budget that I utterred and started screwing me!

C: Gimme the figures of Rupee goes to!

Me; WTF! Gave him a few ( Interests: 18%, Defence: 11%, Subsidies: 9, Social sector: 160000 cr etc)

C; Gimme total expenditure.

Me; 12,50,000 cr.

C; No. Try again

Me: WTF! I restated Its 12,50,000 cr.

C; Get ur facts right!

Me: Sir, I donno abt Center + States exp but central exp is 12,50,000 cr

C; No

Me: in my mind ...(Dude, open Google, I will prove u wrong right here, right now). But kept quiet!

C; Do u back salwa judum?

Me: I said no. Gave reasons. Forgot that he was an army dude.

C; He wasnt happy at all. He asked me if I knew the ground reality in Chattisgarh.

Me; I said, not completely.

C; Then how can u pass such a judgement.

Me: Reiterated again...

C; Tell me how would u fight the naxals.

Me; Started talking abt development etc.. he said no. Tell me abt law and order only.

Me; I would "pump" in more paramilitary forces.

C; How many?

Me: In my mind ( If only I knew)....i said until a critical mass is achieved

C: So gimme the figure. I drew blank.

C; Do u know how many naxals are in Chattis?

Me; WTF! Donno.

C; Lets say there are how many is critical mass?

Me: I would send in a few, if that works then that is critical mass, if not until they are beaten....

C: Not happy

C; India and Pakistan and UN and 1948

Me: explained nicely.

C; Current state of Indo china trade relations

Me; Gave exact figures specifying the trade deficit in China's favour

C; So why the trade deficit

Me: We export mainly raw materials, they export finished goods.

C: So is it good?

Me; No

C; Do u think people in commerce dept are stupid enough to frame such a policy?

Me: We should persuade china to open those sectors where we are good at. Esp IT, Pharma etc.

C; satisfied with my answer

C: Whats the current plan?

Me; 11th

C; What according to u is the mos important plan?

Me; 8th plan! (for economic reforms)

C; What did the 2nd plan focus on?

Me; Industrialisation

C; What did the 3rd one focus on?

Me; Green revolution.

C; whatz Green revolution?

Me: answered

C; So isnt the 3rd plan most important?

Me; Its important too but i still think 8th plan is more important.

Some more questions relating to my height. I said I was short of 165 cm by .5 cms I didnt opt for IPS. While leaving I jumped out of the chair. He looked at me and asked me my height again ;)

Overall, not very happy. It was a stress interview. Donno, why so much focus on Economy. My optionals are PubAd, Anthro. No questions on hobbies, personal data, optionals etc. Its as if they didnt even read my summary sheet. It was a 23 min interview. I walked out with very mixed feelings esp after having an awesome interview last year. Lets see how it goes!

Saturday, January 01, 2011

What's with the Eurozone?

Estonia has become the 17th country to join the euro-zone today despite the crisis. Some might find it surprising given the inherent rigidities involved in being part of such a union. There is some talk of one in two Germans wanting to return to the Deutsche Mark. So what exactly are these rigidities? As part of the euro-zone, there are certain constraints placed on the member countries. They are

1. Countries cannot unilaterally devalue the exchange rate. Duh!
2. Restrictions related to monetary and fiscal policies.

These do cause hardships to economies under crisis like Greece. For example, if the Greeks were out of the zone, they could have used a combination of exchange rate devaluation and lower interest rates to stimulate demand and employment and also set right the external imbalances.So, why do some countries still want to join the zone. There are some benefits involved such as

1. Member countries would not be exposed to severe exchange rate volatility in this age of easy cross border capital flows
2. Reduced transaction costs for all the cross border economic activities.

The above would particularly induce additional investments in the member countries.

So, will the euro-zone stay or break up? It's difficult to answer given that it involves both advantages and disadvantages but in my opinion the eurozone is not sustainable. Any such economic union has to be preceded by a political union.

One other thing that it surprising is why there is no price equalization across countries in the zone. Shouldn't trade arbitrage equalize the prices? That is something for the economists to ponder over.