On making good decisions..Norway Bank

Norway Central Bank Deputy Governor Jan F. Qvigstad gives a superb speech on the "On making good decisions". The speech revolves around how central banks make decisions and what makes a decision good or bad .
It cover the following areas:

• Independence provides a sound framework for interest rate decision

Most countries have now delegated the task of ensuring price stability to the central bank. The government has set an inflation target for monetary policy and delegated the operational conduct of monetary policy to Central Bank

The Norwegian economist Finn Kydland received the Nobel Prize for economics in 2004 for having shown that on the whole, monetary policy decisions are better if policymakers delegate interest rate setting to an independent central bank under a clear mandate

• We make decisions under uncertainty

Independence alone does not guarantee good decisions. Even if an independent central bank is better positioned to avoid having short-term expediency and changing preferences dictate interest rate policy, its decisions must be made under considerable uncertainty.

“Uncertainty is not just an important feature of the monetary policy landscape; it is the defining characteristic of that landscape”....Alan Greenspan

• Groups often make better decisions than individuals

Contestants on the television game show Who Wants to Be a Millionaire? have various so-called “lifelines”, including telephoning a smart friend or asking the studio audience for help. It has transpired that the studio audience is the contestants’ absolute best bet. The majority of the studio audience votes for the correct answer nine out of ten times, beating out smart friends, who provide the correct answer only 65 per cent of the time

• But groups are no guarantee for good decisions

The deliberative process does not necessarily lead to a better decision. When the group members share the same world view and thinking, groupthink can lead the members astray. There is typically little dissent in discussions where participants think alike. The group can therefore be convinced that their common standpoint must be right.

• How do we arrive at a decision?

There two approaches: premise-based or conclusion-based. The two approaches may have different outcomes. Many will favour the premise-based approach because it gives weight to the underlying basis for the decisions we make.

• Was the decision good?

The objective of monetary policy is a natural place to begin our assessment. Have we or have we not achieved price stability? Even if we make our best efforts, there is no guarantee that we will succeed in reaching this objective. The key policy rate is not the only factor affecting the economy and that can disturb the outcome.

Telecom Scam---Part1

Though am not interested in reading political news (waste of time) this particular telecom scam made to look a bit into Google and find what happened and happening with scam. It’s high time to look into evidence of Telecom Scam which is rocking the parliament for couple of days.

Here is article by Canary Trap time line of events:

August 28, 2007: In 2001, there were only 4 million cell phone subscribers; whereas by 2007-2008, the number of cell phone subscribers was around 350 million. Thus by fixing license fees at 2001 prices, the Telecom Ministry enabled companies that were allotted licenses to command huge premia.

Company	License Paid	Sold to
Swan	1537	45 % sold to Etisalat for 4200 cr
Unitech	1661	60 % sold to Telenor
Tata	--	26 % sold to Docomo

Based on the aforesaid sale of shares by Unitech and Swan, the market value of these 9 new 2G licenses amount to a total of Rs 70,022.42 crores, for which these 9 companies/conglomerates had paid DoT a total of Rs 10,772.68 crores.

October 21, 2009: The CBI registered an FIR in the scam.

April 28, 2010:Details of tapes establishing Raja’s dubious role in the scam surfaces in the media. Opposition parties demanded that the PM sack Raja.

A little bit of digging the information led me to this page where the reporter of magazine gave confidential information which main stream media never talked.

Some excerpts from it:
Radia close associate of Raja has been key in getting license and spectrum to the following telecom companies 1) swan2) aircel3) Unitech wireless4) Datacom

• Datacom was setup by HFCL group along with Mr.Dhoot of Videocon is alleged to be having funding through Mukesh Ambani group through a employee Manoj Modi

•  Swan on paper is backed by Mumbai based real estate Company Dynamix Balwas group of companies and it was moved up the priority list of spectrum allocation by DOT

•  UAE telecom giant Ehtisalat controls about 45% of swan telecom and for this they paid $900million.

•  This deal make Swan at $2 Billion and at present Mumbai based Delphi investments holds 9.9% stake in Swan.90.1 stake in Swan Telecom is owned by Tiger Trustees which in turn is 99.8% owned by Dynamix Balwas Ltd.

•  Seems that Raja and Radia have interests in Swan and there associates are on board of Swan

CBI registered a case against conspiracy between few public officers and private persons in grant of telecom license in 2007-08.It is learnt that certain individuals like Ms Radia of Noesis consultancy were involved in the above mentioned criminal case and DGI and Income Tax authorities tapped the wires of Radia to get some information.

The companies which she and co consult are not only for telecom, aerospace, power and infrastructure but also influence and change policies of government to suit commercial requirements of various clients.
From the conversations it appears that she had role in telecom license and guides a newly formed telecom company to delay the stake sale and not to look at it as a windfall gain. There are some direct conversations of her and telecom minister. In some other conversations she boasts of herself for obtaining telecom license for few companies.
June internal evaluation report from DGI
Totally 9 lines were kept under surveillance during the month of June 2009 belong to two separate groups. First group relates to a PR agency.

• The conversations indicate money laundering and structured payoffs transactions and liaison for projects of telecom and power.

•  Also indicate cross borer transactions related to telecom, petroleum and media.

Second group comprises of 3 members

•  And calls to this group appear relate to financial transactions ranging in crores including foreign bank accounts

• Unauthorized international derivative transactions

• In fact there appears some calls related to cricket betting and some other sports (ohhh I was under impression that betting happens only in cricket, seems now cricket has a rival)

July internal evaluation report from DGI
First group: As per conversations

• The associates have apparently fronted for someone (Mukesh Ambani) to acquire a news channel (9X) in India and there appears some cross border transactions.

•  Conversations of target (Radia) with a businessman (Tarun Das FICCI Chair and Government Nominee…Mukesh Ambani) who is also a government nominee on a State PSU (haldia Petro) appears to suggest that a target along with business man is trying to facilitate a take over of this PSU by a large client (RIL) of target.

•  The Target as per telephone conversations facilitated for a few filing PILs by NGO to hurt the business interests if the rival clients (Anil Ambani ADAG)

Reports on news in whispers in Corridor:

•  Reports that Sunil Mittal is also banking on with Radia to make peace with Raja on foreign take over and his interests in spectrum

•  Neera Radia is chief of Vaishnav Corporate Consultants Pvt Ltd, Noesis Consulting Vitocom and Neucom Consulting. Vitocom has been handling the business of NDTV Imagine.

• Neucom was set up to handle affairs of Mukesh Ambani Group.

• Vaishnav handles the affairs of Tata, Unitech, and Star TV along with other clients.

• Noesis officially comprises of retired senior bureaucrats and controlled by Radia.

• There is long conversation between Ratan Tata and Radia which establishes that Tata does not want Maran to be Telecom Minister at any cost.Tata felt the need to exit telecom if Maran becomes Minister.

•  Looks like Radia is also in touch with Neera and Ratnam CA of Karunandhi wife (wovvvv…first time I heard of this…).

•  Radia and Kanimozhi behalf of Burhka Dutt(NDTV fame..I guess now she is in CNN IBN) and Vir Sanghvi (Not Sure of this Person) were negotiating minister berths for DMK members.

•  Sunil Mittal lobbied to prevent Raja to become telecom minister and Tata Lobbied to prevent Maran from becoming Telecom Minister. (Another wovvv)

•  In Jharkhand Tata’s need lease of to extend for which the great madhu koda (1000 crore scam) asked for 180 crores. Radia got the lease extension from governor for which ratan Tata sanctioned 1 crores as reward for the team

• FICCI chief Tarun Das is chairman of haldia petro corp. and Mukesh wants to take over it. With help of Radia they are handling the matter

•  As per conversations there appears RIL purchasing a house for VK Duggal, Director General of Hydrocarbons News

•   9X was controlled by Mukesh Ambani

If this is real then all credibility gained by Mr Clean MM Singh are thrown into dustbin.
Moreover none of the news papers are willing to post the news related to it. Seems government is denying that it never allowed wire tapings.

QE2 is coming...This November

Now a Days its mostly debated about QE2 across the boards and its implications on world economy.QE2 is nothing but Quantitative Easing a form of monetary stimulus which involves buying bonds from public.

Who is doing this ?  Managing the Federal Reserve's Balance Sheet

The central bank is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months, a measured approach in contrast to purchases of nearly $2 trillion it unveiled during the financial crisis.

 QE1 happened during crisis and they reacted in a number of ways,like purchases and reducing fed rate to near zero (0.25%) etc..

So what will happen if it buys back bonds from public?

The aim is to drive up the prices of long-term bonds, which in turn would push down long-term interest rates. It hopes that would spur more investment and spending and liven up the recovery.

The announcement is expected to be made at the conclusion of a two-day meeting of its policy-making committee next Wednesday.

So what are its implications?

 Growth will stay below trend, inflation below target and unemployment uncomfortably high—albeit with reduced risk of a double dip. For the Fed to come close to fulfilling its dual mandate of full employment and price stability, QE3 or QE4 may be needed in 2011.

 How about EM are like India?

EM is the main focus of the U.S. capital outflow. Leveraged carry-trades may pause for breath now that so much has been priced-in, but the real-money portfolio shift is likely to continue, causing near-term out performance, but sowing the seeds of future bubbles.

The talk of Fed going for QE2 brought huge inflows into indian Equity markets with FIIs investing a record $6.11 billion in October 

"FIIs see better rate of returns in emerging markets and India is set to attract a disproportionate share of inflows," Reliance Mutual Fund's head of equities Sunil Singhania said

 But with this FII flows its  obvious that rupee will appreciate and this inturn will hinder growth in exports which can be a cause of worry in near future.

           No FII inflow cap, but Re checks possible: FM

At this time, I am not thinking of putting any cap on FII (foreign institutional investment) inflows.

 The government ruled out curbs on foreign portfolio investment into the equity market, but said the central bank may intervene in the forex market to check rupee appreciation that was hurting exports

The current levels of capital inflows, which exceed financing requirements of the current account deficit, have put pressure on the rupee, resulting in its appreciation over the last few months.


The RBI has already expressed concerns over rising capital flows, which could further increase after further monetary tightening, which looks imperative in view of the sticky inflation.

Lets welcome November we will see a new game across countries related to forex,interest rates.inflation,unemplyement.