## Thursday, September 10, 2009

1. "A villager with no roads may foolishly boast of having no accidents, but he cannot teach people how to regulate traffic on busy intersections."

Not sure if this is originally Ila's or not, but it sums up bragging about RBI very well :)

2. 1.CS deals purely with technical aspects of data mining, it is not interested in ascribing meaning.
2. Data mining for CS deals with natural language processing, gene data, weather prediction. It's about making educated guesses. No on pretends it predicts future, unlike stock traders.
-v

3. For information of Ila Patnaik and Chandra,
Hundreds of banks fail in US every year and people shrug their shoulders and life goes on. regulators fight turf wars when wall street makes merry with creative accounting and banks make billion dollar losses; tax payer money is squandered in bail outs; its business as usual.
At least in India, banking sector is in good shape and our financial system is sophisticated if you consider the level of development in India. I suspect even Ila Patnaik knows it. Stiglitz says RBI has regulated well and Ila Patnaik says it did not. I think we can safely go by what Stiglitz opined. It has become fashionable to berate your own institutions, but it also smacks of intellectual dis-honesty. Nobody says Indian institutions are perfect but due recognition of good work done is essential for a fair assessment. Hope Ms. Patnaik understands.

4. Anonymous,

If Joe Stiglitz and RBI are so smart, howcome we don't see more countries ban exchange-traded currency options, or currency futures on all currencies other than INR/USD? Howcome we don't see more countries where investment banking for the government is done by the central bank? Howcome we don't see more countries with very low scores for central bank transparency? Howcome we don't see more countries where all foreign banks, put together, are allowed to open no more than 18 branches; where the greatest achievement of financial sector reforms of 2009 was the delicensing of placing ATMs?

5. Dear Ajay,
For your information, a survey of debt management practices of 110 countries (by Central banking publications) shows that the debt management function was located in central banks in eighteen countries. In eighteen countries, the debt management function was performed by separate agencies. Denmark, shifted debt management from the Ministry of Finance to the central bank in 1991. Recently, Iceland too has shifted debt management from DMO to the central bank. so the practice is varied and shaped by local factors.Even in the US, the debt management's middle office functions are with treasury but the front and back office functions are with new york fed. So harping on separate debt management office as solution to ills of public debt management may not be of much use.
May be in your opinion Joe Stiglitz is not as smart as Ila Patnaik, but can we dispute the fact that banking sector is in good shape and our financial system is sophisticated considering the level of development in India. Again I would like to say that the Indian system is not perfect and needs to be improved, but berating it as absolutely backward is neither true nor convincing.

6. Re - Anonymous's comments on Joseph Stilgitz. Foreigners from the West are generally very polite. As a norm they do not point out deficiencies even if they are obvious. In India we often confuse this politeness with concurrence of our viewpoint.

Some of us also seem to have a preference for a strategy of not doing anything. As a result there will be no wrong outcome and this is meant to be a positive outcome in itself.

7. Dear Anonymous, two points:

I suggest you find other examples than Iceland. We all know how well that country is doing. Dunno much about Denmark but if India wants to be in the top 5 economies it would do well to learn from the one's holding those places currently.

Since we are all harping about Stiglitz, lets throw in one more person in there. Raghuram Rajan, he wrote a paper in 2005 about the problems in the US economy. He is an advisor to our prime minister. He has made the case for an independent DMO (and a bunch of other reforms in his report). He has the local context as well. So, what say you to defend your issue on the DMO point (on which btw your points are at the least unclear).

8. Dear Anon,
On the issue of DMO, the comment was a response to Ajay Shah's comment that "How come we don't see more countries where investment banking for the government is done by the central bank?". There are all kinds of debt management models that are being followed in different countries. The fact remains that if 18 countries established separate DMOs, an equal number i.e. in 18 countries central banks are entrusted with debt management. (Source : Directory of Government Debt Services published by Central Banking Publications) There was a reason why Iceland shifted its debt management from its national debt management agency. Please see the link : http://www.ministryoffinance.is/news/2007/09/04/nr/9058. The reason why I gave the Iceland example is not to suggest that we should follow them but to buttress the point that all kinds arrangements are prevailing in debt management. About learning from top 5 economies: I am not sure whether we want to learn from Japan about how to manage public debt. In so far as US is concerned : the debt management's middle office functions are with treasury but the front and back office functions are with New York Fed (Central Bank). Perhaps we may think about suitability of this arrangement in India.
The evolution of debt management institutions is influenced by local institutions and traditions, economic conditions, and in case of European countries, circumstances such as the creation of the European Union and responsibility of monetary policy shifting to ECB. Thus the local context needs to be taken into account before embarking on reforms. The point is that our public debt worries will not go away if an independent DMO comes into existence as the fiscal consolidation is necessary condition for success of DMO. Such fiscal consolidation does not appear possible in medium term; so even if a separate DMO is created its fate is sealed.
No one is saying that economic policy making in India is perfect or denying the need for reform. But on the other hand the banking system was resilient in time of this crisis which happens to be a fact. Some credit is due to policymakers on this front.

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