One-handed economists!

January 22, 2014 Give me a one-handed economist, all my economists say is on the one hand and on the other hand Harry Truman ( ! "resident 1#4$-$%& 'ne can understand the (rustration o( the (ormer ! "resident )hen all the advice *ro((ered +y his economists )as ,iven )ith a cautionary alternate scenario- .hen ,ra**lin, )ith ur,ent issues, rulers and administrators )ill much *re(er to +e ,iven a clear course o( action )ith *redicta+le results as o**osed to several o*tions, the conse/uences o( none +ein, *redicta+le0ut 1on the other hand, it is o+vious that it is not easy, *erha*s even im*ossi+le, to either de(ine or *redict all the com*le2 and incalcula+le mi2ture o( human activity )hich (all into the de(inition o( economics3s *ointed out +y economists, in ,eneral terms almost all human activity could +e attri+uted to an economic consideration- 3t the minimum, *rocurement o( the +asic needs is a (undamental im*erative (or all o( us- Human nature +ein, )hat it is, (rom there on our needs and )ants e2*and in(initely- "resident Truman )as *erha*s demandin, too much (rom his economists )hen he as4ed (or strai,ht (or)ard e2*lanations o( the vorte2 o( com*le2ities that a lar,e, com*le2 and ,lo+alised economy re*resents-

5onsolidation6mer,er tar,et 3ccordin, to 7ivard 5a+raal, the Governor o( !ri 8an4a9s 5entral 0an4, one o( the tar,ets o( his :oad ;a* (or 2014 is the consolidation or mer,er o( the various +an4s and (inancial institutions ((inance com*anies&-These institutions come under the *urvie) as )ell as the su*ervision o( the 5entral 0an4 )hich 5a+raal has headed (or a+out ei,ht years no)<n recent times a (e) o( the (inance com*anies have come in (or a lot o( (la4 on account o( their (ailure to honour the de*osits o( their customers- <t is alle,ed, even +y the 5entral 0an4 itsel(, that some o( them )ere only thinly dis,uised 1"on=i schemes> (3 dis,uise, )hich evidently too4 in the monitorin, +ody as )ell>& <t is ar,ued +y the 5entral 0an4 that as a country )e have too many +an4s and that several o( them, es*ecially small +an4s )hich have come u* in recent times su((er (rom ca*ital inade/uacy and *oor mana,ement- The irony o( the 5entral 0an4 no) soundin, the alarm a+out over-+an4in, and ca*ital inade/uacy a(ter su*ervisin, the settin, u* o( several o( such institutions +y the ,overnment, and even havin, close 4ith and 4in a**ointed to head those small +an4s is *erha*s lost in the realities o( the *resent times3n economist )ith a +etter than a mere avera,e ,ras* o( the realities o( economic theory and *ractice )ill +aul4 at dra)in, only a rosy *icture- 8i4e the in(amous hed,in, deal )e )ent into )ith such cavalier disre,ard, every *olicy chan,e could have un(oreseen conse/uences- .e do not 4no) )hether the 5entral 0an4 *ointed out all the *ossi+le scenarios that could develo* (rom consolidation o( +an4s and the *lanned +orro)in,s o( (orei,n currency- .hile inade/uacy o( ca*ital could cause many *ro+lems, the over-su**ly o( ca*ital or the ina+ility to a+sor+ such volumes o( ca*ital could also have dire conse/uences- <n certain situations an intelli,ent economist )ould surely )ish (or several hands> ;ain *ur*ose 3**arently, the main *ur*ose o( the intended consolidation is the stren,thenin, o( the +alance sheets o( these institutions- 0y international standards these are admittedly tiny and +y consolidatin, a (e) o( them it is ho*ed that they )ill amount to somethin, lar,er- 3s a lar,e entity they may +e a+le to attract more (orei,n (unds needed (or investment- 3s they claim, small is not +eauti(ul in the rare(ied (ield o( +an4in,3lthou,h not an economist, +ein, a *erson o( years o( e2*erience in (inancial services, 5a+raal )ill readily concede that in economics some road ma*s could end u* leadin, one to the )ilderness- .e remem+er the (ive year *lans o( the (ailed socialist countries )hich in hind-si,ht loo4 almost ?uvenile in some o( their

assum*tions!everal )riters have *ointed out that consolidation o( a (e) )ea4 institutions, )ithout addressin, lar,er and (undamental issues, may not necessarily create a +etter institution- .arren 0u((ett the (amous investor ar,ues that a small com*any )ith a su*erior *er(ormance is (ar *re(era+le to a lar,e entity )ith a mediocre *er(ormance- !i=e, as the colla*se o( several +an4in, institutions in the ! and other countries only a (e) years +ac4 sho)ed is no ,uarantee o( sta+ility- .e have learnt that lar,e does not necessarily mean stron,0orro)in, (orei,n (unds the main motive@ <t is a 4no)n (act that some *rivate com*anies in(late their true value in order to o+tain more credit- The ris4s inherent in such a course o( action +ecome o+vious only )hen it is time to re*ay the de+t- !ometimes thin,s may )or4 out all ri,ht, +ut not al)ays<( +orro)in, (orei,n (unds is the main motive in mer,in, the +an4s, ho) that money )ill +e invested +ecomes a concern to all sta4eholders- <t is not the +an4s that )ant to +orro), +ut the ,overnment, throu,h them.ithout any in4lin, o( the intended *ro?ects on )hich these (orei,n +orro)in,s )ill +e invested it is di((icult to assess )hat our return on those investments )ould +e- Aor e2am*le, i( they are to +uy more aero*lanes (or !ri8an4an 3irlines, a hu,e loss ma4er as it is, the return on the investment )ill +e s*eculative at +est3ccordin, to the re*orts availa+le some o( the lar,er +an4s and (inancial institutions in !ri 8an4a currently hold an e2cess o( local (unds )hich are availa+le (or lendin,- 0ut a**arently there are no ta4ers or lar,e scale +orro)ers loo4in, (or such (undin,;er,ers and ac/uisitions ;er,ers and ac/uisitions are not necessarily an evil thin,- !ometimes in order to ,ro) institutions need to +ecome lar,er- <t is o(ten an or,anic ,ro)th *rocess )here (undamental (actors indicate a need (or ,ro)th o( the +ase- They then loo4 (or other com*anies )ith similar cultures or syner,ies to either mer,e )ith or ac/uire- '(ten such a *rocess results in ,reater e((iciency and *roductivity- 5ertain *roduction *rocesses and em*loyment *ositions in one o( the entities, or +oth, may +ecome redundant on account o( the mer,er'rdinarily )hen such mer,ers ta4e *lace in the +an4in, sector a *rimary concern o( the central +an4 )ould +e the mono*oly *o)er a (e) such or,anisations may ac/uire over this strate,ic sector- <( the t)o ma?or investment +an4s in a country )ere to

mer,e into one, the +orro)er (investor& )ill have only one +an4, one +an4in, culture and *olicy to ,o to- The *otential and the ris4s o( his *ro*osed venture )ill +e assessed on the +asis o( only one stand *oint- The element o( choice that com*etition *rovides him )ill +e deniedThe *rimary ,oals o( a 5entral 0an4 are the im*lementation o( a monetary *olicy that *rovides ,ro)th, maintainin, sta+ility o( (inancial systems, mana,ement o( the currency system and *rovidin, o( accurate data o( the economy- <nevita+ly the central +an4ers are inde*endent, scholarly and o+?ective- 0y de(inition that role cannot +e held +y *ersons o( dou+t(ul inte,rity or *artisanshi*Bconomy +elo) tar,et <t has +een *ointed out that des*ite the cessation o( the )ar (our years a,o our economy has never reached the ,ro)th rates that other countries li4e 5hina, <ndia, !outh Corea, Thailand etc )ere a+le to achieve in their *ath to ra*id develo*ment5hina maintained a dou+le di,it ,ro)th rate (or many years- <n a re,ion )hich has seen such sterlin, economic *er(ormances )e stand out as mediocre- <( the remittances, )hich are the re)ards (or activities com*letely outside o( our economy, are ta4en out, the story )ould +e very ,rim indeed3n economist )ith a +etter than a mere avera,e ,ras* o( the realities o( economic theory and *ractice )ill +aul4 at dra)in, only a rosy *icture- 8i4e the in(amous hed,in, deal )e )ent into )ith such cavalier disre,ard, every *olicy chan,e could have un(oreseen conse/uences.e do not 4no) )hether the 5entral 0an4 *ointed out all the *ossi+le scenarios that could develo* (rom consolidation o( +an4s and the *lanned +orro)in,s o( (orei,n currency- .hile inade/uacy o( ca*ital could cause many *ro+lems, the over-su**ly o( ca*ital or the ina+ility to a+sor+ such volumes o( ca*ital could also have dire conse/uences- <n certain situations an intelli,ent economist )ould surely )ish (or several hands> 'r *erha*s our 5entral 0an4 has +ecome the one-handed economist that Harry Truman )as loo4in, (or> (The )riter is an 3ttorney-at-8a) and a (reelance )riter-&