|»5 Minute Wrap Up by Equitymaster|
On This Day - 5 MAY 2012
Will India ever get this kind of leadership?
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What did it do so differently? What lessons does Iceland have for the rest of the world? We thought the best person to answer these questions would be none other than Mr Olafur Ragnar Grimsson, President of Iceland since 1996. This is what he has to say. As per him, most other developed countries viewed the collapse of banks as just a financial and economic crisis. Iceland looked more broadly and deeply into the matter. It saw that the crisis would have political, social and judicial consequences.
Iceland found itself facing a crucial dilemma. On one side were the interests of the financial market. On the other side was the democratic will of the people. It is obvious now that it chose the latter. It did not pump money into the failed banks with taxpayers' money, the way the US and other European economies did. It treated banks like any private manufacturing or commercial companies that had gone bust. At the same time, it initiated measures on the judicial and economic front to address several aspects of the crisis. Some measures pertained to protecting the lowest income sectors such as elementary social and health services.
As we all know, the US and most economies of Europe have done mostly the opposite of what Iceland did. They salvaged the same big banks and institutions that were the culprits of the crisis. In the process, they have made their debt problem even worse. These economies are now witnessing sluggish economic activity, high unemployment levels and widening income gaps. All this means that even more severe crises are in the offing.
Iceland's model is not very complex and difficult to replicate. It decided to face some short term pain in the larger long term interests of the economy. Why, you may ask, the other countries did not take inspiration from Iceland's model? Were they fools or were they crooks? Unfortunately, our hunch is slanting more towards the latter.
The Finance Minister of West Bengal in particular finds debt restructuring and interest reliefs the perfect solution to the state's debt problems. Interestingly, there are no signs of remorse in equating West Bengal to Greece! Moreover, the Minister hopes for quick fix debt restructuring. Not that the state has any plans to follow Greece's austerity measures. In fact, government salaries in the state alone are set to rise by nearly 7% this year. But with outstanding debt of Rs 2.2 trillion and debt to GDP ratio of 39%, the state certainly needs some quick action. Meanwhile it is worthy of being called 'India's Greece'.
Development of a sound investment process is only half the battle won as per Biggs. The other half is struggling with oneself and immunising oneself from the psychological effects of the swings of the markets. Not to forget career risk, pressure of benchmarks, competition and the loneliness of the long distance runner, observed Biggs. So there you have it, another investment veteran outlining the virtues of an unwavering mind in the face of extreme market volatility and a strong belief in oneself. Mr Biggs wouldn't have been more correct we believe. After all, it is not high IQ or some special insight that made Warren Buffett the successful investor that he is or made Peter Lynch one of the most successful fund managers ever. It is indeed their strong mental makeup and the tendency to not follow the crowd that made them stand out. Investors would do well to harness these qualities more than anything else if they are to have a good shot at becoming a successful investor.
The Indian stock markets closed the week in the red. Rupee continued to fall and there were concerns about General Anti-Avoidance Rule (GAAR) in the Finance Bill too. India is reviewing its Double Taxation Avoidance Treaty with Mauritius as it is largely being misused by global investors. All of this, along with weak sentiments in Europe and the US resulted in the fall in Indian stock markets by 1.8%.
Amongst the other world markets, mostly all ended the week on a sour note. Germany (down by 3.5%) and France (down by 3.2%) were the top losers. However, Asian stock markets except Japan (down by 1.5%) managed to stay in the positive. Amongst these, China was the top performer, gaining by about 2.3%.
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