Tuesday, May 19, 2009

Indian Spring

Dr. Manmohan Singh, an Oxford-educated economist, won the long, drawn out Indian election for Prime Minister. Some 700 million voters gave a majority in Parliament to the Congress Party, the party of the country's first Prime Minister, Jawaharlal Nehru. The Hindu nationalist BJP Party's rhetoric, which would have served to inflame the unstable situation in Pakistan, was pushed aside by voters.

India's economic development has been misguided since the 1950's, when teams of Harvard and MIT development economists were relentless advocates for heavy industrial development. Today, the new mantra is to develop the Internet infrastructure. We're told that 30% of the population now live in urban areas. However, that means 70% of the population still live in villages, and Silicon Valley expats not withstanding, India is still a nation of villages.

Clean water, sanitation and reliable power are keys to sustainable economic growth. In the villages, people need simple, low cost and reliable ways to use sustainable fuels for cooking meals, and foodstuffs that don't rely on high cost inputs. Power, water and sanitation are large-scale public works projects, and the government has to find a way to become more effective at delivering these needs.

On the "appropriate technology" front, lots of private companies, international agencies, and family foundations are developing simple, but really useful items like a solar oven that burns fuel cakes made from animal and plant waste. It's not glamorous, but it would truly deliver high economic and social returns.

Here's hoping that Prime Minister Singh sets off a wave of energy and commitment to the needs of the 714 million people who elected him.

Wednesday, May 6, 2009

All's Well With Wells?

Back in January we were uneasy about Wells Fargo's acquisition of Wachovia because it violated a long-standing discipline that had served them admirably through scores of acquisitions. In the fourth quarter, it looked like Wells took a "kitchen sink" loan loss provision, against which the first quarter 2009 provision looked small. The worst is over, right?

So then Wells previewed the first quarter earnings which were a "surprise" and stocks took off. Now, we find out after all the mysterious stress tests have been completed that Wells Fargo needs to raise some $15 billion in additional capital, second only to the hapless Bank of America at $34 billion. Citigroup, which seemed to be the patient getting pennies on its eyes, needs to raise only $6 billion in new capital.

What is anyone to make of all this? Shouldn't the stress test analysis be a matter of public disclosure to shareholders? Isn't it material to their investment decisions? What happened to transparency? It does give me some comfort to know that even experienced banking analysts like Simon Johnson are confused by the torrent of misinformation being foisted on the markets by the Fed/White House/Treasury spin meisters.

Although banks are enjoying robust margins, it seems as if the credit engine of the traditional banking system is still seized up and not ready to become an agent of economic recovery.