Recession

Recession : Loss of Commonsense

You can fool some persons for some time or all the persons for some time but you can not fool all the persons at all the times. Lot has been said and lot has been heard about recession. Recession is the result of loss of commonsense not only of Americans but all the people of the world for some time. Fear and Greed had occupied our minds for some time. We forgot to apply our minds .Money had made the Americans to consume blindly and fear had made the Chines to invest in the treasury of Americans.

Major mistake made by the Financial Sector is that they had given loans against the security of houses.. Houses cannot generate money (unless you give them on rent) rather they consume money if borrower is living in pledged house. Financial sectors had given the money to the consumers to consume on the basis of security of houses in which they were living. Thus value of the security became important rather then purpose of loan which ultimately leads to recession in the economy.

Financial Sector should gives the money to the householders even against the security only when there is a regular source of the income of householder. But it is not the regular income that is important but the source of regular income that is important while lending the money to the household. Financial Sector lost the commonsense that source of the regular income should be permanent. Job in a private sector (even from last 10 years) cannot be said to be the permanent source of income as we are seeing now a days in the form of huge job cuts all over the world.

Financial Sector is there to lend the money to the productive sectors of the economy so that these sectors can add to the GDP of the country by investing that money into income and employments generating assets.

Financial sector should always think about the purpose for which the money is being given. Money is always given by financial sector for investment and not for consumption purpose. Value of the security for loan is not as important as purpose for which loan is being given. When loan is given for the long term it will be the purpose of loan that will return the money of financial sectors. Financial sector is not the taker of assets (Security) of the householders rather it is to get the money back with appreciation.

Financial Sector forgot the basic concept that purpose of giving the loan against security is just to set fear in the minds of the borrowers that in case they did not applied the money for the intended purpose then they will loose something valuable for them. It is this fear that forces a borrower to work hard to apply the loan for intended purpose i.e. to create an asset that will produce money for him and for lenders.

Financial Sector lost commonsense that money is only a piece of paper in the hands of lenders but when it comes in the hands of borrowers then it changes its meaning and form instantly. Same piece of paper can be used to create a bomb or building depending upon the purpose of borrower.



Financial Sector applied technology i.e computers and complex models to calculate earnings and payback periods. Discounted Cash Flow techniques were applied without thinking that commonsense is also required to make decision which cannot be depicted on any paper. Technology cannot do anything except analysis of the data but choice has to be made by humans by applying non-monetary factors, facts, figures, commonsense. There are the models to control the prices of commodities but hardly there are measures to control the price of assets. Financial sector lost the commonsense that it is the Decision Maker that is important rather then technology used by decision maker. Technology can assist but cannot replace humans at any cost.

There is also a failure on the part of international financial institutions to track flow of money between different nations, its utilization and purpose of utilization.

With the lesson learnt from recession, we can say that money is not everything but money can do anything. We have to rebuild our commonsense to avoid recession in future. We have to again learn basics what is money? What is Loan? What is consumption? What is investment? before entering into financial world. Money should be given only for the investment purpose and financial sector has to be very strict about its usage.
I CERTIFY THAT THIS ARTICLE IS MY OWN CREATION.
CA SATBIR SINGH
casatbirgill@gmail.com

100 Days Programme

First 100 Days Programme of Govt of India

President Pratibha Patil while addressing the joint session of the two houses of Parliament on Thursday (04/06/09) also outlined the priorities of new government for the next 100 days:
• Early passage of the Women’s Reservation Bill providing for one-third reservation to women in state legislatures and in Parliament.
• Constitutional amendment to provide 50 percent reservation for women in panchayats and urban local bodies.
• Concerted efforts to increase representation of women in central government jobs.
• A National Mission on Empowerment of Women for implementation of women-centric programme in a mission mode to achieve better coordination.
• A voluntary national youth corps which could take up creative social action for river cleaning and beautification programme beginning with the Ganga.
• Restructuring the Backward Regional Grant Fund which overlaps with other development investment, to focus on decentralised planning and capacity building of elected panchayat representatives. The next three years would be devoted to training panchayat raj functionaries in administrating flagship programmes.
• A public data policy to place all information covering nonstrategic areas in the public domain.
• Increasing transparency and public accountability of National Rural Employment Guarantee Act (NREGA) by enforcing social audit and ensuring grievances redressal by setting up district level ombudsmen.
• Strengthening Right to Information Act by suitably amending the law to provide for disclosure by government in all non-strategic areas.
• Strengthening public accountability of flagship programmes by the creation of an Independent
Evaluation Officer at an arm’s distance from the government catalysed by the Planning ommission.
• Establishing mechanisms for performance monitoring and performance evaluation in government on a regular basis.
• Five annual reports to be presented by government as Reports to the People on Education, Health, Employment, Environment and Infrastructure to generate a national debate.
• Facilitating a voluntary technical corps of professionals in all urban areas through Jawaharlal Nehru National Urban Renewal Mission to support city development activities.
• Enabling non government organisations in the area of development action seeking government support through a web-based transaction on a government portal in which the status of the application will be transparently monitorable.
• Provisions of scholarships and social security schemes through accounts in post offices and banks and phased transaction to smart cards.
• Revamping of banks and post offices to become outreach units for financial inclusion complemented by business correspondents aided by technology.
• Electronic governance through Bharat Nirman common service centres in all panchayats in the next three years.
• A model Public Services Law, that covers functionaries providing important social services like education, health, rural development etc and commit them to their duties, will be drawn up in consultations with states.

The President outlined a paradigm shift in governance, to be effected through:-

• One, ongoing, independent evaluation and public reporting of progress in implementing schemes;
• Two, big strides in e-governance;
• Three, decentralisation and empowerment of panchayats and non-government organisations to implement and monitor government schemes;
• Four, breaking barriers between departments and schemes to achieve synergy and integration;
• Five, innovative regulation of health, education and provision of public services;
• Six, liberal use of technology in welfare transfers and achieving public awareness; and
• Seven, institutionalisation of the government’s basic commitments by requiring all cabinet notes to specify how their proposals would enhance the goals of equity or inclusion, innovation and publicaccountability