The Tribune, Chandigarh, India

Rapists on the prowl
A German tourist falls easy prey

THE irony could not be more stark. Barely hours after the Chandigarh Tourism and the police had launched tourism police to mark World Tourism Day, a 20-year-old German tourist was allegedly raped in the city on Sunday. What is all the more shocking is that she was abducted from the parking area of the city’s prominent five-star hotel in Sector 17. This single incident is enough to scare away potential foreign tourists from the city. Read it with a similar incident in 1994 in a which a French national, Katia, was also abducted from a hotel in Sector 22, and Chandigarh comes out as a highly dangerous place for foreign tourists to be in. The shock waves that the horrifying incident is sure to generate can undo all the publicity which the administration has been doing to lure visitors, foreign or domestic. In the previous incident the name of the grandson of a prominent politician had figured among the accused. The criminals involved in the latest incident are yet to be arrested but their presence in the five-star hotel itself is proof enough that they are from well-to-do families.

Such incidents only reflect the blatant confidence of those who committed the unpardonable crime that they can get away with such a serious crime in the Union Territory. The fear of the law and authorities is obviously waning and unless that is restored, many others with a criminal bent of mind will be encouraged to do whatever they chose to do. The police has to catch hold of them at the earliest to restore the public confidence.

Then comes the stage of ensuring that they get the severest punishment in the shortest possible time. Only then will a clear message go out to vermins like them that they cannot shatter the norms of civilised behaviour. Of late, a few courts in the country have pronounced judgements in rape cases in record time. Such quick dispensation of justice must become routine in such cases so that India can be a safe place for women.

No to bailout
American legislators vote as independents

THERE is no immediate end to the financial crisis in the US as the House of Representatives has rejected by a decisive 228-205 vote against the $700-billion bailout plan. Most people, both within and without the US, thought the bailout plan would have a smooth passage in the House as leaders of both the Republican and the Democratic parties had come to an understanding on the need for such a plan. But the American legislators voted more as independents than as party representatives in conformity with their own peculiar democratic system under which whips are not issued to enforce party decisions on the members.

Supporters of the bill had argued that it was necessary to avoid a collapse of the economic system, a calamity that would drag down not just Wall Street investment houses but possibly the savings and portfolios of millions of Americans. Opponents said the bill was cobbled together in too much haste and might amount to throwing good money from taxpayers after bad investments from Wall Street gamblers. All the telephone calls President George W. Bush made to the wavering Republicans to vote for the bailout plan had no effect. In absolute terms, the bailout would have implied that every American would pay $10,000 to keep the failed financial institutions afloat.

British and other European financial institutions have already been hit by the US crisis and it is bound to affect stock exchanges in India too. Given the support the bailout plan is believed to have in the Senate, the Bush administration will be tempted to seek another vote in the House later this week. After all, an ultimate defeat of the measure will mean a lot to the legislators, their friends, their neighbors and their constituents who will have to watch their retirement savings “shrivel up to zero”. For the present, the reality of the rejection will haunt not just Wall Street but stock exchanges the world over.

Thought for the Day

Do not be daunted by the enormity of the world’s grief. Do justly, now. Love mercy, now. Walk humbly, now. You are not obligated to complete the work, but neither are you free to abandon it. — Talmud (attributed)

ARTICLE

The meltdown
US sand castles are collapsing
by Arun Kumar

SINCE August 2007 the crisis in the US financial system is big news. It is the deepest crisis in the last 80 years. Initially, the US establishment denied that there was a crisis. A deteriorating situation forced a financial package of tax cuts and bailout of Bear Sterns. Then came the crisis of the two housing mortgage giants, Freddie Mac and Fannie Mae. After much dithering the government took over these two companies to prevent a collapse of the US financial system. From not admitting to a crisis to accepting that if it did not act, the whole financial system could collapse was a long journey for an admittedly right wing government that has preached to the rest of the world the powers of free markets.

There followed a sigh of relief in the financial markets that they had escaped the inevitable collapse. But that was premature since three of the biggest global financial players collapsed. Lehman Brothers filed for bankruptcy; no one was willing to buy/bail it out. Merrill Lynch was sold to BankAm for a bargain price and AIG was almost on the verge of collapse and with that it appeared much of the financial system was teetering on the brink. Again after dithering, the US government stepped in by putting together a bailout package. The markets recovered.

However, confidence was now at such a low ebb that no one was willing to trust anyone else and lend to them. This has undermined the financial systems because they run on trust between institutions that lend and borrow amongst themselves. There exist layers upon layers of financial assets with little solidity because all the actors were building castles in the air and convincing each other that they were solid — much like the king’s clothes which did not exist.

The inevitability of a collapse of the US financial edifice is now apparent to the policy makers in Washington and the financial institutions all over the world. Hence the US government and the legislature are putting together a massive $700 billion bailout package for the financial industry. Counting all the bailouts in the last one year, the government is giving to the financial institutions about $ 1 trillion. This is about $3,000 per US citizen or more than India’s annual production.

However, trouble continues to brew since it is not clear how this bailout package will work. How will the assets be priced in a market where their prices are collapsing? If they are bought at higher than current prices, it would be seen as a dole to the super rich financial players. If the assets are priced at current prices, the crisis would continue with more institutions failing over time. Indeed, news is that Washington Mutual is also going under.

Perceptive analysts have been pointing out that unregulated financial systems are a bubble waiting to burst. Keynes had pointed to this danger and so had Minsky in the late seventies.

However, increasingly over the last 50 years it is the world of finance that had become politically and economically powerful and it manipulated policies to have its functioning more and more deregulated. This accelerated with the onset of Thacherism in the late seventies. In the nineties, Greenspan the ruling US deity propagated this philosophy and believed that markets are self correcting — how erroneous.

Diehards suggest that the US government is turning socialistic. But, the bailout is for the private financial markets to stem problems for the real economy. Subsidies are for the rich and not the poor.

The real economy had been suffering due to the collapse of the housing markets, rise in food and energy prices and the consequent decline of the automobile industry. Since January, more than 700,000 jobs have been lost. This decline in the real economy is linked to the growing financial crisis — a two way linkage.

The functioning of the financial markets will help understand the reasons for the collapse. Money is created by deposits and their lending in the commercial banking system. For security, a certain per cent of the deposits are held in the Central bank which acts as the lender of last resort guaranteeing the entire system. This assures the depositors that their money is safe and they can get it back when needed. The banks are regulated by the Central bank so that they follow prudential norms.

Outside this regulated system, newer financial institutions like the investment banks emerged which started trading in financial instruments. They used their own funds and those of their clients to leverage more funds and buy financial assets. High profitability was assured as long as the prices of assets rose. The movement of funds in the financial markets were hundreds of times greater than the real output. The profits of the financial sector were based both on squeezing the surplus out of the real economy and by creating a speculative bubble which yielded capital gains.

This was an unstable situation. If, for any reason, the asset prices declined then just as huge profits were generated, big losses would follow. Billions of dollars of capital of Bear Stearns, Fannie Mae, Freddie Mac and Lehman Brothers was wiped out in a short space of time and they had to go for sale or bankruptcy.

Three additional factors need to be factored in. First, the low savings rate of the US economy which has meant that the rest of the world holds a large part of the capital in the USA. Secondly, the war in Iraq and Afghanistan has been bleeding the US economy and eroding its asset base. Finally, super profits have been spirited out to off shore banking channels (of which there are 77). Thus, the financial bubble has been backed by a smaller and smaller base of real output and US-owned assets.

All this was leading to the decline of the dollar, thereby aggravating the crisis for the US because the rest of the world started to move away from the dollar. This weakened its status as a reserve currency. The USA is not able to export its deficits as easily as earlier. The swelling bubble had a crumbling base and the US economy fell into a vicious trap so that even a small disturbance was enough to prick it. The trigger was the collapse of the housing market followed by the sub-prime crisis.

The above also explains why it is the US financial system that has faced a crisis and not that in other developed countries. However, given the global reach of the US financial system and the integration of the markets, the crisis will hit other economies, including those of the developing countries. India will be no exception (See the author’s article in these columns, February 6, 2008) with its stock markets in turmoil, FIIs withdrawing money and the leveraged buying by cash-rich companies likely to face a crisis.

In brief, given that the US financial assets are backed by a small real base the government bailout with $ 700 billion is unlikely to stem the crisis. The US budget deficit is likely to balloon and create fresh problems since the rest of the world is unlikely to hold this uncertain asset which can also collapse. The crisis is systemic and a Tsunami is moving in.

MIDDLE

Parenting in the park
by Jayanti Roy

I often take my kids to a neighbourhood park in the evenings, where many children of different age groups come, the young ones with their parents. We find many regulars there. A lot of child-friendly swings, slides and seesaws are there in the park where kids happily play. The parents sit in the green space around or on the wrought-iron benches and keep an eye on the children. The daily interactions here among the parents and the kids are the real-life lessons in child rearing, as there are ample live demonstrations of why our society is what it is today.

One of the parents, who has only one agenda on her list — her kids — would not budge from near the slides/swings. She makes sure that her kids get on to them and get endless turns without caring whether other children get their due turns or not. Her kids do have a lot of fun, pushing and shoving the other children, denying them their rights but without any learning of patience, tolerance, cooperation or healthy game spirit.

Another cherubic little girl is a bit of an introvert, perhaps a budding thinker or poet. She does not like much of physical activity but loves to come to the park perhaps for the fragrance of flowers and green grass, for the cool breeze and the blue sky reflecting in the quiet pond. She dreamily stands near the flowerbeds taking in the scenes, but her mother is not the one to be contented with only that. She yells, “Neha, all the time you want to come to the park and once here, you don’t want to play. What’s wrong with you? If you don’t play there is no need to stay here. Either you play or we go home.” She gives the ultimatum. Reluctantly, Neha moves towards the swing but after being pushed around by other kids she is again just standing quietly, making no efforts to move. Fuming furiously, her mother stomps away followed by a sobbing Neha.

In the park, the ground surface where the slide comes down is devoid of any grass. It has actually turned into a pit by constant footfalls of the children. That particular day, it was muddy too after the last night’s showers, as water has collected in it. The older kids were not having any problem as they could pull back their feet in time but the younger kids needed supervision and help not to fall with a splash in the mud. A child of about two years dressed in sparkling white right up to the shoes did just that. Before her mother could hold him, off he went, splash, into the muddy pit. His white dress and shoes were covered with mud. His mother was so enraged with anger that she hit the child with all her might.

The child who was already in shock from the mud splattering on his clothes and face could hardly understand what his fault was. I offered them my water bottle to wash off the mud and requested the mother not to be so harsh on the child when mother of another child joined us. She fully endorsed the hits and blows to the child saying, “Gussa to aa hi jata hai.”

Can a mature, adult person be so inconsiderate, impatient and unkind to the young, innocent children, that too one’s own flesh and blood. One has to see to believe it. Can we expect these kids to grow up to be normal, caring, loving and respectful human beings? I have my doubts.

OPED

Tackling terrorism
Moily commission report shows the way
by Ajay Banerjee

EVEN as the nation’s intelligentsia is divided over having a new law to counter terror, the report of the Administrative Reforms Commission, in which was released on September 16 and has set this critical debate rolling, talks of issues that need immediate attention of the nation and policymakers. It is way ahead in scope and covers minute aspects.

It deals with issues that could have long-term repercussions for nation security. There is nothing in the report that could raise the hackles of any community or ruffle the feathers of vote-bank politicians or even the human rights activists who fear repression from the police.

Rather it suggests several checks and balances to stop the misuse of any new law while being very clear on what is terrorism and how it should be handled.

The commission wants a political consensus and wisely so for a country where terrorism is today being calculated on political lines and for political gains.

The Union Cabinet has already asked a group of officers to study the 185-page report and give its suggestions on what all could be drafted in the shape of new laws or what amendments are needed to the existing laws to plug loopholes.

The commission, headed by senior Congressman M. Veerappa Moily, has touched the reality and says: “A comprehensive and effective legal framework to deal with all aspects of terrorism needs to be enacted”. It does not stop here and adds “the law should have adequate safeguards to prevent its misuse”.

In all fairness, the committee shows its intent that it does not want to enforce some “police-raj” that was the norm under the now repealed Terrorist and Disruptive Activities Act and the Prevention of Terrorism Act (POTA).

It suggests that a review committee be set up to study each case every quarter to satisfy itself with investigations — this effectively means no needless detention of anyone.

The review committee will also advise prosecution if any person held for terrorist activities is bailed out. The advice of the review committee shall be binding and the prosecution shall not oppose the bail just for the sake of opposition.

Actually, the high-level review committee is an idea that originated from the advice of the Supreme Court given in a TADA case of 1994.

The commission’s report is an excellent document and, if used correctly, it can remove the “soft-nation” tag, besides covering all loopholes in the laws which are of an era when terrorism did not exist, said a senior police officer working with a top security agency.

There are counter views like that of former Punjab Police chief KPS Gill, who believes that laws do not deter terrorists; they create hurdles for the common man.

Notably the committee is silent on what kind legal protection should be offered to policemen who risk their lives in countering terrorism. It does not answer as to how should the country deal with fake human rights cases, if any, hoisted on cops years after the incidents had occurred.

For example, in Punjab special protection was allowed for the Army and para-military forces operating in the state. However, the same was withdrawn for the Punjab Police on purely political considerations during Congress rule in 1992-97. This meant a Punjab cop could be hauled up while his counterparts involved in similar anti-terrorist operations were given immunity.

The commission wants that acts of terrorism should be defined under the law. At present since TADA and POTA stand repealed, acts of terrorism are loosely defined and financiers and harbourers of terror go virtually scot free.

The commission says the following should fall in the definition of terror: (i) use of firearms, explosives or any other lethal substance to damage life, property and infrastructure.

(ii) Assassinations or attempts to kill public functionaries with an intent to threaten the security and sovereignty of India or to overawe or terrorise people.

(iii) Detention of any person or threat to kill or injure any person to force the government to act or abstain in a particular manner (This one is aimed at kidnappings and hijacking that have been used to free terrorists).

(iv) Providing facilitating material support, including finances, for any such activity.

(v) Commission of certain acts or possession of certain arms by members or supporters of terrorist organisations that are likely to cause a loss of life and damage to property.

The commission says the CrPC should be amended to have a longer detention period for acts of terror. It also wants that statements recorded with the police should be admissible in court.

It also talks about a central agency to probe cases of terrorist offences. It suggests the creation of a special cell within the CBI.

Moily’s team has suggested path-breaking steps to counter financiers of terror. The Prevention of Money Laundering Act (PMLA) should be amended to widen its scope and reach.

The new legal framework may incorporate provisions to freeze assets, banks accounts, deposits and cash when suspicion exists. A separate chapter should be added to the National Security Act, 1980.

A special cell should follow all leads of financial transactions that are gathered from various sources. All agencies dealing with financial transactions may be asked to set up anti-terrorism cells.

How many more will have to be saved?
by Jeremy Warner

SUCH is now the scale of the global banking crisis that news that once would have been counted as sensational – the nationalisation of Bradford & Bingley – now barely passes the “so what” test.

Against the plethora of previously “inconceivable” events – the collapse of Lehman Brothers, the nationalisation of the US’s two biggest mortgage organisations and of the world’s largest insurer, AIG, the sanctioning by the British Government of the “rescue” takeover bid by Lloyds TSB of HBOS to create a company with 40 per cent of the UK banking market, and so on – this one seems almost small beer.

B & B was always the “also ran” of the independently quoted former building societies. What’s more, it has a high exposure to buy-to-let and other forms of “riskier” mortgage lending, so ever since Northern Rock ran into problems more than a year ago it has been obvious B & B would struggle to survive.

The recent intensification of the banking crisis, with banks again refusing to lend to one another and depositors withdrawing their money from any bank that looks remotely suspect, has sealed the company’s fate.

Desperate to avoid another £50bn of mortgage assets coming onto its books, the Treasury and Financial Services Authority has been searching for buyers, but such is the febrile atmosphere of mistrust in credit markets that no rival bank could be persuaded to take on responsibility for additional funding of this sort without a government guarantee. Bankers are finding it tough enough to fund their own lending books, let alone taking on responsibility for someone else’s.

Nationalisation of the assets together with sale of the deposits and branch network became the only way of preventing an insolvency in which depositors would have lost large amounts of money.

With nationalisation of B & B goes the last of the converted building societies floated on the stock exchange in an orgy of de-mutualisation windfalls in the mid to late 1990s. Northern Rock too has been nationalised, Abbey National and Alliance & Leicester taken over by Santander, and assuming the deal goes through, HBOS, the former Halifax and Leeds Permanent building societies, has been parked with Lloyds TSB. Others are already part of larger banks.

The demutualisation “experiment” – designed to release capital to members and give these organisations the access to international money markets that would allow them to expand – has ended up a miserable catastrophe. Worse, by stoking the explosion in mortgage lending, the process of demutualisation must be judged one of the main causes of the housing bubble and the now painful correction.

In all cases, these once conservatively run mortgage societies seem to have been operating an unsafe business model, with investment in dodgy financial instruments and rapid growth in mortgage books funded not by ordinary retail deposits, but by the international money markets. Once this sort of funding dried up, they were in trouble.

Members still holding their demutualisation shares will have lost all or most of their “windfalls”. Bradford & Bingley was particularly big in “buy-to-let” mortgages and high-risk “self-certified” mortgages, under which the mortgage holder vouched for his own credit worthiness.

Access to these products will now become much more restrictive, as it is hard to imagine the Government will find supporting them a good use of taxpayers’ money. Nationalisation will put the B & B mortgage book into run-off, which means B & B mortgage holders will be forced to pay more once their existing deals run out.

The key difference is that in the US, the authorities propose to pay for the banks’ bad loans in an attempt to get them off Wall Street’s books and restore confidence in the banking system.

Back in Britain, the B & B mortgage book is being acquired for free. In time, therefore, the taxpayer ought to get most, if not all his money back and may even make a profit on the exercise.

The Government will try to present the nationalisation as another act of “decisiveness” which demonstrates it is on top of the crisis. Yet it comes at an extreme cost, and increasingly people are asking where it will end. Are all banks to end up in public ownership?

— By arrangement with The Independent

Delhi Durbar
It’s too much

Khushwant Singh has set a welcome trend by renouncing the award money. Receiving the National Amity Award in the Parliament annexe recently, he explained his decision in his trademark humorous style:

“This is too much money for me to blow up in the time left. In any case, I have just two indulgences — Scotch and the company of beautiful women. My friends take care of that.”

The grand old man of Indian journalism went on to add: “Later, too, when I go to paradise I won’t need this money. I hear they have streams of Scotch in the paradise and as many virgins as you want free of cost.”

If that was not enough, Khushwant Singh showed that at 94, he still has the ability to laugh at himself: “I don’t quite know if I deserve this honour. I am happy that the organisers have overlooked my reputation as the dirty old man of Delhi, the drunkard, the womaniser…,” said the illustrious writer.

Who’s next?

With CPI general secretary A.B. Bardhan still convalescing from a recent surgery, there appears to be a leadership vacuum in the party, which has resulted in the inevitable competition among the second-rung party leaders though there is still no clarity as to who occupies the number two position.

For a long time, Bardhan has been the CPI’s only public face. Subsequently, party national secretary D. Raja also became a familiar face after he was spotted frequently on television channels although Bardhan sometimes condescended to join in an occasional TV debate.

In Bardhan’s prolonged absence, Raja was thought to be the next in line but veteran trade unionist and parliamentarian Gurudas Dasgupta is also in contention.

However, the CPI’s two-day national executive was presided over by their stalwart from Hyderabad, Sudhakar Reddy. And, yes, the party also has a woman leader, Amarjeet Kaur, who is also the national secretary.

Discrimination

The younger Ambani, Anil, believes he has been discriminated against in comparison to his elder brother, Mukesh, and was quite vocal about it at a recent shareholders’ meeting.

When a shareholder raised an issue regarding the shareholding in the company by Anil Ambani’s family members, it was revealed that Anil’s elder son had a larger number of shares with the valuation running into crores while his younger son had only a few shares, which were not worth much in comparison.

On this, the ADAG chairman turned around and said in a lighter tone, “Now you know how the younger son is discriminated against in a family”.

Contributed by Aditi Tandon, Faraz Ahmad and Girja Shankar Kaura

Corrections and clarifications

n In the page-7 report “Flood threat: Admn steps up measures” (September 23) the sentence “The 4.29 lakh cusecs of water which was released into WYC on Saturday, today posed a flood threat to at least 23 villages of the district” should have read: “A flow of 4.29 lakh cusecs passed over Tajewala barrage across the river Yamuna on Saturday, which posed a threat to at least 23 villages of the district”. The WYC is a canal with a carrying capacity of 15,000 cusecs.

n In the story “Floodgates of BBMB reservoir opened” on the same day, the word spill-over should have been used in place of spillage. In this story, the expression “reservoir level” should have been used in place of “dam height”.

n The caption of the page 4 report on September 29 should have been “A peasant family, along with its household articles, being transported to cotton fields by a farmer in Muktsar on Sunday”.

Despite our earnest endeavour to keep The Tribune error-free, some errors do creep in at times. We are always eager to correct them. We request our readers to write or e-mail to us whenever they find any error. We will carry corrections and clarifications, wherever necessary, every Tuesday.

Readers in such cases can write to Mr Amar Chandel, Deputy Editor, The Tribune, Chandigarh, with the word “Corrections” on the envelope. His e-mail ID is amarchandel@tribunemail.com.

H.K. Dua,
Editor-in-Chief