New Flavour of Indo-German Diplomacy

German Ambassador to India Michael Steiner paid tribute to the soft power of Bollywood by making his acting debut in a video on Shah Rukh Khan, Preity Zinta and Saif Ali Khan-starrer 2003 romantic drama “Kal Ho Naa Ho”. The lip syncing of Ambassador Steiner is perfect. Awesome performance!

The German Embassy on their YouTube page says:

“Traditional diplomacy was about government-to-government relations. Modern diplomacy is more about people-to-people relations. And culture is central here.

This is why Michael Steiner, German Ambassador to India, and Salman Khurshid, former Foreign Minister of India, without taking themselves too seriously, plunged into uncharted waters. Together with Eliese Steiner and under the direction of Sumit Osmand Shaw, they pay homage to the Indian film by reenacting one of its most famous music videos – thus connecting people across borders.

The original video from 2003 – featuring Preity Zinta, Saif Ali Khan and the “King of Bollywood” Shah Rukh Khan – was filmed in the USA. This remake, instead, has been shot in India. It is an Indo-German tribute to Bollywood movies, which have a huge fan base not only in India, but also in Germany.”

“Bollywood is a cultural institution. This is the one instrument to connect to the world and it is a very good instrument. Me and my wife are Bollywood addicts. She has seen more than 150 Bollywood films… we have seen them together,” the German ambassador said.

The title says “LEBE JETZT” because, in German, it means exactly what the wonderful song “KAL HO NAA HO” asks us to do: Live right now to the fullest! “LEBE JETZT” adds a new flavour to Indo-German diplomacy. It also shows the popularity and spread of Bollywood.

Truly, connecting! :-)

My Birthday

It has been 6 weeks now that I underwent twin surgeries. I can’t thank you all enough for your prayers. It’s comforting to have so many friends praying for me.

Today’s my birthday. Since last midnight, I am getting birthday wishes from my family, friends and relatives. It’s truly comforting to get so many good wishes, I feel loved.

Among the early wishes, I received a call from my son and husband. Jeet Whatsapp’ed me my photo of cutting a cake with “Happy Birthday” message. It’s the cake that Jeet brought the evening before he left for Baghdad for celebrating my birthday in advance. I was looking so sick! Yes, I just had my stitches removed then. I am missing you Jeet and Babai very much.

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Jeet sent me flowers and cake today through Ferns N Petals. I always feel that you’re with me. I love you Jeet.

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In the evening, my friends were with me and again I cut another cake. I enjoyed the day celebrating my birthday.

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But inside my heart, I was feeling sad as I was missing my son, Babai and my husband, Jeet.

#SaveTheInternet

The Internet has become so much a part of our lives that it is easy to imagine that it will always remain the free and open medium as it is now. We’d like to believe it will remain a place where we can always access any lawful content we want, and where the service providers delivering that content can’t play favorites because they want to charge more money for faster delivery. Network neutrality should be maintained.

Net neutrality means that Internet service providers should provide us with open networks — and should not block or discriminate against any applications or content that ride over those networks. It prohibits the owner of a network, that holds itself out to all-comers, from discriminating against information by halting, slowing, or otherwise tampering with the transfer of any data (except for legitimate network management purposes such as easing congestion or blocking spam).

Why would the telecom companies want to interfere with Internet data? Answer: Profit and other corporate interests. Companies might also interfere with speech that makes them look bad, block applications that compete with their own, or increase their profit by forcing developers to pay more to avoid having their data blocked or slowed down. I am worried. On one fine morning, I may not be able to access my blog due to very slow speed of internet for accessing my blog!

New technologies now allow telecom companies to scrutinize every piece of information we send or receive online – websites, email, videos, Internet phone calls, or data generated by games or social networks. And they can program the computers that route that information to interfere with the data flow by slowing down or blocking traffic and communicators that they don’t like and speeding up traffic they do like or that pays them extra for the privilege. Here’s a nice article on Medianama countering every argument of Airtel against net neutrality.

Save the internet! Yesterday, I joined others by sending an email to the Telecom Regulatory Authority of India (TRAI) through the website savetheinternet.in responding to the regulator’s call for public consultation. Times of India reported that over 27,000 emails have been sent through this website in last 24 hours. An online petition though change.org has nearly 150,000 petitioning the Union minister and TRAI to act against violation of net neutrality.

Internet should be treated as an essential utility, like water. Without water, we die. Without access to the internet, our access to knowledge dies. We need both to survive and thrive. The Internet must remain a forum for innovation and free expression. Open, affordable, fast and universal communications networks are essential to our individual, social, intellectual, economic and political futures.

The Negative Rate Mortgage Is Now A Reality

With negative interest rate policy (NIRP) raging in the eurozone and over €1.9 trillion in European government bonds trading with negative yields, many were wondering whether this generosity will spill over to other debtors.

Following consecutive rate cuts during this year by the Danish Central Bank, local Danish banks — Nordea Credit, Realkredit Danmark — are now offering a mortgage with a negative interest rate! Negative interest rates aren’t a new phenomenon in Europe, but they’ve been limited to inter-bank borrowing. FT reported Ms Christiansen received a negative interest rate for her three-year loan, meaning the lender — Realkredit Danmark, a part of Danske Bank — is paying for her to borrow money. The interest rate of minus 0.0172 per cent — which equates to her receiving about DKr 7 each month from the bank — is just one sign of the “Through The Looking Glass” effects of extreme central banking measures in Scandinavia.

The Scandinavian central banks are going pretty far in NIRP. Sweden’s Riksbank became the first central bank in the world to take its main policy rate — the so-called repo rate — into negative territory. Denmark’s Nationalbanken in turn cut its deposit rate — the amount it pays or in this case charges banks for placing money with it — four times at the start of this year to a world record low of minus 0.75 percent.

On April 8th, Switzerland became the first country to sell 10-year bonds with a negative yield as quantitative easing and deflation fears pushed up bond prices.  Until Wednesday, no country had ever sold 10-year debt that gives investors a yield of below 10 percent. Sold at a yield of minus 0.055 percent, investors bought 232.51 million Swiss francs of debt, maturing in 2025, at a price that could mean they end up paying Switzerland’s government to hold their money. The Swiss deposit rate is set at minus three-fourth of a percent currently so the new Swiss 10-years are at least theoretically more attractive than that. Swiss National Bank (SNB) also held its target range for the three-month London interbank offered rate (Libor) at minus 1.25 percent to minus 0.25 percent. SNB uses Libor as a reference for steering its money-market rates, which influence rates on bank lending and mortgages.

There is concern for what happens should negative rates persist longer. The biggest immediate concern is over whether low rates will fuel housing bubbles. Fears that negative rates could lead to widespread hoarding of cash or banks charging all customers for current accounts have proven wide of the mark. Investors can hold physical cash as an alternative. But it seems that yields will have to be much more negative before they do that. In part, this is because of the nature of modern money; few people want to hold great piles of cash. It is neither convenient nor secure. Most modern money is electronic and that is subject to negative rates. Furthermore, many investors (pension funds, insurance companies, commercial banks, central banks) are forced, or at least accustomed, to holding government bonds for regulatory or accounting purposes; they are indifferent to price or yield.

A situation has now emerged where savers who pay the bank to hold their cash courtesy of negative deposit rates, are directly funding the negative interest rate paid to those who wish to take out debt. As per Duncan Kerr in euromoney, it may only be a matter of time before credit default swaps trade through zero too. At its simplest, mean one institution paying another institution for the privilege of insuring it against a bond default. It’s a seemingly crazy situation, but in a credit market distorted by quantitative easing and negative rates, anything may be possible.

According to Zero Hedge, that all this will end in blood and a lot of tears is clear to anyone but the most tenured economists, however in the meantime, we can’t wait to take advantage of the humorous opportunities that Europe (and soon Japan and the US) will provide in the coming months, as spending profligacy will be directly subsidized and funded by the insolvent monetary system, while responsible behavior and well-paid labor will be punished, first with negative rates and soon thereafter: with threats, both theoretical and practical, of bodily harm.

Dubai Airport — Terminal 2

Inaugurated on May 1st 1998 to alleviate congestion at Terminal 1, Terminal 2 catered to scheduled, charter and special interest flights during special occasions. A few years ago, when Iraq was served by charter flights of Jupiter Airlines, we used to travel to Baghdad from Terminal 2. It used to be a small airport with lacking facilities in contrast to the Terminal 1.

Now, Terminal 2 is home to Dubai’s budget airline flydubai, which launched operations on June 1st, 2009. Undergoing a massive makeover, Terminal 2, hub for flydubai is now completely transformed. This terminal is also used by low-cost airlines, charter flights and airlines coming in from CIS countries and Iran.

Today, I was returning to Baghdad after vacation. This time I was traveling by flydubai. I visited Terminal 2 after a long gap of several years. It’s looking much brighter and filled with a number of shops and eateries. It was in the morning, around 6.30 am. I found people queuing to get into the famous restaurant belonging French chain of bakery restaurants – Paul.

As I was traveling by Business Class, I headed towards the flydubai Business Class Lounge.

The ground floor was a bit crowded but the first floor is more spacious and good for relaxed seating. I preferred to sit at a corner with a power connection to charge my mobile. I also breakfasted there.

The staff at the lounge are quite polite and nice. The first floor is quite peaceful and I managed a small nap. My layover time was around six hours.

There’s a free secured wifi at the lounge and the speed is quite good. I wish that the lounge had more space to add a few showers. There’s no facility for showers in this lounge.

I also roamed around the duty-free shops. Although the area is quite small as compared to other Terminals of Dubai International airport, but the shops are well-stocked.

It’s a small nice terminal and I liked the makeover.

#JackDaniel – "enjoy a moment with Jack" at Terminal 2 of #Dubai #airport.

A photo posted by I.RoyChoudhury (@iroychoudhury) on

Falcon Gold Lounge, Bahrain

This time while traveling to New Delhi from Baghdad, I took the Gulf Air flight. I normally prefer the UAE based airlines for convenience. Gulf Air doesn’t service Baghdad on Sundays. Etihad and Emirates haven’t yet started the service since the shooting incident. So, the transit point is Bahrain International Airport. Although it’s quite an old airport but other airports in the neighbourhood have developed at a faster pace. While on flight I read a Bahraini newspaper, where the king has decided to go for modernization and expansion of the airport.

Bahrain International Airport was the first airport to open in the Arabian Gulf. The first chartered flight landed in Bahrain in 1927, followed by regular commercial flights between UK and India from the 1930s. Since then, the airport has served as a midpoint linking the East and the West, utilising Bahrain’s strategic location in close proximity to key markets in the Middle East.

I am now sitting in Falcon Gold Lounge. It’s the Gulf Air’s First and Business class lounge at Bahrain International Airport. Gulf Air is the national airlines of Kingdom of Bahrain. It’s a nice lounge with contemporary setting. The personnel here are quite friendly. A panoramic view of aircraft taking off and landing provides a diverting backdrop to the sleek minimalist Arabian style incorporated throughout the lounge. Elevated seating areas offer comfort and privacy to guests. It offers offers a place of serenity, away from the hustle and bustle of the departure area. One can have a view of the main apron from the lounge.

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I have to spend seven-hour layover time here. That’s a lot of time! So I thought of blogging while sitting in the lounge and sipping hot coffee. Yes, the wifi in the lounge is quite good.

Gold Falcon Lounge — First and Business Class Lounge of Gulf Air at Bahrain International Airport 🍮🍲🍩🍳

A photo posted by I.RoyChoudhury (@iroychoudhury) on

Jaya Is Going For Total Hysterectomy

Jaya was suffering from pelvic endometriosis since last few years. Endometriosis happens when the tissue that normally lines the uterus grows outside of the uterus on the ovaries where it doesn’t belong. Currently causes for endometriosis are unknown.

There is no cure for endometriosis, but it can be treated in a variety of ways, including pain medication, hormonal treatments, and surgery. If endometriosis is left untreated, it becomes worse in about 4 in 10 cases. It gets better without treatment in about 3 in 10 cases. For the rest it stays about the same. Complications sometimes occur in women with severe untreated endometriosis.

During last consultation with her gynecologist on June 20, 2014 Dr. Indrani Lodh advised Jaya that she needs surgery — total hysterectomy otherwise her condition may become worse. Total Hysterectomy is the surgical removal of the uterus including removal of cervix, ovaries, fallopian tubes. The doctor suggested for laparoscopic hysterectomy with bilateral salpingo-oophorectomy. A hysterectomy is a major operation.

As explained by the doctor, laparoscopic hysterectomy is done using a laparoscope, which is a tube with a lighted camera, and surgical tools inserted through several small cuts made in the belly. The surgeon performs the hysterectomy from outside the body, viewing the operation on a video screen.

She further explained that using a minimally invasive procedure (MIP) approach to remove the uterus offers a number of benefits when compared to the more traditional open surgery used for an abdominal hysterectomy. In general, an MIP allows for faster recovery, shorter hospital stays, less pain and scarring, and a lower chance of infection than does an abdominal hysterectomy. We decided for laparoscopic hysterectomy.

We earlier planned the surgery to be got done in winter but we had to postpone it because of marriage of Jaya’s cousin. The surgery is scheduled tomorrow at Apollo Gleneagles Hospital in Kolkata. There will be another minor operation on her right wrist for carpal tunnel syndrome — right-sided carpal tunnel release after a couple of days. The carpal tunnel release will be done by neurosurgeon Dr. BK Singhania.

Babai is with her. For more than 2 months, I have been consistently pursuing and following up for renewal of my “Iqama” (Residency Permit), without which I cannot travel out and return. But the delay is caused, unfortunately. I am forced to defer my travel. The process for extension of Iqama is just completed today. I will be reaching there after her main surgery. :-(

Babai and I love Jaya very much and we are praying that the operation is a success and that she has a full and healthy recovery.

Total Loss Absorbing Capacity For Global Systemically Important Banks

On November 10, 2014 the Financial Stability Board (FSB) issued a long-awaited Consultative Document “Adequacy of loss-absorbing capacity of global systemically important banks in resolution” that defined a global standard for minimum amounts of Total Loss Absorbing Capacity (TLAC) to be held by Global Systemically Important Banks (G-SIBs). TLAC is meant to ensure that G-SIBs have the loss absorbing and recapitalization capacity so that, in and immediately following resolution, critical functions can continue without requiring taxpayer support or threatening financial stability.

The TLAC proposal is one of the final components of a long-standing reform effort laid out in 2010 by the FSB to limit the probability and impact of the failure of large global systemically important financial institutions, i.e., ending the too-big-to-fail (TBTF) phenomenon. At its core, TLAC bolsters capital and leverage ratios, thereby creating a greater capital cushion intended to further pre-empt any need for a taxpayer-funded bail-out.

At the global level, the G20 have agreed to a proposal that G-SIBs will have to fulfill in future regarding their capital structure. In particular, these banks will need to ensure a minimum amount of TLAC, which may be as high as 20 percent including the minimum capital requirements and the G-SIB buffer. This will make global banks more resilient, and it will allow for their orderly resolution.

TLAC will apply in addition to the capital requirements set out in the Basel III framework, including the countercyclical, G-SIB and other capital buffers. The measure appears challenging but manageable for most G-SIBs who will have until 2019 to meet the minimum Pillar 1 requirements.

As per the Consultative Document, the minimum TLAC requirement will be within the range of 16-20 percent of the group’s risk-weighted assets (RWA) and at least twice the fully loaded Basel III leverage ratio requirement. This is considered the “Pillar 1” requirement according to the FSB. Regulatory authorities may set additional requirements above their so-called minima, also known as the “Pillar 2” component of TLAC.

The interest at this stage from traditional consumers of bank paper, such as pension funds and insurers, is lukewarm at best. While the securities, designed to be written down in a crisis, would offer higher yields than senior debt, the risk of bail-in may be more than some buyers can tolerate. That could leave the banks struggling to meet regulatory requirements.

Banks already issue dated subordinated debt with mandatory coupons that banks can count toward some existing loss-absorbency requirements. Those notes, which have an established investor base, potentially could also be used to meet TLAC. That would be expensive: average yields on Tier 2 debt are 1.53 percent, more than double the 0.70 percent yield on banks’ senior bonds in euros, according to Bank of America Merrill Lynch index data.

On February 2, 2015 the Institute of International Finance (IIF) and the Global Financial Markets Association (GFMA) jointly submitted a letter to FSB on the Consultative Document. In general, the industry supports the concept that the FSB has developed. Assuring that loss-absorbing capacity is available if a G-SIB needs to be resolved is something the industry agrees to be essential. Nevertheless, a reform of this magnitude naturally raises many practical issues that have to be considered during the implementation of the new TLAC concept. Thematically, the most important areas include:

  • Historical evidence suggests that 16% of risk-weighted assets will be a sufficient level of TLAC to absorb potential losses for G-SIBs in the future.
  • The current drafting of TLAC subordination requirements raises important implementation difficulties, both for groups funded via holding company structures and for groups funded at the operating parent company or bank level.
  • The disposition of Internal TLAC will involve a delicate balancing of home and host regulatory interests, ideally aligning these interests to support cross-border cooperation.
  • Upon implementation, it’s estimated that the new framework would govern about US$4 trillion in TLAC-eligible securities. For issuance at this scale to be effective, it will need to be supported by broad, deep, liquid and diverse markets.

Last month a slew of European banks issued 10-year bullet maturity Basel III-compliant, tier-2 (B3T2) subordinated bond deals, as they sought to grow a new market for these lower cost TLAC-eligible instruments. Deutsche Bank attracted a €4.4 billion order book for its €1.25 billion deal priced at 210 basis points over mid-swaps. BNP Paribas drew €5.5 billion of demand for its €1.5 billion offering at 170 basis points over, while Société Générale took €3.8 billion of orders for a €1.25 billion transaction at 190 basis points over.

Negative-Yield Bond Universe is $2.35 Trillion!

As part of its €1.1 trillion quantitative easing plan, the European Central Bank (ECB) will buy government bonds due between two- and 30-years, including those with negative yields, President Mario Draghi said in January. The bond buying plan has left $1.9 trillion of the euro region’s government securities with negative yields.

Germany sold five-year notes at an average yield of minus 0.08 percent on February 25, a euro-area record, meaning investors buying the securities will get less back than they paid when the debt matures in April 2020. By the next day, German notes with maturity out to seven years had sub-zero yields — reached minus 0.017 percent. The rates on seven other euro-area nations’ debt were also negative.

The German bond markets are leading this historical phenomenon — 88 of the 346 securities in the Bloomberg Euro zone Sovereign Bond Index have negative yields. Euro-area bonds make up about 80 percent of the $2.35 trillion of negative-yielding assets in the Bloomberg Global Developed Sovereign Bond Index.

The seemingly illogical willingness of investors to pay issuers to borrow their money is neither irrational nor driven by just noncommercial considerations (such as regulatory requirements or forced risk aversion). As the ECB prepares to start its own large-scale purchasing program next week, some investors believe they could make capital gains on such negative yielding investments.

The ultra-low interest rate regime is likely to persist for now and this has caused challenges for banks. A growing number of European banks are now charging depositors for holding their funds.

Mohamed El-Erian commented that there are few analytical models, and even fewer historical examples, to help understand the broader economic, financial, political and social implications of all this — particularly for a global financial system based on the assumption of positive nominal rates. We are truly in unchartered waters. Accentuated by the illusion of market liquidity, this is a world in which small adjustments in probabilities of future outcomes — if and when they occur — could result in sharp movements in asset prices.

References

El-Erian, Mohamed (2015): “10 Things to Know About Negative Bond Yields”, Bloomberg View, February 27.

Goodman, David and Lukanyo Mnayanda (2015): “Germany’s Negative-Yield Universe Extends as ECB Prepares to Buy”, Bloomberg Business, February 26.

Goodman, David and Lukanyo Mnayanda (2015): “Euro-Area Negative-Yield Bond Universe Expands to $1.9 Trillion”, Bloomberg Business, February 28.

JPMorgan Shows Why It Pays To Turn Money Away

Traditional bank runs were driven by massive withdrawals of deposits by customers. On February 24, JPMorgan Chase & Co. (JPM) announced plans for an inverted bank run — it will push certain customers to withdraw what one executive has described as bad deposits.

Central banks around the world have pushed since the crisis to increase the minimum amount of capital that banks hold, in the hope that it will protect banks in the case of a crisis. Banks can increase their capital by raising money from shareholders or retaining profits, but this generally makes the cost of doing business more expensive.

Bigger banks have always had to hold more capital, but in December the Federal Reserve Bank proposed new surcharges for the largest, most systemically important banks, and indicated that JPM would face a higher surcharge than any other institution. The so-called GSIB surcharge is expected to force JPM to hold 4.5% more capital than a standard bank. The way this surcharge will be calculated under the rules proposed by the Fed in December “heavily penalizes” non-operational deposits.

JPM says it plans to reduce such deposits by up to $100 billion by the end of the year. The unwanted funds are primarily “non-operational deposits” from financial institutions. That is, deposits that aren’t connected to a company’s daily cash management, payment services or other banking activities.

According to JPM’s CFO: so-called “non-operational deposits”, which account for about $200 billion of JPM’s $390 billion in deposits from financial institutions, provide minimum net income and provide no liquidity benefit.

JPM is willing to turn away such funds speaks volumes about the new, more-stringent regulatory climate facing the biggest banks, as well as the continued pressure being exerted by the super low interest-rate environment.

Under the new regime, a big hedge fund or private equity firm or a foreign bank would be encouraged to shift excess cash into other JPM products such as money market funds, or find a new bank to hold their money.

The primary impetus for JPM’s deposits move is a new liquidity rule that looks to ensure banks have a healthy stock of assets that can easily be converted to cash in a stress scenario. It obliges banks to invest all uninsured, non-operational deposits from financial companies in officially sanctioned “high-quality liquid assets.” In practice, most are effectively placed as cash at the Federal Reserve. As a result, these assets earn little to no returns and can’t be used to fund loans. That reduces interest income and squeezes net interest margins, or the difference between what a bank makes borrowing and lending money.

Cash moved out of non-operational deposits will most likely find its way into money-market funds, short-duration bond funds and individual securities. Increased demand for safe assets from these investors could put further downward pressure on interest rates.

In the meantime, it is likely that more banks will follow JPM’s lead in chasing away unattractive deposits.

References

Carney, John and David Reilly (2015): “J.P. Morgan Shows Why It Pays to Turn Money Away”, The Wall Street Journal, February 24.

McLannahan, Ben (2015): “JPMorgan to charge fees for big deposits”, Financial Times, February 24.

Popper, Nathaniel (2015): “JPMorgan Chase Insists It’s Worth More as One Than in Pieces”, The New York Times, February 24.