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NYTimes.com has a nice interactive chart to evaluate if renting or buying a home is better option. Although the chart is for $ investments it wont matter what currency you use.

It seems that finally India grew faster than China in 2010.Surprisingly it happened without much fanfare. The reasons for this anomaly are even curious to read. Unlike most major economies that calculate GDP by expenditure method, India calculates its GDP by Factor Cost method. That means India adds up the income earned to arrive at GDP where as other major economies do so by adding expenditure.

Although both methods should lead to the same figure, taxes and subsidies get in the way. Once these adjustments are made India grew by 10.4% in 2010; China by 10.3%!

SuperFreakonomics is a thought provoking sequel to Freaknomics. This book takes forward the core theme from the first book – People respond to incentives in myriad ways. Unlike other books on economics, SuperFreakonomics has no big concepts or frameworks. It does not conform strictly to a book on macro or micro economics.

Instead, the book – backed by empirical data – argues;  how hard economics drive prostitution, how seemingly innocuous TV shows had impact on the crime in America, why terrorists should buy life insurance, how much good do car seats do, why the simple solutions to global warming are being ignored and finally why most of us really are not that altruistic when donating. The book drives you think critically and explore the hidden side of simple life events. I will argue that it is a book for psychologists and not economists.

Perhaps none of the themes catch the attention of a mainstream economist. But we face most of the themes in our daily lives and the book will make us see these life events differently. That is what makes this an interesting read. For those who enjoyed Freakonomics (as I had), this will be a must read. Read reviews on Amazon.

A good article in Livemint about how the switch over to IFRS will impact Indian firms.

IFRS is going to have significant impact on the financial statements of Indian companies following Indian GAAP standards.

IFRS mandates different accounting norms compared to Indian GAAP for recognizing Business combinations, Special Purpose Verhicles, FCCBs, ESOPs and Derivatives. Most of them will have P&L charge that is not currently required by Indian GAAP standards. This will result in lower profits for most listed entities.

However there is no material impact on the companies with the new accounting standards and so it is expected to have limited impact on the stock prices.

A new book, Red Capitalism, takes a critical look at the China’s financial system. In late 70′s China virtually had no banks. For the next 3 decades, the senior leadership in China meticulously built a formal financial system.

But concerns still remain. Beyond the facade, the book explains, lies a primitive banking system that deals in arcane and secretive transactions with the state entities. So much so that, it is hard to rely upon any data about Chinese banking system.

In comparison, India seems to have done a much better job, with efficient price discovery, strong regulatory regime and higher transparency.

A scathing article in Economist, Graft in India: Rotten to the crore, sums up the corruption malaise in India. As the economy grows and the income inequalities rise, corruption problem is only getting worse. It is however now new for us except that the issue is grabbing more headlines these days.

India’s Microcredit Sector is facing a collapse with the rural poor-encouraged by local politicians-stopped paying the loans. If the industry indeed collapses, it will be a blow to the mission to alleviate rural poverty. Access to capital is scarce in rural India as banks refuse credit without a steady income or a collateral with cleat titles. Small entrepreneurs in rural India will now face challenges without the access to capital from micro lending organizations.

At a time when all major economies are considering capital controls and protectionist trade practices, India – on the other hand - is surprisingly staying away from such measures.. It is true that India always had pretty much closed capital markets (especially the bond markets). However India’s resolve not to intervene in currency markets, and thus manipulate the currency, are refreshingly welcome.

This book tracks the history of credit derivatives market from their roots in J.P.Morgan to their eventual role in Wall Street collapse in 2008.

ABS and MBS have been around for sometime that allowed banks to offload credit risk to other investors. However J.P.Morgan had a peculiar problem with their corporate lending. They needed a way to keep the loans on their books yet find a way to offload the risk. Out of this need are born Bistro instruments which allowed banks keep the loans on books yet remove the risk. Better still, they could reduce the capital charge required by regulators against such loans and thus free up capital.

This concept is later borrowed by other investment banks and used to create derivative products on residential mortgages. Thus we have CDOs (Collaterized Debt Obligations) that are born with a premise that risk will be spread across the system instead of concentrating with a few banks.

Soon banks set-up assembly lines and started churning out CDOs in various forms worth $billions of dollars. In the then low interest rate environment, investors are too happy to snap up the instruments offering higher return. Eventually the supply of underlying mortgages is not enough to meet the demand. Thus are born CDO derivatives and CDS that allowed investors speculate on the prices of mortgages.

All is well until interest rates are low and the default rates on mortgages are minimal. Both have changed to worse by mid 2007. Banks and brokerages who themselves held a few super-senior CDOs on their books hoping for higher return were staring at huge losses. To make matters worse the ABCP market that supplies short term funding for brokerages dried up. A panic took hold that finally altered the westeren financial system permanently.

As the book describes, derivative instruments – used for the right purpose – are never meant to be harmful. However once the greed is mixed it became potent weapon.

Read this book if you are keen to know the history behind the collapse of our lifetime. Read reviews on Amazon.

Close to 2 years after the the first quantitative easing exercise from Fed,  they are forced to do it again. But this time the opposition is fierce both from within the country and from other countries running trade surplus with US. Their concern is that dollar will weaken which will make their exports costly and uncompetitive. However Fed has its own problems to worry about,higher unemployment rate and weakening domestic economy, to name a few.

In principle, Fed is only buying the long-term US bonds and pumping printed money into the market. They seem to have no choice as the interest rates on short term bonds are close to zero.

All this points to an escalating currency war and more protectionist measures that could become a bigger threat to globalization.