This week has been one of the most dynamic in the recent past, especially when one takes stock of the way events have been unfolding. Of particular interest to me are 3 incidents.
- The ongoing public spat between the IPL poster boy, Lalit Modi and the "would have been" UN Secretary General, Shashi Tharoor.
- The 2nd news item of interest to me is that of Rajat Gupta, the former Managing Director of the respected consulting firm McKinsey & Co, & a serving director with Goldman Sachs.
- The third news item that drew my attention is that of the fallen (& now bankrupt) one time financial giant, Lehman Brothers having ground to sue Goldman Sachs Group and Barclays for demanding huge sum in additional margins.
Coming to the 1st incident, what happened to the entire hype surrounding IPL - the billions it was supposed to generate in revenue, the public listing of the individual francises to "realize value", etc? In a matter of just a few weeks, even as IPL-3 is in its finishing stages, the volcano erupted between IPL's poster boy commissioner Lalit Modi & Shashi Tharoor, of all the people. Ideally, the minister or for that matter any other Government official should not be dragged into such acrimonious and ugly spat in public. This is especially so when the issue over which the spat is taken to public, is a, event having huge commercial interest or potential. Any commercial event involving a Government official where huge money is involved in the event, raises serious questions on the integrity of the office occupied by the concerned person & the Government in general. Government officials being public servants, should restrict their activities to within the jurisdiction of rendering public services. Any interest in commercial activities raises questions on the possibility of using one's official position within the Government to push activities which may be of interest to the concerned person, or his kith & kin. This further castes doubts on the Government's functioning in a fair, transparent, just, & equitable manner. The IPL fiasco between Modi & Tharoor has just about managed to do what was not supposed to have happened. This has raised serious questions - did the minister use his clout & office to swing the deal in favor of the consortia that won the deal? What is the minister's interest in the entire deal? What expertise does the minister have to offer his "advise" to the consortia? It's perhaps very difficult to answer these questions, may even be impossible, & never may be answered. But, what it has ensured is to bring to public notice what was widely believed - where tons of money, women, & power is involved, there are bound to be a few skeletons behind the cupboard with hidden agendas. This Modi - Tharoor episode could snowball into a huge crisis, & if, i repeat, if this episode brings out the hidden agendas of those behind the cupboard into the public, in my opinion, it is as good as rendering great public service & we should all thank both Modi & Tharoor for that. In all this, my concern as an ordinary citizen is not the politics of power; nor is it about who wins the IPL-3. My only concern is - WHO OWNS HOW MUCH OF WHAT FRANCHISE? HOW MUCH MONEY DID EACH SHAREHOLDER IN THE FRANCHISE "INVEST"? WHAT WAS THE SOURCE OF THOSE FUNDS? WERE ALL THE NECESSARY DECLARATIONS MADE TO THE GOVERNMENT WHEN MILLIONS WERE BROUGHT IN? WERE ALL THE STATUTORY REQUIREMENTS UNDER THE INCOME TAX LAW ADHERED TO? WERE PROPER DOCUMENTARY PROOFS GIVEN BY THE SHAREHOLDERS REGARDING SOURCES OF FUND? These are what I am extremely concerned about. With India being targeted by terrorists every other day, what is the guarantee terror funds have not made their way into the system, & what better systemic loophole than have some fictitious companies under fictitious identities, owning the IPL franchises in tax havens like Mauritius? Even if the owning companies & their respective bosses are real, have their identities been established? It is disturbing questions such as these that worry me. I have serious doubts whether foolproof due diligence was followed before bidding was carried out in 2008. We are talking about an event where potentially hundreds if not thousands of fun loving cricket fans' lives may be at risk in multiple locations simultaneously. That in my opinion, should be the Government's biggest concern now. The IPL commissioner & the BCCI are morally obliged to work together in setting right all the rust and rubbish they have created out of the greed for a few hundred or thousands of crores. As long as that is done & transparency is ensured in the entire deal, I don't really care much about others.
The 2nd incident is equally interesting. After more than a year of arresting Raj Rajaratnam, the Galleon hedge fund founder, and his friend Anil Kumar, another former McKinsey associate, Rajat Gupta's name has now been dragged into the murky insider trading allegations against Galleon. Apparently, Galleon made some quick bucks by luring some of the "insiders" of Goldman Sachs in exchange for a few million dollars. This event especially gains significance because it happened right in the middle of last year's financial crisis. While mega corporations filed for bankruptcy, millions of people lost jobs & investments, Galleon indulged in insider trading for the greed of a few millions. What's smacking on the face of an ordinary investor is the utter lack of concern for the lives, jobs, & families of the common people that these highly intelligent men displayed. I am not saying Rajat Gupta is also involved in this dirty deal. What I'm saying is, what few people like Raj & Anil Kumar, who apparently come with fancy degrees from ivy league institutions are capable of doing, & how actions of a few hundred decision makers belonging to mega corporations are capable of bringing the entire global economy on its knees. Further, a crisis of the magnitude that occured last year is also capable of causing long term if not permanent dent on the psyche of common investors who form the bulk of the investors, & lead to loss of faith in the financial system that has so painstakingly been created over so many decades. If proven guilty, these individuals should be awarded severe punishments. It does not end with punishments alone. What we need to address is - how to prevent such a catastrophe from occuring again? Cyclical recessions have been occuring all along, & that is fine. What we should be bothered about is the catastrophe like last years'. It especially gains significance & amplifies the magnitude of the event all the more because of the scale of the financial turmoil all of us went through only because of the irrational, arrogant, & greedy behavior of a few decision makers in mega corporations. In that regard, in my opinion, we need to have a deep look at the decision making sciences where strong emphasis should be laid on developing individuals' ability to think of the overall benefits to the nation, & not just capturing a few more percentage points of market share or a couple of billion dollars revenue. Long term impact of decisions & overall well being of economy should be stressed while developing such abilities in key decision makers.
The 3rd incident is peculiar, if I may put it that way. Apparently, Goldman Sachs Group and Barclays demanded $1.2 billion in additional margin to assume trading positions auctioned by a Chicago exchange. According to previously censored details, Goldman Sachs was the high bidder for Lehman’s equity derivatives at options and futures exchange CME Group Inc., and took $445 million of those assets at a private auction in September 2008. Barclays was the high bidder for Lehman’s energy derivatives and took $707 million in assets from CME. The transfer of $2 billion in Lehman deposits for its proprietary trades at the CME cost the defunct investment bank $1.2 billion. Essentially, Lehman needed billions to stay afloat, but, what was happening was, some of the corporations who perhaps had better funds at their disposal, snatched the "opportunity" & intensified the pace of Lehman's collapse. Instead of pumping in funds into a sinking company (perhaps in exchange for a stake), Goldman & Barclays mercilessly sucked whatever little funds Lehman probably had at its disposal to shore up their own bottomline, leaving the beleagured Lehman without funds to carry on operations. Of course, there might have been huge risks. There is no disputing that. But, could there have been a way of preventing the collapse of a financial giant like Lehman? Even if Goldman & Barclays had bought into Lehman's equity, it could have perhaps saved the firm. Now, Lehman is planning to sue all the parties involved in this event. It is also said that an argument can be made that the transfers at issue were fraudulent transfers. The $1.2 billion loss to New York-based Lehman came from additional cash that Goldman, Barclays and Chicago-based DRW Trading demanded to offset the risk of taking on the failed firm’s trading positions. Only time will tell if there were other motives behind the entire event. Or, did the events unfold so quickly that there was not much choice left? Could it also be that Lehman's collapse perhaps saved a ripple effect of similar collapse in other financial firms?
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