Archive for the ‘Politics’ Category

Why Barclays bank was fined £290 million?

2012/06/28

In June 2012, British bank Barclays was fined £290 million for trying to manipulate LIBOR  rates.

What does that mean?

Just like normal people borrow money from banks; banks themselves borrow money from other banks. They do this for various reasons but often due to cover cash flow in short duration. LIBOR is an indicator or how much one bank has to pay to another bank for borrowing money. In other words, it is a rate at which one bank pays interest to other banks. Just like a customer with good credit score gets a lower interest (as he is considered lower risk), a bank with good reputation gets lower LIBOR rate. How the banks’ credit scores are determined? It is calculated from bank’s financial numbers like how much it is actually costing them to borrow etc.

Barclays actually lied how much it is costing them to borrow. This, in turn, makes them appear lower risk to other banks compared to what might have happened if they quoted their true financial numbers. Thus, they lied to get a lower interest rate from other banks. So, if they had disclosed their true financial data, other banks could have charged more interest to lend them money. Thus investors who lent money to Barclays lost money in interest.

Just like a country’s share index is measured upon how some big businesses are doing, a country’s LIBOR rate is also a measure of how healthy its overall banking sector is. If one bank reports wrong financial figures for its own health, this will affect the overall LIBOR rate. Many financial (both business and retail) interest rates are directly dependent on LIBOR rates. So, wrong manipulation of LIBOR rate is considered a fraud.

Barclays’s traders also bribed and coaxed employees of other banks to make them submit their figures so that it looks better in Barclays favor.

The common British public demanded a full enquiry on this unfair practice as they suspect other banks might be doing this as well. However, so far current British government did not show any move to initiate such enquiry. People believe that this is because wealthy bankers pay hefty donation to political parties and thus neither Conservative nor Labour party are willing to upset their billionaire donors.

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Why some religions forbid eating certain animals?

2012/05/25

It is well known fact that Hindus don’t eat beef and Muslims don’t eat pork. But what is the rationale behind these beliefs?

Hinduism originated 5000 years ago. At that time people were heavily dependent on cows. The cows’ milk provided nutrition to clans, bulls were used to plow the fields and pull carts. So Hindus started considering cows as mothers. From this aspect, the custom of not killing cows originated.
Even today cows are considered sacred in India.

On the other hand, theres is no clear explanation found for Muslims not eating pork. It is said that prophet Mohammad forbid eating pork. This may be due to the fact that in ancient times lots of people died after eating uncooked pork. Pork was also considered a filthy animal by nature and thus was avoided.

Why Social Mobility is important?

2012/05/22

Social Mobility is a measure of to what extents someone’s parents’ income/education/status will dictate how much someone can achieve  (income/education/status)  in their adulthood.

Social Mobility = Parent’s income / Their Child’s adult income

For example, when you were young, your dad earned $20,000 per year in his 40 years of age, which is in today’s terms, say $40,000.

You are an adult today and in same country you are earning $80,000 at same age.

So, your social mobility score is = 40000/80000 = 0.5

If the score approaches towards 0, it indicates higher social mobility. On the opposite scale, if it becomes 1 or more than that, it indicates lower social mobility.

All countries should aim for higher social mobility because it signifies that even if you were born in a poor/disadvantaged family, one should still be able to rise at the top. So, technically speaking, if you live in a country with higher social mobility scores, you are more likely to become CEO of a big company even if your parents pushed trolleys in supermarkets in their whole life.

When a child is born to a rich parents, s/he is more likely to get better care, better education etc. This often leads to successful life at adult stage. Social Mobility measures the extent of cumulative advantage.

So, to sum up,

poor parents, rich kids = higher social mobility
poor parents, poor kids = lower social mobility
rich parents, rich kids = lower social mobility
rich parents, poor kids = bad social mobility (shows that situation worsened over time)

Although how much one can rise in life often depends on individual’s capability, government rules can also influence the outcome. For example, if studying in law school requires expensive upfront fee payment, then only rich people’s kids can afford that – which will lead to lower social mobility score. However, if government can ensure fees are less so that any meritorious student can get admission, then  kids from poor family can study and earn good money, which indicates higher social mobility score.

Some example scores:

Denmark    0.15
Austria    0.165
Norway    0.17
Finland    0.182
Canada    0.191
Sweden    0.274
Germany    0.32
Spain    0.32
France    0.41
USA    0.47
Italy    0.48
UK    0.5

This indicates Denmark has a much higher social mobility than United Kingdom.

 

Why single currency is not good thing?

2012/05/15

Recently there is daily news on Euro collapse. Here we are not speculating whether Euro will collapse or not but we shall examine whether single currency is a good idea or not.

Before the currency system was invented people used bartering system to conduct trade. For example, you give me fish and I shall give you few eggs. Obviously it caused problem when buyer and seller did not have any common product for exchange. The introduction of currency (i.e. paper notes and coins) solved this problem.

If several countries use same currency (like Euro), there are benefits and pitfalls. If a country has its own currency, it can devalue that to make their export appear cheaper to outside world. That means they can offer cheaper goods to other countries. While their own citizens can’t buy those goods so cheap, they can still earn a good living within their home country. Of course this assumes that they produce goods which are in demand in other countries. China is a good example for this. They produce so many good for the whole world but their own citizens can’t afford all those luxury items. However, the wage they get by selling these products, they can afford basic necessities in life like food, shelter etc.

Another example is controlling of economic policies. A country can reduce its national interest rate to encourage businesses to borrow money (which will then roll into economy). If there is inflation, then government can tackle it by raising interest rate.

So, simply speaking, own currency gives the government to regulate their own economy in easier way.

But own currency has drawbacks as well – mainly for outsiders who invest in that country using that currency. Since government can devalue the currency (say Greek Drachma), an outsider (who invested in dollars) will see their asset reduced. For example, they invested $ 100 at the beginning when $1 = 10 Drachma. But later government made it $1 = 20 Drachma. So their asset is now worth just $50.

When many countries use single currency, that sort of devaluation is less likely. So an investor is more likely to see his asset not losing value – like $1 = €1 can stay for a long time. This will encourage investors to roll more money into common currency market. Thus common currency is better for economic growth.

It will also prevent losing of money during currency fluctuation, commission during exchange etc. – which is considerable if we take into account the daily amount of inter-currency trades.

Single currency works well when all participants have common economic interest. That “common” bit is quite important.

But all the advantages of own currency we discussed before will appear as disadvantage to common market. For example, Greece can’t devalue Euro to attract more tourists. It can’t control its interest rate. If they do so, it will upset other Euro countries like Germany, France etc. So only way to make Greece become competitive is to cut cost of production – by paying less wage to people, for example (which is the austerity measure and naturally its citizens don’t like that).

As we have already stressed a common economic goal is necessary, it becomes problematic when one group of people (i.e. one country) want to eat a bigger share of the cake. If Greek people want a better standard of living by working less hours (i.e. being less productive) it does not attract praise from German people. This becomes a way funding one friend’s lavish lifestyle by another friend. When Greece spent too much, they ran out of money (i.e. cash flow problem). Then other countries had to give them more money (i.e. bail out) to keep their economy going.

Will you prefer funding a friend’s luxury lifestyle when you are struggling yourself? I guess not. That is why other Euro nations are shouting. The way out is to dump the odd friend (Greece in this case).

So what will happen if Greece leaves the Euro zone? In spite of all the scaremongering nothing serious should happen (although there is a probability of short term economic turmoil). Greece will revert to its Drachma. Many banks (or investors) who lent to Greek economy will see their loans wiped off or assets significantly reduced. This may cause for those banks trying to compensate for that loss from other markets – by means of making their products more expensive to others.

In future this can happen to another country. Then they will leave Euro as well. People will then start wondering when the next country will leave. This will hurt consumers (and investors) confidence. People will start to believe that Euro is no longer stable and thus they will try to offload Euro investments. This will cause impact on economy.

If this cycle goes for long, ultimately single currency will lose relevance.

Why you can’t smile in passport photos?

2012/05/07

Usually authorities in most countries specify that one should have neutral face in passport photos. So what is wring in smiling in passport photos?

A clear reason was never stated by any authority although official version sometime states that it will be difficult for some facial recognition software to work if people smile in passport photos.

Also during immigration check, people are expected to resemble their passport photos. If they have a smiling face then immigration officers would be expected to smile back. This may cause strain to those officials who work for several hours checking hundreds of people.

Usually same restriction applies for all other identification photos like driving license etc.

How left and right wings of politics differ?

2012/05/07

The left and right wing of politics traditionally originated from French Revolution (~1789 AD) based on how the attendants sat in their national assembly. Usually the supporters of socialist state sit in left and pro capitalists sit in right.

So, you can visualize that from left to right as transition from extreme socialism to full capitalism.

Why militaries have their own judicial system?

2012/05/03

In most countries, cases against members of armed forces (i.e. military) are dealt in their own court (often known as court martial). Why military personals are not dealt with normal civil/criminal courts?

This originates from that fact that many actions which are deemed right for military are considered wrong for normal people – notably killing of other people. During war, military persons are expected to kill members of enemy forces. It is part of their jobs. However, if military unlawfully kills people, then they are subject to court martial. If military issues are dealt in civilian courts, many cases will be exposed to general public and people will invariably start comparing outcomes of military cases with those of pure civilian cases. For example, a civilian murders might claim that he has been given life sentence for murdering just one person where as a military person went scot-free even after killing innocent civilians in another country. These sort of cross allegations can cause havoc with national politics and with the psychology of members of armed forces. For this reason, military court is separate from civilian courts. It is to be noted that if a military person commits crime while not serving in military, that case may be dealt in civilian court.

What is contempt of court?

2012/05/02

Contempt of court means that someone either disobeyed or disrespected court. The disobeying part is easy to understand did not comply with court’s order. But the disrespect part is bit tricky. In few cases, it is subjective to court’s discretion. This clause was added to ensure people do not interfere with court’s proceeding. There may be cases when a court’s verdict does not please everybody. For example, in a case, the plaintiff and defendant will have different views (that’s why they are in court). Now judge might say something which may make one of them very angry. If they show their anger (either verbally or physically) in court, that will be deemed as interfering with court’s affair thus disrespect and hence contempt. Based on severity of the contempt, the penalty can be monetary or even a prison sentence! The law as drafted like this to ensure court proceedings can progress without any hindrance. If opposing parties start arguing among them, then court cannot function properly. That is why the judge often has to shout “Order, order” in court to make attendees keeping quiet.

Why caste system still exists in India?

2012/05/01

Caste system  in India originated over thousands of year back. It was based on putting people in different castes based on their professions. Quite strangely, this caste system is still prevalent in India even among many educated people!

There are two main reasons behind this. Firstly, people who were placed in a superior caste (e.g. priests, rulers etc.) still consider themselves superior to other people and it is psychologically difficult for them to give up their superiority feeling.  The second reason is Indian politics. Political parties use castes to polarize voters in elections. Thus they actually encourage division among multiple castes. Indian government still reserve some government jobs for lower caste people. Many of these people, even though were backward in ancient times, are now quite rich. This makes middle class people in higher castes angry.  It is not that all Indians believe in caste system but majority of them still do!

This has led to this awkward custom continue even in 21st century India.

Why CO2 is taxed even though plants use them to release oxygen?

2012/04/29

Usually most new cars are now taxed on carbon dioxide emission nowadays. A car which emits more CO2 are taxed more.

But CO2 are required by trees! During the photosynthesis process, they absorb CO2 and release oxygen.

So technically we should release more CO2 so that plants can produce more oxygen.

Now there are two sides of this story. Usually the authorities claim that there are not enough trees to absorb this much carbon dioxide produced. However, the opponents say it is not easy to calculate how many exact trees are needed to balance the amount of CO2 produced by cars. Since governments often love to find an excuse to tax more, they love the environmentalist argument and try to convince people that CO2 emission is entirely evil. Mind you, CO2 itself is not the worst element to come out of a car’s exhaust! Also, it is not that all CO2 is produced by human activity alone – in fact human is responsible for less than 5% generation of CO2. The rest are generated by nature itself.