Where is the bailout package for employees?

Governments have rushed into saving complacent and greedy Investment Banks and Housing Giants who were trying to make merry on wide spreads on sub-prime credits. However, nowhere have we seen measures being taken to save employees being sacked from these as well as other directly or indirectly affected organisations. Targets are usually the newest employees on board who had no or the littlemost role to play in there failures. Is it not the job of the government to protect them by ways of passing extraordinary legislations which shall make these organisations pay dearly before sacking them?

Make Severance Pay Tax free!

We are already seeing lay-offs in India which is quite a new phenomenon for India Shining and there shall be many more in next months if economic downturn or the US recession continues to plague us. All these lay-offs come with severance money to employees facing lay-off, which range from 15 days to 3 months. I think severance money should not be treated the same way as notice pay which is paid to employee when fired for non-performance. Severance is paid when organisation has decided to lay-off people when it decides to take actions which were not foreseen earlier and people being laid-off may not be responsible for it. Hence, government should immediately intervene and bring in standards for deciding severance whereby employees in probation should also be entitled to an equal or higher severance pay than permanent employees as they are less likely to find jobs given their inexperience.

Also, the govt should introduce tax incentives to people facing lay-off as last thing, not only on their severance money but also maybe a tax credit/refund for tax paid in earlier years because in current scenario when everyone if firing/laying-off, majority of these people are less likely to land a job anytime soon and people would definitely like to see a portion of their money coming back which hey paid to government in their good times.

To sum-up, people being laid-off need the help of the govt as the employers are mostly going to be ruthless in paying severance and govt has made good hay in past few years from these employees and it is its time to pay back.

Will CRR cut lead to reduction in home loan rates?

With hike in CRR from around 5% and repo rate from around 7% in 2005 to 9% on 29th July 2008, home loan rates went up from 7% to almost 13%. Banks easily quoted these measures as signals from RBI as a reason for the same. So, with cuts of 2.5% in CRR in the last one week, shall we see any relief in home loan rates?

Even if we forget last 1% cut today (evening of 15th Oct), ICICI Bank clearly denied any rate cuts 2 days ago despite 1.5% cut in CRR. Typically, SBI, HDFC and ICICI Bank acts as indicators of interest rates movements (though other banks do take actions based on their judgements but that is not the case most often). So, if one of them issues such a statement it is an indicator of response of banking system. CRR cut is definitely going to ease liquidity in the banking system (adding almost 1 lakh crores! Whoa!!) implicating reduction in FD rates and inter-institution lending/borrowing rates (Call money rates already dropping from 22% to 9%), then why can't we ordinary citizens expect easing in our borrowing rates? A lag is Ok but a vehement denial of a reduction is heart-breaking.

I think rates will surely come down. But the lag will be determined by how long banks can fleece individual borrowers. Next few weeks will reflect trend and extent of drop in borrowing costs. I feel that lower borrowing costs and pressure to win market share in one of the most secure loans market (i.e. the Indian Home Loans market, which is quite unlike US or other developed countries' home loan markets as people borrow to build homes and not to spend by taking loans against their loans) will make home loan companies jostle to cut lending rates. And if existing loans rates are not cut, then these institutions will surely like to provide you with an option to swap your loans at a lower cost. This is what shall drive rates down. This is what we witnessed in early 2000s and I think this time it will not be any different this time around. What say you?

Demand, Supply and Hedge Funds! BASIC (?) drivers of prices

Ever wonder why car prices never go up as fast as Gold, Real Estate, Food stuff, Oil or Shares, despite public penchant being at the same level. Even if a particular car model (say Swift Dezire diesel, GM U-VA) etc at the time of launch drew huge response, prices were almost the same while the other stuff mentioned above goes up or down in a jiffy at the mention of fluttering of a butterfly in their godowns.

Does it make you sniff a racquet? No, it is called free market movements coupled with allowing casino players to bet on them officially.