Monday, 27 October 2014
The Pretence Persists
Recently, I argued that there is a lot of pretence when it comes to providing a good guide to housing prices. Seems like the pretenders are digging in: just have a look at the readers comments to the Business Daily piece and see how they have smoked out the persisting pretence!
Economics Nobel Prize 2014 Makes Lots of Sense!
I have a short version of the thinking of the Royal Swedish Academy in their 2014 economics Nobel Prize award. If you have no time for the technical citations that run up to 40-plus pages, my essay in today's Business Daily can give you a good idea why the prize was deserved.
Thursday, 23 October 2014
Argument Devoid of Context
I know a lazy argument when I see a lazy argument. This is especially in a subject where a keen professional interest and formal training, and where for more than a decade I have undertaken careful analysis; I am talking of the economics of the financial system.
Lazy arguments - often by people hiding their identity or with pedestrian viewpoints - are often coated with cherry-picked statistics that lack context. The trick here is to sound a "matter-of-fact" guy. And for people to take you seriously, you thrown in statements that make you sound profound. To non-suspecting members of the public, you may sound intelligent; until one looks at the argument being made carefully and asks the question: where is the context?
A case in point is a recent commentary by Bankelele(??) in the Daily Nation. His strategy is simple, take a list of bank ranking; don't bother to look at the comparison over time and against the size of the economy; observe that there is growth but it is not strong enough; rush into a conclusion that the banks that are "not big enough" are a let down. My take is that the conclusion is unmotivated; it could have been arrived at anyway without the pretence of grounding by anybody with a juandiced eye who sees everything as yellow.
Lazy arguments - often by people hiding their identity or with pedestrian viewpoints - are often coated with cherry-picked statistics that lack context. The trick here is to sound a "matter-of-fact" guy. And for people to take you seriously, you thrown in statements that make you sound profound. To non-suspecting members of the public, you may sound intelligent; until one looks at the argument being made carefully and asks the question: where is the context?
A case in point is a recent commentary by Bankelele(??) in the Daily Nation. His strategy is simple, take a list of bank ranking; don't bother to look at the comparison over time and against the size of the economy; observe that there is growth but it is not strong enough; rush into a conclusion that the banks that are "not big enough" are a let down. My take is that the conclusion is unmotivated; it could have been arrived at anyway without the pretence of grounding by anybody with a juandiced eye who sees everything as yellow.
Thursday, 2 October 2014
Feigning Intellectualism
Last week my colleague and I presented a paper in a research conference. The paper was a Conceptual Framework on Housing Price Index for the Kenyan market. The framework undertakes a comprehensive evaluation of literature that highlights the various methodologies for computing a credible index for the property market. Our proposal is to base the index on the so-called hedonic function - which makes adjustments for qualitative aspects of houses.
I have no doubt that the proposed index will cause excitement to three types of stakeholder.
One, there are those who are really looking for a reliable tool for managing their assets - be they investment portfolio or security held for lending.
Two, there are those who pretend that such tool exists while anybody who is slightly more than curious will tell you it doesn't.
Three, there are those - whom economist Paul Krugman would call Accidental Theorists - who will feign intellectualism and lazily (or sensationally) argue that banks are now fighting for control of the property market.
It is the latter two, whose views are represented in a recent lead story in the Smart Company pullout of the Daily Nation , that I find interesting.
There are several angles to the story that tells of the cheapness of sensational journalism, but I use one purely for illustration.
Assuming the Kenya National Bureau of Statistics publishes the consumer price index (CPI) and tells you that the price of the goods in the CPI basket has gone up by 20 percent, and therefore for your given income you may need to take a loan from a bank at 15 percent interest rate to be able to afford the goods for your household, would you argue that the high interest rates have caused the CPI to increase?
Stretch the same argument to housing. Assume that an index for housing prices indicates that the house process have gone up by 20 percent; for you to acquire the house with your current income you need to get a mortgage from a bank at 15 percent interest rate, would you argue that it is the interest rate that has influenced the housing price index?
That is the argument that a tomato seller cannot make because it doesn't make sense; but that is the argument a self-declared leader in the mortgage market analysis tells a reporter, who readily peddles it as high street merchandise.
I have no doubt that the proposed index will cause excitement to three types of stakeholder.
One, there are those who are really looking for a reliable tool for managing their assets - be they investment portfolio or security held for lending.
Two, there are those who pretend that such tool exists while anybody who is slightly more than curious will tell you it doesn't.
Three, there are those - whom economist Paul Krugman would call Accidental Theorists - who will feign intellectualism and lazily (or sensationally) argue that banks are now fighting for control of the property market.
It is the latter two, whose views are represented in a recent lead story in the Smart Company pullout of the Daily Nation , that I find interesting.
There are several angles to the story that tells of the cheapness of sensational journalism, but I use one purely for illustration.
Assuming the Kenya National Bureau of Statistics publishes the consumer price index (CPI) and tells you that the price of the goods in the CPI basket has gone up by 20 percent, and therefore for your given income you may need to take a loan from a bank at 15 percent interest rate to be able to afford the goods for your household, would you argue that the high interest rates have caused the CPI to increase?
Stretch the same argument to housing. Assume that an index for housing prices indicates that the house process have gone up by 20 percent; for you to acquire the house with your current income you need to get a mortgage from a bank at 15 percent interest rate, would you argue that it is the interest rate that has influenced the housing price index?
That is the argument that a tomato seller cannot make because it doesn't make sense; but that is the argument a self-declared leader in the mortgage market analysis tells a reporter, who readily peddles it as high street merchandise.
Thursday, 11 September 2014
Doubling Down on Nonsense!
So the pretense to analysis by business reporting in the Daily Nation continues. My views on this are, I presume, known. As a financial institution, you simply cannot be borrowing so as to meet some regulatory capital requirement; you can only be able to borrow if your regulatory capital requirement so allows. But guess what, some reporters and/or editors at the Daily Nation will want you to think so. Incredible!
Thursday, 4 September 2014
It's Not About Love
In popular perception any overture from major external economic players is seen with the
lens of how it will benefit us. There are instances when even external policy
decisions are assessed in terms of how they will positively affect us.
We obviously will be wrong if we swallow line hook and sinker all that those courting us tell us. in any case, as Adam Smith popularly quipped, “it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest”.
That is the case I make in my essay published in today's Business Daily, where I argue that we are masters of our destiny therefore we need to build our institutions as a way of assuring our future growth. We simply can't outsource institutions.
We obviously will be wrong if we swallow line hook and sinker all that those courting us tell us. in any case, as Adam Smith popularly quipped, “it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest”.
That is the case I make in my essay published in today's Business Daily, where I argue that we are masters of our destiny therefore we need to build our institutions as a way of assuring our future growth. We simply can't outsource institutions.
Tuesday, 2 September 2014
Seeing A Thief Behind Every Bush!
Are there "Chinese Walls" that separate the Daily Nation from the Business Daily? Do the reporters - especially business reporters - working for these publications have any discussions on what they are working on? Even at the cafeteria? Do such discussions entail deep perspectives?
I ask all these questions because in many instances where the two publications cover the same story and one (usually the Daily Nation) takes a mischievous, often erroneous, angle and the other (the Business Daily) takes sober and analytical angle.
Take today's example. The Daily Nation has a piece on how Cooperative Bank "borrows" KES 6.4 million to meet Central Bank of Kenya (CBK) rule". To a non-suspecting member of the public, there is nothing wrong with the story. But even a casual reflection by anybody with basic understanding of finance, banks and how they are regulated, this story is misleading right from the caption.
The innuendo is that Cooperative Bank is in trouble as is close to violating some CBK rule that the reporter is either too busy or too lazy to specify. Then, the bank goes on an external borrowing to enable it meet the rules. The innuendo ends there. This is characteristic of sensational reporting, especially on finance; and the usual narrative is that if banks are not out to "rob" you with high interest rates (seeing a thief behind every bush!), then they are in trouble - or about to be - one way or the other.
The rule that that the reporter was too busy - or too lazy - to specify is that from from 2015 banks are meant to maintain a core capital to risk weighted asset ratio of 10.5 percent from the current requirement of 8.5 percent.
Where is the problem with the story? One, the reporter doesn't seem to understand - at least that is not evident - what a balance sheet is. Otherwise there could have been an appreciation that when Cooperative bank borrows KES 6.4 billion (a liability) it will create an asset (loans to its customers) of an equivalent amount.
In basic arithmetic, for you to increase Core Capital/Risk Weighted Asset Ratio, you do not increase the denominator (which the Daily Nation story erroneously indicates is the case with Cooperative Bank's move). Instead you increase the core capital at a faster rate than you increase the assets. That is the correct story that the Business Daily is telling us.
Interesting; isn't it?
I ask all these questions because in many instances where the two publications cover the same story and one (usually the Daily Nation) takes a mischievous, often erroneous, angle and the other (the Business Daily) takes sober and analytical angle.
Take today's example. The Daily Nation has a piece on how Cooperative Bank "borrows" KES 6.4 million to meet Central Bank of Kenya (CBK) rule". To a non-suspecting member of the public, there is nothing wrong with the story. But even a casual reflection by anybody with basic understanding of finance, banks and how they are regulated, this story is misleading right from the caption.
The innuendo is that Cooperative Bank is in trouble as is close to violating some CBK rule that the reporter is either too busy or too lazy to specify. Then, the bank goes on an external borrowing to enable it meet the rules. The innuendo ends there. This is characteristic of sensational reporting, especially on finance; and the usual narrative is that if banks are not out to "rob" you with high interest rates (seeing a thief behind every bush!), then they are in trouble - or about to be - one way or the other.
The rule that that the reporter was too busy - or too lazy - to specify is that from from 2015 banks are meant to maintain a core capital to risk weighted asset ratio of 10.5 percent from the current requirement of 8.5 percent.
Where is the problem with the story? One, the reporter doesn't seem to understand - at least that is not evident - what a balance sheet is. Otherwise there could have been an appreciation that when Cooperative bank borrows KES 6.4 billion (a liability) it will create an asset (loans to its customers) of an equivalent amount.
In basic arithmetic, for you to increase Core Capital/Risk Weighted Asset Ratio, you do not increase the denominator (which the Daily Nation story erroneously indicates is the case with Cooperative Bank's move). Instead you increase the core capital at a faster rate than you increase the assets. That is the correct story that the Business Daily is telling us.
Interesting; isn't it?
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