An excerpt from a HBR Blog on one very crucial aspect of leadership - how to engage people through talking
"Every leader I know has at least one need in common: a need to connect honestly with others. One way to help foster improved connections is by asking good questions. Leaders who excel at asking good questions have honed an ability to cut to the heart of the manner in a way that disarms the person being interviewed and opens the door for genuine conversation.
Whether they are talking to customers, interviewing job candidates, talking to their bosses, or even questioning staff, executives need to draw people out. And so often, it is not a matter of what you ask, it is how you ask it."
Learn to Ask Better Questions - The Conversation - Harvard Business Review
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Wednesday, March 31, 2010
Monday, March 29, 2010
Scarcity - A big lie
An interesting reading that shows how people can be lead to believe that there is a scarcity of things - the basic premise of modern economics.
"The diamond invention—the creation of the idea that diamonds are rare and valuable, and are essential signs of esteem—is a relatively recent development in the history of the diamond trade. Until the late nineteenth century, diamonds were found only in a few riverbeds in India and in the jungles of Brazil, and the entire world production of gem diamonds amounted to a few pounds a year. In 1870, however, huge diamond mines were discovered near the Orange River, in South Africa, where diamonds were soon being scooped out by the ton. Suddenly, the market was deluged with diamonds. The British financiers who had organized the South African mines quickly realized that their investment was endangered; diamonds had little intrinsic value—and their price depended almost entirely on their scarcity. The financiers feared that when new mines were developed in South Africa, diamonds would become at best only semiprecious gems."
Have You Ever Tried to Sell a Diamond? - The Atlantic
(February 1982)
"The diamond invention—the creation of the idea that diamonds are rare and valuable, and are essential signs of esteem—is a relatively recent development in the history of the diamond trade. Until the late nineteenth century, diamonds were found only in a few riverbeds in India and in the jungles of Brazil, and the entire world production of gem diamonds amounted to a few pounds a year. In 1870, however, huge diamond mines were discovered near the Orange River, in South Africa, where diamonds were soon being scooped out by the ton. Suddenly, the market was deluged with diamonds. The British financiers who had organized the South African mines quickly realized that their investment was endangered; diamonds had little intrinsic value—and their price depended almost entirely on their scarcity. The financiers feared that when new mines were developed in South Africa, diamonds would become at best only semiprecious gems."
Have You Ever Tried to Sell a Diamond? - The Atlantic
(February 1982)
Monday, March 15, 2010
High tech Financial Modeling
One of the many theories that are being put forward in relation to financial crisis of 2007 - 10 is high tech financial modeling. Here is an excerpt from an article from The Economist.
Modelling is not going away; indeed, number-crunchers who are devising new ways to protect investors from outlying fat-tail risks are gaining influence. Pimco, for instance, offers fat-tail hedging programmes for mutual-fund clients, using cocktails of options and other instruments. These are built on specific risk factors rather than on the broader and increasingly fluid division of assets between equities, currencies, commodities and so on. The relationships between asset classes “have become less stable”, says Mohamed El-Erian, Pimco’s chief executive. “Asset-class diversification remains desirable but is not sufficient.”
In some areas the need may be for more computing power, not less. Financial firms already spend more than any other industry on information technology (IT): some $500 billion in 2009, according to Gartner, a consultancy. Yet the quality of information filtering through to senior managers is often inadequate.
http://www.economist.com/specialreports/displaystory.cfm?story_id=15474075
Thanks to Black-Scholes, options pricing no longer had to rely on educated guesses. Derivatives trading got a huge boost and quants poured into the industry. By 2005 they accounted for 5% of all finance jobs, against 1.2% in 1980, says Thomas Philippon of New York University—and probably a much higher proportion of pay. By 2007 finance was attracting a quarter of all graduates from the California Institute of Technology.
These eggheads are now in the dock, along with their probabilistic models. In America a congressional panel is investigating the models’ role in the crash. Wired, a publication that can hardly be accused of technophobia, has described default-probability models as “the formula that killed Wall Street”. Long-standing critics of risk-modelling, such as Nassim Nicholas Taleb, author of “The Black Swan”, and Paul Wilmott, a mathematician turned financial educator, are now hailed as seers. Models “increased risk exposure instead of limiting it”, says Mr Taleb. “They can be worse than nothing, the equivalent of a dangerous operation on a patient who would stand a better chance if left untreated.”
Modelling is not going away; indeed, number-crunchers who are devising new ways to protect investors from outlying fat-tail risks are gaining influence. Pimco, for instance, offers fat-tail hedging programmes for mutual-fund clients, using cocktails of options and other instruments. These are built on specific risk factors rather than on the broader and increasingly fluid division of assets between equities, currencies, commodities and so on. The relationships between asset classes “have become less stable”, says Mohamed El-Erian, Pimco’s chief executive. “Asset-class diversification remains desirable but is not sufficient.”
In some areas the need may be for more computing power, not less. Financial firms already spend more than any other industry on information technology (IT): some $500 billion in 2009, according to Gartner, a consultancy. Yet the quality of information filtering through to senior managers is often inadequate.
The way forward is not to reject high-tech finance but to be honest about its limitations, says Emanuel Derman, a professor at New York’s Columbia University and a former quant at Goldman Sachs. Models should be seen as metaphors that can enlighten but do not describe the world perfectly. Messrs Derman and Wilmott have drawn up a modeller’s Hippocratic oath which pledges, among other things: “I will remember that I didn’t make the world, and it doesn’t satisfy my equations,” and “I will never sacrifice reality for elegance without explaining why I have done so.” Often the problem is not complex finance but the people who practise it, says Mr Wilmott. Because of their love of puzzles, quants lean towards technically brilliant rather than sensible solutions and tend to over-engineer: “You may need a plumber but you get a professor of fluid dynamics.”
One way to deal with that problem is to self-insure. JPMorgan Chase holds $3 billion of “model-uncertainty reserves” to cover mishaps caused by quants who have been too clever by half. If you can make provisions for bad loans, why not bad maths too?
http://www.economist.com/specialreports/displaystory.cfm?story_id=15474075
Thursday, March 11, 2010
DAWN.COM | Columnists | The patronage networks
The central piece of the column is here:
" ‘Changing the system from within’ is quite a popular argument. Those distressed by the ‘system’ are told to take it easy and watch the incremental changes which will be brought about by qualified bureaucrats or others. You are told to ‘look at the glass as being half-full rather than half-empty’. It’s your fault not to notice the small changes which have taken place or those that are in the pipeline.
Many of us must have met retired bureaucrats (both civil and military) and heard them talk endlessly about how well they ran the system. They will tell you about their adventures, their vision, brilliance and originality. Interestingly, all retired bureaucrats sound the same: lots of endless storytelling but no clue as to why their individual brilliance and that of their colleagues hasn’t made the state more efficient. They almost never confess to the sin of working the system just to enhance their own power.
Deep down I think the young men I talked to were lured by the power of ‘power’ and would eventually settle for greater nuisance value for themselves rather than change the system. In both cases I tried to tell them that they probably wanted to have more power just to serve themselves and would adapt to the ‘system’ rather than the other way round.
The civil and military bureaucracies in the country are two patronage groups which can assure entry into power circles. This does not mean that everyone aims to gain influence, but becoming part of a patronage network ensures you can survive in this environment. A common citizen has no value."
DAWN.COM | Columnists | The patronage networks
" ‘Changing the system from within’ is quite a popular argument. Those distressed by the ‘system’ are told to take it easy and watch the incremental changes which will be brought about by qualified bureaucrats or others. You are told to ‘look at the glass as being half-full rather than half-empty’. It’s your fault not to notice the small changes which have taken place or those that are in the pipeline.
Many of us must have met retired bureaucrats (both civil and military) and heard them talk endlessly about how well they ran the system. They will tell you about their adventures, their vision, brilliance and originality. Interestingly, all retired bureaucrats sound the same: lots of endless storytelling but no clue as to why their individual brilliance and that of their colleagues hasn’t made the state more efficient. They almost never confess to the sin of working the system just to enhance their own power.
Deep down I think the young men I talked to were lured by the power of ‘power’ and would eventually settle for greater nuisance value for themselves rather than change the system. In both cases I tried to tell them that they probably wanted to have more power just to serve themselves and would adapt to the ‘system’ rather than the other way round.
The civil and military bureaucracies in the country are two patronage groups which can assure entry into power circles. This does not mean that everyone aims to gain influence, but becoming part of a patronage network ensures you can survive in this environment. A common citizen has no value."
DAWN.COM | Columnists | The patronage networks
Monday, March 8, 2010
All about current financial mess
In my search for the answer (s) regarding the current financial melt down, I stumbled upon a blog from Tompeters. Here is his suggestion as a starting point to see through the fog that surround the mess.
tompeters! management consulting leadership training development project management
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"My favorite came from the Financial Times' prize-winning reporter–editorialist Gillian Tett. Namely: Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe. (Hats off to the FT in general for reporting on the crisis—my FT "take" beats my Wall Street Journal take 4 days out of every 5.) (Ms. Tett notwithstanding, I believe the best way to get your reading head around the current mess is to readMichael Lewis's 1989 classic, Liar's Poker.)
As to best book by a "finance guy," it's no contest! The gold to Vanguard Mutual Fund Group founder John Bogle for Enough. The chapter titles tell the story. Here's a sample:
"Too Much Cost, Not Enough Value"
"Too Much Speculation, Not Enough Investment"
"Too Much Complexity, Not Enough Simplicity"
"Too Much Counting, Not Enough Trust"
"Too Much Business Conduct, Not Enough Professional Conduct"
"Too Much Salesmanship, Not Enough Stewardship"
"Too Much Focus on Things, Not Enough Focus on Commitment"
"Too Many Twenty-first Century Values, Not Enough Eighteenth-Century Values"
"Too Much 'Success,' Not Enough Character"
"Too Much Speculation, Not Enough Investment"
"Too Much Complexity, Not Enough Simplicity"
"Too Much Counting, Not Enough Trust"
"Too Much Business Conduct, Not Enough Professional Conduct"
"Too Much Salesmanship, Not Enough Stewardship"
"Too Much Focus on Things, Not Enough Focus on Commitment"
"Too Many Twenty-first Century Values, Not Enough Eighteenth-Century Values"
"Too Much 'Success,' Not Enough Character"
As to the overarching theme of the book, Mr. Bogle begins with this vignette: "At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch-22 over its whole history. Heller responds, 'Yes, but I have something he will never have ...
enough.'"
enough.'"
tompeters! management consulting leadership training development project management
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Saturday, March 6, 2010
Islamic Banking and Finance is not Islamic anymore
There are concerns that the development of Islamic banking and Finance is more in line with its counterpart than indigenous Islamic. Islamic Finance is different than its counterpart on many fronts like interest, risk ,halal, haram, bankruptcy to name few. Here is an excerpt from an article that pointedly said that Islamic Banking and Finance is not Islamic anymore.
"The credit crunch has sponsored much discussion on the need for a new approach to banking and finance. While the Islamic financial system has been mentioned as a possible alternative in this regard, it is widely recognized that this system has itself been largely modeled on its interest-based counterpart. Both share the same material goals and adopt the same institutional structures, with the result that the products promoted by the Islamic finance industry are often indistinguishable from those of interest-based institutions."
"These similarities have led some insiders to concede that the Islamic banking and finance industry has failed to properly implement the ideals upon which it was founded more than thirty years ago. They fear that a gradual merger between Islamic and interest-based finance is taking place, encouraged by commercial and political factors. Others wonder how such a vital function of Muslim society can be founded upon contractual devices that so many of its scholars reject, the enforceability of a promise being a particularly widespread case in point."
"A serious and nimble response to these concerns is often hindered by a lack of intellectual honesty within the Islamic finance industry itself. Platforms are rarely provided to scholars who wish to take one step back and question some of the fundamental concepts that are being applied. Few questions are raised regarding the validity of Islamic debt financing, limited liability structures, speculative methods of market trading, or the nature of the monetary system. Such matters are given little attention in the headlong rush to copy interest-based methodologies and this has resulted in a number of embarrassing paradoxes. For example, while some Islamic investment managers attempt to develop Shari`ah compliant short-selling techniques, several western authorities are banning the practice on account of the instability that it causes. Most serious of all is the fact that, having copied the western template of finance, the Muslim world is in no position to point to a viable alternative at this time of crisis. In a few short months, thirty years of strategy have been debunked, and our industry leaders are left with little to say."
Aya 280 of Sura Al-Baqara
Aya 280 of Sura Al-Baqara
Ayat 275 to 279 of Sura Al-Baqara
Aya 65 of Sura Al-Baqara
Aya 163 of Sura Al-A'raf
Don't put a question mark where, Allah puts a full stop.
"According to dictionary, the word Islam, from the tri literal root s-l-m, is derived from the Arabic verb Aslama, which means "to accept, surrender or submit. “ A Muslim (Arabic: مسلم ) an adherent of the religion of Islam. The feminine form of 'Muslim' is Muslimah (Arabic: مسلمة ). Literally, the word means "one who submits to God".
“If anyone is looking for a religion other than Islam, then let it be known that it will not be accepted from him; and in the Hereafter he will be among the losers.” (Sura Al’i-Imran Aya No. 85)." Dīn (دين, also anglicized as Deen) is an Arabic word usually translated as "religion" but also as "way of life", especially referring to Islam, known as ad-dīn "the deen", or dīn al-haqq "the true deen" (e.g. ayat 48:27, 9:33 = 61:9). It is, however, not exclusive to Islam, as Arab Christians also use it to refer to their religion and religion in general. The word “Deen” appears in as many as 79 Qur'anic verses and it is often translated as religion for convenience since there is no equivalent single satisfactory English word. In the Qur'an, Islam is always referred to as Dīn. It is the sum total of a Muslim's faith and the code and conduct necessary to submit to Allah's laws.
Hence, it can be said that Islamic Finance is conducting financial and business matters according to the commandments of Allah(SWT) expressed or implied.
Credit transactions are not to be taken as a routine matter as in business no one has enough capital to give time to debtor till they are able to pay the amount and nor can everyone write them off as charity even if it is the best and it is the best because Allah(SWT) has said so. Therefore, there is no concept of banking in Islam where the business model is borrowing and subsequent lending.
Credit transactions are injurious to Muslims on two accounts. As a creditor, on account of giving respite to debtor in difficulty, disturbance in cash flows leading to default in payment in case of back to back Murabahah and seemingly loss of capital in case of write off to charity. As a debtor, there is no exemption from payment of debt unless it is written off by creditor. His heirs are liable to pay the debt. I quote Ahadith in this connection.
Shaih Muslim 872
Narrated Amr ibn al-'As "The Messenger of Allah (peace be upon him) said: All the sins of a Shahid (martyr) are forgiven except debt."
Al-Tirmidhi
Narrated AbuHurayrah "The Prophet (peace be upon him) said: The soul of a deceased believer is held back on account of his debt till the debt is discharged."
Another very important Hadith on debt based transaction is
Sahih Al-Bukhari 1.795
"Narrated Aisha (the wife of the Prophet) Allah's Apostle used to invoke Allah in the prayer saying "Allahumma inni a'udhu bika min adhabil-qabri, waa'udhu bika min fitnatil-masihid-dajjal, wa a'udhu bika min fitnatil-mahya wa fitnatil-mamati. Allahumma inni a'udhu bika minal-mathami wal-maghrami. (O Allah, I seek refuge with You from the punishment of the grave and from the afflictions of Masiah Ad-Dajjal and from the afflictions of life and death. O Allah, I seek refuge with You from the sins and from being in debt)." Somebody said to him, "Why do you so frequently seek refuge with Allah from being in debt?" The Prophet replied, "A person in debt tells lies whenever he speaks, and breaks promises whenever he makes (them)." 'Aisha also narrated: I heard Allah's Apostle in his prayer seeking refuge with Allah from the afflictions of Ad-Dajjal."
The following sentence from the above Hadith is of particular importance to Muslims "A person in debt tells lies whenever he speaks, and breaks promises whenever he makes (them)." So, there is every possibility of default.
“If anyone is looking for a religion other than Islam, then let it be known that it will not be accepted from him; and in the Hereafter he will be among the losers.” (Sura Al’i-Imran Aya No. 85)." Dīn (دين, also anglicized as Deen) is an Arabic word usually translated as "religion" but also as "way of life", especially referring to Islam, known as ad-dīn "the deen", or dīn al-haqq "the true deen" (e.g. ayat 48:27, 9:33 = 61:9). It is, however, not exclusive to Islam, as Arab Christians also use it to refer to their religion and religion in general. The word “Deen” appears in as many as 79 Qur'anic verses and it is often translated as religion for convenience since there is no equivalent single satisfactory English word. In the Qur'an, Islam is always referred to as Dīn. It is the sum total of a Muslim's faith and the code and conduct necessary to submit to Allah's laws.
Hence, it can be said that Islamic Finance is conducting financial and business matters according to the commandments of Allah(SWT) expressed or implied.
Credit transactions are not to be taken as a routine matter as in business no one has enough capital to give time to debtor till they are able to pay the amount and nor can everyone write them off as charity even if it is the best and it is the best because Allah(SWT) has said so. Therefore, there is no concept of banking in Islam where the business model is borrowing and subsequent lending.
Credit transactions are injurious to Muslims on two accounts. As a creditor, on account of giving respite to debtor in difficulty, disturbance in cash flows leading to default in payment in case of back to back Murabahah and seemingly loss of capital in case of write off to charity. As a debtor, there is no exemption from payment of debt unless it is written off by creditor. His heirs are liable to pay the debt. I quote Ahadith in this connection.
Shaih Muslim 872
Narrated Amr ibn al-'As "The Messenger of Allah (peace be upon him) said: All the sins of a Shahid (martyr) are forgiven except debt."
Al-Tirmidhi
Narrated AbuHurayrah "The Prophet (peace be upon him) said: The soul of a deceased believer is held back on account of his debt till the debt is discharged."
Another very important Hadith on debt based transaction is
Sahih Al-Bukhari 1.795
"Narrated Aisha (the wife of the Prophet) Allah's Apostle used to invoke Allah in the prayer saying "Allahumma inni a'udhu bika min adhabil-qabri, waa'udhu bika min fitnatil-masihid-dajjal, wa a'udhu bika min fitnatil-mahya wa fitnatil-mamati. Allahumma inni a'udhu bika minal-mathami wal-maghrami. (O Allah, I seek refuge with You from the punishment of the grave and from the afflictions of Masiah Ad-Dajjal and from the afflictions of life and death. O Allah, I seek refuge with You from the sins and from being in debt)." Somebody said to him, "Why do you so frequently seek refuge with Allah from being in debt?" The Prophet replied, "A person in debt tells lies whenever he speaks, and breaks promises whenever he makes (them)." 'Aisha also narrated: I heard Allah's Apostle in his prayer seeking refuge with Allah from the afflictions of Ad-Dajjal."
The following sentence from the above Hadith is of particular importance to Muslims "A person in debt tells lies whenever he speaks, and breaks promises whenever he makes (them)." So, there is every possibility of default.
Thursday, March 4, 2010
The origins of economics
“Adam could deal with apples — as long as there were no serpents and women,” Mr. Thaler added. “When you add serpents and women, you get self-control problems that the model cannot deal with.”
The origins of economics « Nudge blog
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Most people on the panel accepted that the mainstream model of rational human beings who maximize utility within budget constraints, expertly making cost-benefit analyses by comparing the net present value of their options, no longer works.
The origins of economics « Nudge blog
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Tuesday, March 2, 2010
Why Winning Streaks End ?
An excerpt from the blog about "Why Winning Streaks End?"
"Winners become sinners when confidence turns into complacency and arrogance. They over-estimate their own invincibility and under-value mundane disciplines. Whenever someone feels on top over a long period of time, they are tempted to neglect the very fundamentals that helped them succeed in the first place. They might even start to feel that the rules don't apply to them."
Here is what Quran says about the subject.
Why Winning Streaks End - Rosabeth Moss Kanter - Harvard Business Review
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"Winners become sinners when confidence turns into complacency and arrogance. They over-estimate their own invincibility and under-value mundane disciplines. Whenever someone feels on top over a long period of time, they are tempted to neglect the very fundamentals that helped them succeed in the first place. They might even start to feel that the rules don't apply to them."
Here is what Quran says about the subject.
Set forth to them the parable of two men: for one of them We provided two gardens of grapevines and surrounded them with date-palms: in between the two We placed corn-fields.
Each of those gardens brought forth its produce and failed not in the least therein: in the midst of them We caused a river to flow.
(Abundant) was the produce this man had: he said to his companion in the course of a mutual argument: "More wealth have I than you and more honor and power in (my following of) men."
He went into his garden in a state (of mind) unjust to his soul: He said "I deem not that this will ever perish.
"Nor do I deem that the Hour (of Judgment) will (ever) come: even if I am brought back to my Lord I shall surely find (there) something better in exchange."
His companion said to him in the course of the argument with him: "Dost thou deny Him Who created thee out of dust then out of a sperm-drop then fashioned thee into a man?
"But (I think) for my part that He is Allah my Lord and none shall I associate with my Lord.
"Why didst thou not as thou wentest into thy garden say: `Allah's Will (be done)! There is no power but with Allah!' If thou dost see me less than thee in wealth and sons
"It may be that my Lord will give me something better than thy garden and that He will send on thy garden thunderbolts (by way of reckoning) from heaven making it (but) slippery sand!
"Or the water of the garden will run off underground so that thou wilt never be able to find it."
So his fruits (and enjoyment) were encompassed (with ruin) and he remained twisting and turning his hands over what he had spent on his property which had (now) tumbled to pieces to its very foundations and he could only say "Woe is me! would I had never ascribed partners to my Lord and Cherisher!"
Nor had he numbers to help him against Allah nor was he able to deliver himself.
Ayat 32 to 43 Sura Al Kahf
There may be many reasons but one of the main reason remains arrogance.
Why Winning Streaks End - Rosabeth Moss Kanter - Harvard Business Review
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