Long tailed losses

Long tailed losses tend to make a monkey out of everyone, every once in a blue moon. These are remarkable times. The next decade is going to be tough.

Commentator reason pointed out that ICICI was not obligated to report their derivative exposure to the US sub prime crisis and it was only in response to a question in the Rajya Sabha that their losses came to light. India's accounting laws may be a bit archaic and perhaps do not require periodic marking to market for complex derivative instruments. By itself this may not be of concern for two reasons. First, most emerging economies have gotten their acts together after the spate of crisis in the 90s. They are quite conservatively leveraged, the central banks ensure lots of buffer. Second, even with all sorts of safeguards, banks can and will commit financial seppuku from time to time.

It looks like in the next decade we are going to see a global socialist surge. If the US gets a hard landing and a democratic president, expect some tough laws. China has been playing nice so far, post Olympics it will start acting its usual aggressive self. The west will start cozying up to it, while they clean up their financial mess. Perhaps Arab street will own much of Wall street, which means bigger influence on Washington. Meanwhile bit players like Hugo Chavez will start flexing their muscle, just like our domestic commies. People will see which horse is strong and flock in large numbers to the relevant camp.