Beyond the realms of daily existence: January 2009

Wednesday, January 28, 2009

No Lesson learnt

As I see it, the current US&World financial crisis was a result of greed. If we dig deeper we can also say that it was due to improper valuation of risk. Now that US economy is in a big hole what's the solution - borrow some more? I am not sure if anyone else sees the problem as one of living beyond the means requiring to curtail expenditure and increase savings rather than borrowing some more.

The current US federal debt is around $10.6 trillion-1. With the proposed second bailout this might well inflate to $12 trillion by the end of year. Every penny US borrows it has to pay interest on. As of now US and Federal reserve has the luxury of keeping interest rates low while still having people interested in funding US debt. This keep the interest payments down to very low. Since the world considers US dollar as a reserve currency, in the time of crisis such as this, they are happy to transfer their assets to US dollar. Hence US dollar is also very strong at the moment. However, things are bound to change sooner or later.

Emerging economies are posting relatively strong growth and sooner or later people will start to look for alternative investments that they do not consider to be much riskier. It would then be harder for US to raise money at very low interest rates, they might have to raise them a notch. The interest payments will at the same time start to balloon. Of course US has nothing to worry about as it can print more money as and when it wishes. However, the inflationary effect of such an action might result in US dollar falling sharply. This in turn would require Fed to raise interest rates to prop up US dollar.

In past several countries have faced these economic and financial crises and as far as I can tell IMF always advocates tightening on spending. I understand why spending is required to stimulate the economy but feel that we must consider the additional risk that comes along with it. So the question is whether government should in turn be advising citizens to save, live within the means and forgo certain pleasures at present to ensure a safe and secure future. Or is the American lifestyle uncompromisable at all cost. Is US willing to take a risk of deeper collapse to ensure a quicker recover? Appears we have not learnt anything from the current debacle.

-1 http://en.wikipedia.org/wiki/United_States_public_debt

Saturday, January 17, 2009

Tips for First Year recruiting

First Year internship recruiting is in full-swing and I thought it would the right time to share some wisdom from my experiences. Instead of providing 'abc' of what you need to do, which I am sure you all are quite familiar with by now, I will highlight some areas where I think students falter.

Focus: Though this such an obvious first step, I find that its not followed as religiously as it should be. If you are feeling lethargic and lack motivation to get everything done, its time to get your act together. A dream or aspiration is something you have to pursue, it doesn't not fall on your lap. It's time to ask the hard question of how much it really matters to you. Figure out all the things you need to do, make a plan and get going.

Preparation: By now you should have clear idea of what you need to do well to be successful in your chosen recruiting area. Quite likely there are several things. Often, many consider preparation as getting familiar with this areas or somewhat competent. The bar is high fellows, target should be perfection. What would it take to get close to perfect in each area? You are bound to make mistakes when it comes the final interviews. Prepare and practice everything you can - cases, subject areas, behavioral, situational. If you perform great in practice chances are you can at least be good in the final interviews.

Externalities: How many times have you asked the questions How will the economy hold? How many students will so and so company recruit? Well, the question really is - Does the answer to these questions affect what you are doing? or Do you have any control on the economy or the numbers anyway? Forget what you can't control and worry about things you can. It might however be useful to stay informed on these issues. Sometimes opportunities arise if you informed and observant.

Attitude: What behavioral aspects would you look for in an employee? Enthusiasm, curiosity, confidence, positive outlook are some traits that definitely impress recruiters. Bring the same to the table. I'ts not all about going to the interview, solving the puzzles and answering questions with the straight face. Your attitude is not something you can switch on and off. So examine yourself and see if you need a change. Investigate the culture of companies you are interviewing with to figure out qualities important to them. If there is something that you rather not adopt then think twice about interviewing with the firm.

Perspective: If the process is stressing you a lot, keep things in perspective. This is not your life. There are many things to it. Anyone who has made it thus far will do just fine. You define your choices, don't let your choices define you.

Tuesday, January 06, 2009

No Deal? Think long and hard

On many occasions in Business or life one might encounter a deal where the counterparty is very unreasonable. Entire deal might be unfair and the whole transaction is filled with mistrust. How does one then consider the offer or negotiate a deal?

Well! I took a course last quarter called ‘Bargaining and Negotiations’ where we were paired up every class and had to negotiate a deal. Most counterparts were very reasonable but some were aggressive. On some occasions the transaction was setup as easy deals with overlap in interests, in others the parties were far apart. In almost all occasions we had opportunities to create value and win-win scenarios for both parties.

I will not go into further details of the course but mention that one of the takeaways was thinking about “BATFA” - Best Alternative To Negotiated Agreement. In most cases, especially complex ones, BAFTA is not clear. However, in many cases we choose to walk away from a deal without having thought about alternatives. We get emotional and angry at perceived unfairness and decide based on our impression of our counterparty. It’s good to be passionate and emotional about your stand and fight hard for fair deal but equally important for it not to cloud judgment.

Below are four images that show a deal in the making which parties walked away from. We all know the consequences quite clearly both parties are worse off now.