Risk Management, PRMIA

A. Dr. Y.V. Reddy's book :The author suggests taking a re-look at Taxation of Financial Sector; de-financializing commodity markets and allowing financial sector globalization to move in sync with trade liberalization. Unfortunately, very little is articulated in concrete terms in the case of the first two points (i.e. proposing a definitive alternative).
The author does say that the financial sector ought to serve the real sector better especially in the area of housing.
The author enumerates various steps that RBI took (and he certainly deserves a lot of praise like increasing risk weights, inceasing standard provisioning,...) during the financial crisis.
The author also explains why in the times of crisis the Finance Ministry ought to play a central role...he also explains the rationale for RBI taking FinMin's approval for the sterilization of currency interventions (since it entails fiscal costs).
The author suggests that developing bond markets in not necessary (at least for infrastructure development) and suggest surveilance of usurious interest rates charged by for-profit MFIs. In some ways the former seems like a defence of the report card rather than a forward looking approach while the latter (although well-intentioned) seems like a suggestion without an alternative proposal for addressing microfinance.
At times, the author emphasises the importance of financing productive uses (as against consumption).
The author also points out the conflict of intererts in the Mutual Fund industry in India----serving large investors rather than retail investors; and that some of them are sponsored by corporate houses.
The discussion on the Global Financial Architecture is interesting.
The author seems to be largely in favour of gradual reform (except perhaps in the case of housing finance). And this might be the reason that there seems to be no appreciation of western financial sector (surely all of it is not hollow...).
Unfortnately, the format does not do justice to the book. It could have been 250 pages less (it is 410+ pages long!). It is very repititive (to be fair the reader is warned about this in the initial pages).
On the whole, it is well worth the time, because of the educated opinion and food for thought offered by Dr. Y.V. Reddy. And it seems to be a case of the country's misfortune that he was not retained for another term.

B. Professor Raghuram G. Rajan's book: The author clearly explains the drivers of financial stability i.e. the fault lines. He does this by analyzing the role of the government, central bank, the private sector and the voter. The structural changes in the US economy are discussed. So far the micro-level analysis is superb. The resulting interaction between various players is also well-explained. The rationale for the adoption of the export-oriented growth model adopted by Japan, Germany, China is discussed and so also are the problems associated with such a strategy. The discussion on the incentives for undertaking tail-risk; the discussion on the Philips curve; the reason for foreign banks lending to companies largely indirectly (through local banks) in East Asia (prior to the East Asian crisis), the example of the annuities issued by the French monarchy, the debt owed by the German Weimar Republic are all very interesting.
There are three shortcomings:
1. The solution for the US economy is relatively more detailed, while the solution for China, Germany and Japan seems much more macro.
2. The role of decreasing post-cold war defence expenditure in the US, in promoting economic growth is not discussed.
3. The relationship between the store of money and value of money functions is not discussed---with reference to the recent financial crisis.
On the whole this a superb analytical book and provides clues for solutions too although it falls short on micro-level solutions.

DO YOU AGREE WITH MY THOUGHTS?