Ep. 15: Panning Panama

I, V, M. Is it serious? I mean like rap songs. rap songs are like a big career choice for me but, you know.

rap without the W. I remember once when I was in college, I had a, I can't believe I surrounded myself with guys who used to make poor jokes, you can believe this. So I had one of these old clunky MP3 players, one of the first MP3 players, one 28 MB type music you can store about four songs, type and. So the Jack, or the Jack was slightly screwed.

Okay. As rose on the title, I can also say. What happens, what happens is you had to like bend the CD of pin at an angle and I had to, and what I had to do is I couldn't keep holding that. With that tension, I will wrap the chord around the entire music player.

And then this guy comes on and says, Haha, rap music. There were five of us and everybody just collapsed and proceeded to throw various things at him. These are type of friends I grew up with. Very easily amused.

Anyway, your laps on. Yeah, so here it is. And, you know, let me, you know, this very moment was the first lap song I was singing in my life. Yeah, all the disclaimers and stuff out of the way.

Yeah, and tomorrow when I push Eminem off as whatever I was purged to. And, you know, you'll have the honor of being there when it happened, okay? Here we go. Here it goes.

Do you find yourself, stymie, even group with some of the side? Yes, hopefully you, the listener, are part of simplified. Yo, yo, yo, yo, yo, yo. It might make you smarter in terms of what you know.

But conversationally you look like as one, one, the close. Yo, yo, yo, yo, yo, yo. So listen up to your listener and arm yourself and stuff. You illuminate conversations and occasionally bluff.

Yo, yo, yo, yo, yo. What do you think? Mm, nothing. Hot stuff, huh?

I love you like a brother and you know that. But that has to be the worst rap song of all time. What? Was then, was then Baba's ego?

Okay, second worst rap song of all time. Well, it was something I had to say. It was an attempt. It was an attempt.

It's a sense of darkness. Wait, would it sound better if I clutch my crochets? No, don't do that. It's a family show.

Okay. So we'll consider that as sort of spent. I'm all spent, baby. And now let's go on to more serious stuff.

Yeah, absolutely. So what do you think we should talk about? Well, Panama. Panama.

Yes, Panama was. I have been reading about it. I've been reading about it. A lot of it, you know, is pretty strange.

Not because of what they've been doing, but why they've been doing. So we'll go. So long winded explanation I'm guessing? Yeah, it's going to be a little long.

Yeah, okay. Then let me get my Panama joke out of the way. Okay. Okay.

Every scandal is promptly called whatever it is, gate, right? You know, you have Watergate, you have the telephone call between themselves and Carmilla Parker. You have this gate, you have that Cobra gate and everything. So why are they calling it the Panama Papers and not Panama?

What a gate? Good question. Why not? Because if it was a Panama Watergate, it would just be the Panama Canal.

Oh man. And you know what would really be interesting? What? To see if anyone sue us Panama.

Oh my God. All yours. All yours. Okay.

So let me get on with the story, right? What happened is one fine afternoon about a year or so ago, an anonymous source sent an email to a German newspaper name. Let me get this right. Okay.

So I'm guessing this is one of the use of the two dots on top of it. Yes. All that. And offering some, the source was an anonymous source offering some sensational information about money stashed in tax havens.

What is a tax haven first? So tax havens are places where, you know, taxes are not like, that's why I think they got the spelling or haven wrong. So it's like, okay, like go and Pondicherry are booze havens. Something like that.

Yeah. Something like that. I mean, all the good news going emotional is that probably, basically, they are in the bottom and everything else. So yeah.

And so, you know, the anonymous source site, I'll give you everything. I got all the dope and they just dismissed it. You know, they got a lot of crank emails and all of a sudden the emails and the PDFs and the text messages and everything started coming in like millions and millions and millions of things like people jumping into without local churches. And like people from, you know, jumping into the local, they just sold for space into the SUTI dowschones, whatever that means.

The news networks. Yeah. They are mailbox and they, you know, they just, they overwhelmed. It was just too much data.

So, you know what, too with it. And they decided to turn it over to a group of, you know, distinguished journalists or experienced investigative journalists to see what would come out of this. It would be awesome if, instead of credible sources, this data had actually gone to say somebody was handling the gossip section of the info or page, it would be time to do it. Me doesn't matter.

Me doesn't matter. What, what, what. Yeah. So, they, I mean, the rest of the bunch, the journalists who all this data was passed on, they call themselves the International Consortium of Investigative Journalists.

They activated the network of the report. I see. I see. I see.

So, they activated the network of reporters and editors, banning the globe and made the data available to them through a proper server and a half password protected. And they gave them a year to sort of go through it and see what was there, call information out of it. And the gentleman scored there was not to, you know, not to come out with information that was not really newsworthy. And, you know, may.

And when you say information, this is all people who stashed their money away in. Yeah, it's just people who have opened companies. Okay. So, and how much they have in those companies?

What is their share capital? What, how much money has been transferred into it? Where do the investments have been made in that kind of information? Okay.

So, let's just back to that. So, I'm guessing you're talking about these things called Shell companies. Yeah. So, what do you just tell me a little bit about what a Shell company is?

I'm guessing this is something more than what a teenage would in a total world. Yeah, slightly more than a teenage in a mutual ninja tortoises. So, Shell companies are basically, you know, people, if I had some money and I wanted to buy a flat, I would go and, you know, I'd buy a flat as an additional. But if I didn't want the seller of the flat to know that an additional wants to buy it, I would open a company, call it maybe Black Shoe's private limited, and Black Shoe's private limited to one by the...

On your behalf. On my behalf. The problem is if Black Shoe's private limited was in India as well, the income tax authority and the registrar of companies, all the, you know, the economic departments of various state governments would all have access to that data. So, they, well, you have to file all companies in India have to file returns with the registrar of companies for starters.

But you have to give them all kinds of details about who the shareholders are, who the directors are. So, there's no real benefit. So, you end up being... Yeah, so if anyone is on to you, they can very easily investigate.

Right. So, they go to broad minded countries like Panama. And it's cool. I mean, what's a little bit of...

They will take the infringe, they'll open, get you to open a company. And that's the beauty of corporate corporatization. So, it's called the corporate way. People who formed a company.

So, even if I'm the only person in the company, the company is distinct from me. That's how it... Okay. And I'm guessing you were anonymous.

You were hidden then. I mean, this is Shell Company. Yeah. So, unless they somehow gain access into the company's records, which they cannot, because Panama is a different country.

Right. So, no one can. So, the Indian income tax authorities cannot, you know, cannot... They are not allowed to get it.

They don't. So, that becomes a Shell Company. What they do in Shell Company is most companies are formed to do some kind of business. Right.

So, you and I might start a company to sell whatever audio equipment. So, we buy audio equipment and for 100 to be, say, for 110 rupees. That kind of thing. So, if we buy in-depth tax returns, we do all that kind of stuff.

In Shell Companies, they don't do anything like that very often. So, they just take the money and park it into different places passively or invest it in assets. But basically, there is very little... There's nothing like business that happens.

Okay. So, suppose we do set up this audio company. Somebody pieces 110 rupees. So, that 110 rupees goes into Panama.

Yeah. So, if we were a Shell Company, then we won't do an audio business. We would do the audio business in India. We would take that 10 rupees profit and solve...

Oh, okay. Okay. Okay. Yeah.

So, that's how they do it. And very often it is... Is it some fish or something? Apparently, it is.

So, it's legal in Panama, Panama is a sovereign country. So, you're not breaking any rules by doing this? Yeah. In some countries, in many European countries and in India too, there are restrictions on citizens investing overseas.

Okay. In European countries, not so much restrictions as reporting requirements. So, in the US too, if you have investments overseas, you have to disclose profits from that investment. Right.

So, what these people do is, they put money into a Panama company. And a Panama company has no profit whatsoever. Right. So, there is nothing to be disclosed.

So, you disclose that only there is a profit, there is an income. And that Panama company then takes that money and buys an island in the South Pacific or whatever. That doesn't need to be disclosed because there's no profit there. It just made an investment.

It doesn't mean less than a half. And the money comes... And it's a huge web of things. So, it's never one company.

So, it's one company. You can share a lot of sales. Yeah. And it's like a huge web and a lot of connections, like company to companies, almost impossible to a decent angle unless you know what is happening.

And, apparently, this Mosack Fonseca data that they got. So, that's one of these Panama companies. That's the lawyer company in Panama, which is doing all the paper. Right.

So, they got busted. No, they gave the wallet. No, it was stolen from their servers. No, it was stolen from their servers by probably by some time who walked in with the...

...p ...probing for the pawn or something. No, the problem is you'll hide your pawn enemy in folders like this. Take it to the system slash 32 slasher. Yeah.

And that's a... that's a crime of a see it. Now, what journalists are trying to do is they're trying to decent angle the web. Right.

And trying to see who of... who has money there who's really not supposed to have money there. Who's not supposed to have money there? So, who is supposed to have money there?

That means... because from what it looks like, it's like the feeling that a general public could get is everybody who has money, that shouldn't have money, that's like a bad thing. So, who is supposed to have money there? Some companies, many companies actually.

For example, if you're buying a lot of equipment, like for example, there is a polyester plant, which is closing down in Germany. Right. And there are two possible companies who could want to buy it. And it's me or you.

And we are both bidding for it. And if I'm bidding, let's say, 100 million euros, you would just cool a bit of 101 and take it. Right. So, I don't want you to know who's bidding.

I suspect you have a mole in my organization. So, I start an offshore company. Things like that. You know, international finance, huge...

Okay. So, but there is a legit reason for these two... Yeah, but very, very few. But if you really structured imagination to find, you know, legit...

So, that's like the 1% of lawyers who are ethical. Yeah. Yeah. Okay.

So, what's actually so sensational about this? I mean, people keep their money in strange places. SBI, for example, chose to keep their money with the gym for some reason. Yeah.

So, yeah, sensational. I mean, most of the money belongs to people who haven't told anyone else that, you know, so they're absolutely sanctimonious. Now, for someone like, you know, a chief minister lecture, who goes around saying that I'm all... I'm going to go for a people.

And he turned out to have a gazillion dollars in one of these things. So, is it the same thing with Swiss banks? Swiss banks are just banking accounts. So, they're not numbered, but now they've started getting a lot of KYC.

Oh, okay. All over the world, the US government primarily and many European governments are insisting on KYC norms because they want to stop their risk funding. Okay. So, they want to make sure that people aren't like, for example, ISIS is a terrible organization and it's killing people.

And it's killing people with guns. It's obviously buying the guns from somewhere. So, who... How does it pay the people who is buying guns from?

And many governments in the world figure that if they cut that umbilical card, these organizations find it harder to find it harder to find it. It'll be easier to defeat them. So, that is the idea behind... And what is happening in situations like the Panama case, where there are shell companies, it becomes extremely difficult to know who exactly the money belongs to.

It might look like it belongs to some Ram Charan Gupta, but it might well be... So, pan-ISIS started a shell company and started one of this? For all you know, they probably do as well. So, it's going to take a lot of one traveling.

And I think all this is really heavy stuff. So, maybe we should take a breather... A little bit of a break. We'll actually come back to the panel.

We have a little bit more about support for right now. We are going to take a wee bit of a break. Stay right. Are you looking for finance products and services that can enhance your personal finance experience?

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And I invite you for the conversation about your personal finance for each Monday on the IBM podcast app or the website or at any podcast streaming platforms. See you folks. It feels like everyone's talking about two things right now. Pickleball and podcast.

So, what happens when someone who's lived her whole life on the court decides to bring those two worlds together? I'm Sanya Mirzam and I'm bringing you a brand new podcast, serving it up with Sanya. I've had some incredible conversations with friends, fellow athletes, artists and entrepreneurs. Each episode starts with the game of Pickleball and once the rallies are done, the real talk begins.

Serving it up with Sanya, watch and listen on YouTube and wherever you get your favorite podcasts. And we are back. So, nobody really understood the Panama Papers controversy, but all they know is there are lots of big names that are associated with it. But before we get into the names, there's a fantastic explanation of the whole thing on Reddit.

In fact, Weiss or Wox works, actually made a video of the entire thing featuring this explanation. So, I'm just going to read out that explanation. When you get a quarter, not a sales person quarter, when you get a quarter, you put in the piggy bank. The piggy bank is on your shelf in your closet.

Your mom knows this and she checks it every once in a while so she knows when you put money in it or when you take money out of it. Now, one day you decide, I don't want mom to look at my money. So, you go over to Johnny's house with an extra piggy bank that you're going to keep in his room. You write your name on it and you put it in his closet.

Now, Johnny's mom is always very busy so she never has the time to check on his piggy bank. So, you can keep yours there and it will stay a secret. Correct. Now, all the kids in the neighborhood think that this is a good idea and everyone goes to Johnny's house with extra piggy banks.

Now, Johnny's closet is full of piggy banks from all the kids in the neighborhood. One day Johnny's mom comes home and sees all the piggy banks. She gets hopping mad and she calls everyone's parents to let them know. Now, not everyone did this for a bad reason.

Eric's older brother always steals from his piggy bank so he just wanted a better hiding spot. Timmy wanted to save up to buy his mom a birthday present without knowing Sammy just did it because he thought it was fun. But many kids did do it for a bad reason. Jacob was stealing people's lunch money and he didn't want his parents to figure out.

Michael was stealing money from his mom's purse. Fat Bobby's parents put him on a diet and didn't want him to figure out when he was buying candy. Now, in real life many very important people were just got hiding the piggy banks in Johnny's house in Panama. Today their moms found out pretty soon.

We'll know more about which of these important people were doing it for the bad reasons and which were doing it for the good reasons. But almost everyone is in trouble regardless because against the rules to keep secrets no matter what. Very true and this is a brilliant expression. It's brilliant and it last but especially true in India's case because the very act of squirreling money away is friendship.

Is illegal? Yeah, whether or not you have good intentions. Do you personally know any of the people whose name was leaked? I know some of the names that have come out.

I remember seeing other funny things that saw on Facebook was somebody posting to a finance related group. He said it's very sad that nobody on this group was actually named in Panama Papers controversy. We keep it as though Vince again, they have an article called list of people named in the Panama Papers. And what I love about this is so beautifully categorized, like like head so state celebrities.

So I'm just going to go through this obviously not everybody. There are heads so state like the president of Argentina, the king of Saudi Arabia who's just simply called Salman. Then the former head of state, head of government, former heads of government, other government officials, lots and lots of people. Let's see who's from India, there's Anurag Kajriwal who's the former president of the Lok Sathar Delhi branch.

And there's some guy called Anil Wasadev Salghkar who's a mining baron and a former member of the Gohar legislative assembly. Also from Israel, North Korea, the UK, Venezuela and we're still not done with the politicians. Wasn't that football club Salghkar? Yeah, same guy.

Not sure if the same guy. I mean, Singh is a common surname. Now we've just done with the government officials. Now we have relatives and associates of government officials.

And this goes on a long way. Some people from India say, oh, this is Halis Salve here. Good old. Let's see him get himself out of the speaker now.

He's a very interesting person. He has post-possed his and here it starts getting a little interesting. There's some pretty big names over here. The first name of the list, I'm sorry, is a member of the FIFA Ethics Committee.

How appropriate. He designed on 6 April 2016. Alright, so then there is Michael Platinny. Michelle Platinny.

He's also on FIFA. Yeah, yeah, yeah. FIFA, former president of UEFA and footballing legend. Now football clubs and players are here, interesting.

There's actually some huge names over here. There's Andy Cole who used to play for England. There's Lionel Messi. Probably the biggest football of the president's class.

This clan, C-Dorf, Diego Forlan. All big, big names over here. This is Niko Rosberg and Jano Tule from the world of F1. Nick Faldo who used to be a golfer.

Some entertainment personalities including a certain, wait, I'm having trouble pronouncing this name. Amit, Amit Abha, Baka Khan. Some unknown person. Some unknown person there.

There's Jackie Chan. Simon Cowell. Simon Cowell is on this. Stanti Kubrick.

So it's like a who's who? It's like a G20 meet gone very long. Yeah, and we're still not done. There's the Garwari family.

I have, is the Garwari family is the same landmark behind the Ycom office. There's a huge building called Garwari, which is the landmark in that area. There's the Ycom office. The Ycom office is just in Chakala.

Like, so. It used to be a very prominent and important industrial family a few decades ago. And then it sort of peated out. So I don't know.

They must be having a lot of assets, but I don't think they're really a big industrial family. Okay. This KP sing lots, this is lots and then there's an NGO which, okay, this is again, I don't think, this is head of the global corruption watchdog transparency, international, Chile, Blanche. Then of course, a last section after all this, you have five people who are from the world.

I have five people who are from the world of organized crime. It's a fascinating list. And I recommend anyone to check this out. The Wikipedia page on the list of people that are on the website.

Yeah, yeah, they've been, they've been, and about this whole shell company thing. I was doing a little bit of video. It is shockingly easy to set up a shell company. I saw video where an intern for a financial company actually managed to set up a shell company on her own, just called up, got a few questions done.

That's it. It's as simple as that CNN ran this little segment where all you need to do is Google. That's literally there's steps one Google to click on any of the links. Call them.

You need to submit some documents and that's what you're done. And it's very expensive though. It's not something that you and I can randomly do because they're going to do entry costs. And I'm guessing there's lots of maintenance fees you have to pay for all those level lawyers.

And they said that's one article said that only if you're earning over three million dollars should you actually consider using a shell company. We'll get their soul without podcast. We'll be able to be able to be a shell company. In law, even people will go down.

This is interesting. The KPMG tried to market a watered down version of this whole shell company thing. Because it's legal. Shell company has a business to legal.

See, what is shell company? As MBS would call it, it stacks optimization. That's sweet. So, it's not optimized.

It's not optimized. It's not optimized. KPMG tried to market a watered down version of this. But where they goofed up is they started cold calling people.

Instead of just silently spreading the word about it and signing the bars and things like that. And it got a lot more attention than it should be. It's so awesome that this cold calling business, you know, in order to save on overhead costs, club things. So, you call someone and say, hey, would you like a club by Indama?

I'm not sure. But, this reminds me when I went to Bali for my honeymoon. So, dogs are illegal there. I mean, they're illegal here as well.

But let's say that it's more illegal here. It's like, that's all right. That's all right. That's all right.

So, we were, and Bali's notorious for taxi touts. I remember the guy was, there's a guy who was like, taxi, taxi. No, taxi. No, taxi.

No, taxi. No, taxi. No, taxi. No, taxi.

No, taxi. No, taxi. No, taxi. No, taxi.

No, that escalated quickly. Anyway. So, basically, what you're saying over here is shell companies and all the tax benefits that they offer really has nothing to do with the middle class. So, we hope you've been able to share some light on the Panama Papers and what they, you know, what they mean, people who are implicated, a little bit about shell companies.

So, we're going to take a bit of a break while you guys can Google up how to shell company of that fortune. And we'll be right back after a little break and we're going to talk about a very lighthearted topic, which is the RBI repurate. See you right back. It feels like everyone's talking about two things right now.

Pickleball and podcast. So, what happens when someone who's lived her whole life on the court decides to bring those two girls together? I'm Sanya Mirzam and I'm bringing you a brand new podcast. Serving it up with Sanya.

I've had some incredible conversations with friends, fellow athletes, artists and entrepreneurs. Each episode starts with a game of pickleball and once the rallies are done, the real talk begins. Serving it up with Sanya, watch and listen on YouTube and wherever you get your favorite podcasts. Each Monday on the IVF podcast app or the website or not any podcast streaming platforms.

See you folks. And we're back. We hope you guys have figured out how to shell your company. And so, what has the RBI been up to?

Apart from, have they started finally selling posters of Regraman Rajan to show over there? It will be a pretty good business idea for them. And I'll go to a consultant in front of India which is good for us. And I did that, you know, there's a singer who is no more now.

Malika Jaman's a lot of time. I know you're a little fan. He's the finest singer of all time. And so I was, you know, I was googling for a track that I couldn't find.

It's called, Caut Saran. I wanted a Caut Saran track. And I got about 15 Google search results saying download Hot Bitches of Malika Jaman. So, there's a market for Hot Bitches of Malika Jaman.

What? What? I remember once a friend of mine sent me a screenshot. So he was just typing in the Deepak Gopalak which was something I think was somebody who shared the same name as me but as a client.

And the Google auto, Google auto, that thing suggested Deepak Gopalak Krishan Chuk. Okay, so he took a screenshot that sent it to me and said, do your famous. So I tried to dodge that. And another lovely friend of mine, he focused on saying, I suspect the full search query was Deepak Gopalak Krishan Hot Bix.

So, I'm sorry for the mental image that that's been happening. So, let's get back to what the RBA has been doing which is likely a lot less shady than what we're talking about. Yeah. So, as I was saying, despite appearances that suggest otherwise, Regaram, I don't just do it till they are thumbs, weekend and week out, awakening from a slumber ever so occasionally.

And, reducing the basis. Yeah, like, you know, it just looks like every time Regaram, he comes out, he's fighting with a finance minister. That's all he's ever in the future. Also, I always wonder what they do.

Maybe he shouldn't have asked us, right? He's an office, a beautiful office, a library, and all. And so every now and then he has meetings and what do they discuss? Do you think we should reduce the interest rate by 25 basis point?

No, I don't think so. Okay, next week. What do you do to make sure that you're doing it? Yeah, I'd say it's not like every 30, 37 seconds later we have to increase.

Maybe we should figure out, maybe we should do an episode on the RBN model. They have to maintain that museum of this, which is pretty nice. Yeah, I just won't keep it. Yeah, let's move on.

So, they just did that. They repurate. They twitted a lot with their age and things like that. So, I just wanted to go into what they really do and why they do it and do so that.

So, basically, when, you know, in the good old days or bad old days, as you look at it, each bank, this was in England, because India, we didn't even have bank notes. We just had good things. When you say good old days, what is your definition of old? 16, 17.

Okay, that's the time you have one. Thanks. Yeah. So, each bank is to write their own currency notes.

Basically, a bear will be down. And you could, you know, instead of carrying 57 pounds of gold sovereigns on your head, you would take that little piece of paper and go back maybe a month later and get those 57 pounds of gold sovereigns back. And that was turning into a big, big, big breakfast as naturally, because some people would write that and it turned out to get your 57 pounds of gold sovereigns. They won't have it in their treasury right then.

Yeah. And a lot of disputes occurred in a lot of fighting. So, the crown, the king or the consular ministers, they decided to establish a bank of England, which would do all the currency issuing and keep a control on that. That was the starting of, you know, central banks.

It worked so well that every country after that has a bank which manages the currency in the country. Yeah. The currency can only be issued by the sovereign. In our case, it's our government.

Right. In the case of Saudi Arabia, for example, is the king. Yeah. And in different places in Russia, probably, we'll have to put in whatever.

They issue currency and that's how it works. Now, the thing is that the economy is hugely complex and it responds to the amount of money that's watching around in the economy too much. And things go wonky, too little. They go wonky again.

It has to be just the right amount. And it is up to the reserve bank to control that. And there are three ways in which they can control it. One is they have something known as a CRR cash reserve ratio.

Yeah. And a lie to that is a statutory liquidation. CRR is the amount of money that they have to keep in cash. In cash.

Which they don't get. They lend it to other people. And the difference in that is what they make. Yeah.

So a fraction of that is just kept at cash. It's not. Yeah. Which doesn't earn any.

That's around 3% or something. 3% is required. But that is required. Because if all of a sudden people come wanting the cash back, the bank should have it.

And a good portion of that, 50%, 80%, or 20% of the money. So that's kept in government security, which are as good as cash. But to give you a small interest. And the balance is what you can lend to people.

Now what happens is, very often people you lend it to, like Vijay Malaya for reasons of their own. I'm really activity with. Yeah. Decide that, you know, that the banks have too much of it.

Maybe you should hang on to it for a little bit longer. Don't give it back. And the banks get extremely worried. They need to make the shortfall because they need to have that much money in those ratios.

So they end up borrowing and they borrow from the RBI. It is called the lender of the last resort. And the RBI lends it to them at a rate which is called the repurate. Right.

So that sets the rate in the market. So if you're borrowing money from the RBI at 7%, you can't be lending it to the per-co-pulcution or 5%. You're going to go bankrupt. Right.

Unless you're back by VCs. You can go for each RBI vouchers. Yeah. Pay on the RBI.

Pay on the RBI. Pay on the RBI. On movie quick and get. Yeah.

So that is the repo. And ever so often, banks suddenly because Vijay Malaya has a change of heart and say, okay, he has 4,000 crores. Keep it. And they have access money.

And what do they do? So they give it back to the RBI. Right. And they say, give us some interest, dude.

And dude gives them a little lower than the interest he would be charging. Okay. So that is the reverse repo rate. And the third thing that they fiddle around with is these ratios, the CRR and the, so they reduce the CRR ratio, liquidity gets the energy.

Okay. Okay. So based on these three things, these are all the weapons that they have and they're able to regulate the money supply. Okay.

And it's incredibly complex and sophisticated how this thing works. So I'm reminded once again of an episode from Yes Prime Minister. Of course. My name is Mr.

Reference. There is a run on the pound and Jim Hacker is very upset. And he comes and tells Bernard, will he burn it? You know, I had a really difficult time in parliament today and there was a run on the pound and why didn't Sir Humphrey want me about it?

So Bernard says, I'm afraid Prime Minister Sir Humphrey doesn't understand much about economics. He did read the classics, you know. So says, but what about Sir Frank, the permanent treasury, permanent secretary of the treasury. So Bernard says, I'm afraid he's at an even greater disadvantage.

He's an economist. So he's. Yeah. If I think you've used this reference before.

Yeah. I think you've cheated a little. But that's okay. You have to give two references next time.

Yeah. So these things are very complex and no one is entirely sure of what way the economy will move. But Raghuram Rajan is more astute than most and what he's done this time around is he's brought something called neutrality for the time deposits thing. So basically what was happening was the RBI had increased the CRR to a level whereby most banks were forced to borrow some money from the RBI at all times in order to keep their ratios intact.

By reducing the CRR, he's removed their restrictions. And now if they've got their act together, they don't need to borrow any money from the RBI. And that brings down the cost of operations. So what that is going to do is it's going to make money cheaper for companies to borrow and for individuals to borrow as well.

So if you want to buy a housing, buy a house and get a housing loan, your loan is going to be cheaper now. You're more likely to go and buy a house or a car or a washing machine or whatever because the interest rate is lower. Yeah. But at the same time you're F.D.

and things like that. That also goes down. Yeah. That also goes down.

But so that it's a double edged sword. Yeah. So that's why he's going to sort of spike a sort of stir up, stimulate demand, and for companies because borrowing becomes easier, they can invest in their planning machinery to improve their production capacity. So companies basically they have some capital equipment and they have people.

And if you're more people than capital, you're not running your company optimally, right? It's about optimal. So you need more capital equipment to bring out the most from the people. But you can't do that because the interest costs are so high.

You're worried. You're, you know, your products won't sell. And here because money has become cheaper, it is likely that your products will sell because there's more demand in the market. Also because you are invested in good capital equipment, your cost of production is likely to be lower, your products will likely to be better.

And you're going to gain that way as well. So overall it is likely to be a good thing for the economy. India has been reeling from a high interest rate regime for a really long time. It's about time that we've got a decent, you know, reduction in interest rates.

So overall I think what these guys have done is good. It's timely door to be fair. The stock market gave it a big thumbs down. That's what we actually needed.

We already expected it. But what they expected was a higher cut in the report. And what Raghuram Rajan has done, he has cut the CRR as well. So I think he's brought about a structural change.

It was good. And by the time you hear this, I think things would have looked up a bit. I hope things would have looked up a bit. Please talk about how the stock market reacts to things like this.

It's almost like, oh, we are too cool to, you know, we shouldn't be seen appreciating this. We are too cool. It's like giving randomly five stars out. Remember when episode of Simpson swear, Homer Simpson, he became a food critic.

And he just went around giving everyone five stars. And these critic for like, what are you doing? You know, you're supposed to give them only two stars. Otherwise, they won't respect you.

And so suddenly then he randomly started finding faults and started giving everything to each star. So that he started, and then people started respecting him a lot more. I think sometimes these stock guys are like, oh, we don't like what's happened. So we are going to bring the market down.

I think we should stop on that note. It's been a heavy episode. It's been a really heavy episode. What with the shell companies and things like that.

Thanks for sticking around guys. And yeah, we'll see you in the next episode. See you soon. Bye bye.