Insider trading:Raj Rajaratnam episode

Rajat.K.Gupta,a former Goldman Sachs director who the government says that he conspired with Raj Rajaratnam,one of the most dexterous hedge fund manager on wall street,had been privy of valuable information.This valuable information was not meant to be discussed with anyone outside the company.
But who cares? Interestingly,they were not aware of the fact that the government secretly recorded their telephone conversation,generally done in those cases related to drug trafficking/ Organised crime.
So,what exactly dose insider trading mean? Well,it is not properly defined in clear language in the law book.The S.E.C depends on the opaque Section 10(b)-5 and Rule 10(b) of the Securities Exchange Act of 1934,the most confusing provision that make buying or selling any security through manipulative way is illēgālis.S.E.C. should draw some clear explanation about what we mean by insider trading and what we don't.
Last year,S.E.C. charged two railroad workers of Insider trading!The accused,a mechanical engineer and a trainman,become very rich by buying few thousand of dollars of call options on the rail company's shares.
So,time has come that the lawmakers rectify the existing law on Insider trading with a new transparent Act to stop Insider trading which is rampant in wall street.

Debt crisis in Portugal

Portugal has reached closer to a humilating bailout from the E.C.B. and the I.M.F. as the Prime Minister Jose Socrates failed to complete the fourth round of financial measure.Like Greece and Spain,Portugal also became a victim of the Austerity measure.The country tapped very aggressively their domestic banking for massive debt,certainly a bad policy by the Central Banker's.Not only that,the country borrowed at a skyrocketing high rates from questionable lender to avoid any fiscal condition.The major chunk of Portugal's debt stock is held by prudent foreign lenders who are in position to exploit the situation.
So,how much do Portugal needs to borrow to refinance her country? Well,it could be in between 21 billion euro to 22 billion euro,I guess.But at any cost,the government must avoid the Austerity measure as the outgoing Prime Minister thought about raising the tax on the Pensioner.
In the coming days,Greece and Spain will go hat in hand to the I.M.F. as both of the countries financial health is in dire state.Britain and Italy may follow,but its too early to say.

Reverse stock split

Citigroup has announced that the bank will pay a dividend and subsequently go for reverse stock split.Reverse stock split will give an investor one new share to substitute 10 and raise the trading price of its share to double digit from $4.43 without increasing the stocks real value.At the same time,the Federal Reserve has been ordered by the U.S. Supreme Court to publish details about its emergency lending to financial Institution during the 2008 credit crisis.The so called 'discount window' will embarrass some of the largest banks,including Citibank.Bloomberg News requested the data in 2008.
So,will reverse stock split can make a difference to the Bank's balance sheet?No,it will have 'zero impact' to the Bank's financial health.No doubt,these measures are dēspērātus move to turnaround the shaky bank,but it will not work.Vikram S.Pandit,Citigroup's chief executive has had a few success to turnaround the Bank.But I agree,he is trying his best to save the bank from difficulties.In my view,he should go for a stock buy back ,which J.P.Morgan and Wells Fargo will do in the coming days.It will levier the earnings per share.But its very difficult to do at this moment,as the bank's financial health is too povre.

Inflation Hawk

Monetary policy makers in Washington are worried about rising consumer price index when the real threat is deflation or worst,stagflation.Despite Fed's Quantitative easing,the economy still looks gloomy.I agree that Quantitative easing can lift the economy from near recession,but the stimulas was so little that its not making any big impact on the economy. So,will Quantitative easing can help the economy in the long run? Yes,certainly.According to Prof.Christina Romer,QE2 may push down the long term interest rate which encourages spending.The real cost of borrowing will be much lower,making domestic assets less attractive,bypassing the dollars and lowering the currency's value in the foreign exchange market.As a result,there will be less imports and more exports,and most importantly,massive job creation.Yes,due to volatility in commodity prices,Inflation will pop up for a short period and that can be controlled through an effective monetary policy.

C.L.O.

Wall street is doing the same thing they did in 2007 by depending upon debt.There has been gold rush for companies to borrow as high yield debt interest rates are at knee down.And who are the beneficiary of this covenant-lite bank debt? none other than the Private Equity,which depends on high yield debt so they can borrow as much as they can. So far,$17 billion worth of covenant-lite debt has been issued ! Covenant-lite deals provide Private Equity firms to rescue a company from bank takeover, I agree.But they do more harm than good. This kind of debt has cheer those companies to restructure their debt very aggressively.Yes,the Banks can convert this debt into Collateralized loan obligation or C.D.O.But looking at the C.L.O market,which is in nocens state, I doubt that Bank could not convert those debt into C.D.O. So,what should be done to prevent another financial crisis? The regulator must force those Banks to hold more capital and be little cautious in terms of lending.The regulator must cap a leverage,so the Banks can't lend easily.