Sunday, 23 November 2008

Policy reassurance

The events in the last week have been extraordinary. Our honourable finance minister called for reducing prices by industrialists. The honourable Prime Minister of India and the Chairman of the UPA addresses the Hindustan Times Leadership summit and used this opportunity to instill confidence in the nation about the economy. The Prime Minister particularly said "Government is aware of the enormous task ahead and will take necessary steps to mitigate the effect of the global financial crisis", If that does not instill confidence in the public mind then what can? Here we have an acknowledged world leader, a leader of people and thoughts and a noted economist saying that his government is seized of the matter and is ready to do whatever it takes to tide over this situation in the country. We should all be proud and glad that we have the necessary resource to battle this situation in the form of mind and motivation to counter this crisis.
Now we move over to the G-20 declaration: All the leaders of G-20 countries pledged to counter this crisis and do whatever it takes to tackle the situation. One thing that comes as a cropper in this deliberation is the mandate to formulate accounting policies to value illiquid securities. How do you value a security as X amount when nobody is ready to pay that X amount to purchase the security. the fundamental basis of value or price is the agreement of two parties to exchange that asset at a price or value. So what is the value or price of the security that is ILLIQUID?

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