
India’s banking system is flirting with a Lehman moment - godelmachine
https://www.economist.com/business/2018/11/08/indias-banking-system-is-flirting-with-a-lehman-moment
======
vadym909
The Indian Government trusts no one and will make 99% of Indians jump through
all kinds of hoops like KYC, getting bank letters, stamp paper documents,
notarized documents to supposedly avoid such problems. And then they find out
all the bureaucracy they put in place was rendered useless because the 1% bad
actors know how to leverage that same bureaucracy to beat the system.

The American Govt trusts everyone and lets them go about their business and
self report while keeping the option to audit or selectively target the bad
actors. Its why foreigners love to start businesses in the US. Its so
refreshing.

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nafey
In the weeks following IL&FS disclosure, government fired and replaced the
managing body. But as IL&FS is a holding company with more than 60 different
subsidiaries it is very difficult for the new managing body to fix things.
Check out this podcast for more detailed information:
[http://www.seenunseen.in/episodes/2018/10/22/episode-91-ilam...](http://www.seenunseen.in/episodes/2018/10/22/episode-91-ilampfs-
and-the-indian-financial-system)

~~~
intended
Hey its Amit Verma's podcast. Fancy seeing that in the wild.

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throwawawy42348
It's really not clear what's going on in the Indian state.

IL&FS apparently has funded quite a large number of infrastructure projects,
which unlike Lehman have tangible value. NHAI, the state highways agency is
said to owe a great deal of payments to IL&FS (rumoured to be on the order of
$ 5 B).

~~~
quantummkv
> It's really not clear what's going on in the Indian state.

It's crystal clear actually. Decades worth of stupid decisions (or indecision,
as many claim) are finally bearing fruit. Unfortunately the current
government, the first in many years that is actually taking some decisions to
get the ship in working order is gonna get caught in the quicksand created by
its predecessors.

~~~
eric24234
The BJP(current government) has neither the brains and nor the motivation to
develop the country. All they want to do is get the country back to the vedic
period(which is nothing but denting the education to the majority of the
people).The leader of the party Modi was in the ads(jio) publicly. It was a
public announcement by the corporate to the other organizations that they own
the government. Also this same government banned the beef. This government is
more like trump focusing on religious hatred for votes and nothing more that
that([https://en.wikipedia.org/wiki/2002_Gujarat_riots](https://en.wikipedia.org/wiki/2002_Gujarat_riots)
was led by the current leader and prime minister of the party).

~~~
sbmthakur
Yup.

Construction of roads and toilets, GST, IBC, electrifying of all villages and
all other reforms initiated by the current government are part of a larger
scheme that's taking us back to the vedic period.

~~~
rick22
To understand real indian culture with the proofs and evidence this short
essay(Annilation of Caste) will gives the idea
[http://ccnmtl.columbia.edu/projects/mmt/ambedkar/web/reading...](http://ccnmtl.columbia.edu/projects/mmt/ambedkar/web/readings/aoc_print_2004.pdf).
Once you read this essay you will have pretty clear idea when speaking to
indians about their motivations. Also this author arundathi roy is fascinating
[https://www.youtube.com/watch?v=ddKzcrwC9os](https://www.youtube.com/watch?v=ddKzcrwC9os).
She has shared stage a lot of times with Noam Chomsky too.

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skbly7
Full Version:

[https://web.archive.org/web/20181110084624/https://www.econo...](https://web.archive.org/web/20181110084624/https://www.economist.com/business/2018/11/08/indias-
banking-system-is-flirting-with-a-lehman-moment)

~~~
llampx
Thanks, but this doesn't work for me either. It loads the article, but then
some additional scripts load that stop the article from displaying fully.

~~~
pritambaral
Loads fine with JavaScript disabled (via uMatrix).

~~~
OJFord
As does the unarchived version.

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sn41
One of the disastrous consequences of the current government rule is the
stifling effect it has had on press freedom. There is no honest discussion of
the issues. I have invested in the non-banking financial sector, as have many
other Indians, directly, or indirectly through mutual funds.

There is no honest and frank financial reporting on the current imbroglio even
in the financial press, aside from some vague reports on the fight between the
government and the central bank, RBI.

What is the exposure due to ILFS default? What are the projections? What are
the fallouts? How much recapitalisation is necessary? Is it only ILFS? No
discussion.

What was the demonetisation for? No discussion.

The fin min has been trumpeting "consolidation" of public sector banks. Isn't
this "too big to fail" coming up? Do we really need this? No discussion.

\-- Another fact that I sometimes worry about: after demonetisation, real
estate has stagnated, and mutual funds have seen a boom. Hence the exposure of
the economy to bad loans made by the banks has increased in the last 2 years.
So the catastrophe, when and if it happens, might be much more enormous than
might otherwise have been.

~~~
newyankee
In contrast i see the usual media personalities rallying against the govt. on
a daily basis, i do not see how can you claim there is an issue with the
media.

They claim emergency at a drop of a hat, the SC makes a lot of decisions
unilaterally frequently crossing its constitutional mandate without
accountability to anyone.

I would say that the media is doing a bad job of unearthing the actual facts
and not being able to portray anything impartially without a political angle
to it.

The fact remains that this govt has been cleaning the sins of the 2005-2013
years and initiatives like GST, demonetization even with their short term
pains are a much needed antidote in the long term cleaning up of the system.
There has been a significant jump in the tax collections from individual
taxpayers in this year and last and these are changes that will contribute in
the cleanup.

~~~
nafey
Which media houses are you talking about exactly? Even a cursory glance on the
news channels at prime time will reveal the govt bias quite easily. People
have been fired for criticising govt and even NDTV recently had, what some
believe, to be a politically motivated takeover.

~~~
newyankee
even a cursory glance at twitter and the usual high profile journalists:
Shekar Gupta, Rajdeep Sardesai, Barkha Dutt etc. Only Arnab Goswami amongst
the English media is more inclined towards this govt.

In the last 15 years, ever heard any media house criticize Sonia Gandhi ? Even
after the umpteen scams. That is what real power is.

Sure they make fun of Rahul Gandhi, but every few months articles and
reinvention of his persona is done.

This is in contrast with the hounding of Modi from his CM days and nowadays
where every tangential issue is attributed to him. Will Modi answer is like
the Thanks Obama version of India.

~~~
nafey
Check the reply on their twitter posts for a more balanced perspective. These
people hold almost no influence. Think of Prasoon Bajpai, Karan Thapar, Vinod
Dua etc. thats the trajectory Sardesai, Dutt et al are on, and not on their
path of becoming the next Arnab.

Of course they did name Sonia Gandhi. Do you remember the India Against
corruption movement which gave rise to AAP? The movement had posed questions
to MMS and Sonia Gandhi and media had championed the movement. There was no
equivocation about it from any mainstream channel, neither about the multiple
scams that preceded it. Media houses had done their duty in speaking truth to
power especially in UPA2 days.

What I am trying to say is your opinion about Modi's hounding in media seems
to be built on what gets printed in wire/print/caravan etc. Although these
sources might be heavily represented in your FB timefeed their
influence/readership is miniscule compared to a news channel and news papers
which have extremely lenient to Modi. Just think how hard media was on UPA2.
That same level of scrutiny is sorely missing.

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amriksohata
What I never understood is that many countries like America and EI states have
triple A credit ratings despite having trillions of debt that is never going
to be paid back. Whilst developing countries have much worse ratings on the
assumption they can't pay it back. Neither the rich or poor countries are
going to pay the debt back yet the system is rigged to allow the richer ones
to have AAA/AAB ratings so they can continue taking more money to invest. Am I
missing something or is this true?

~~~
icelancer
The United States has never missed a coupon payment and it doesn't look like
it will for the forseeable future (many, many decades). What would you call
that besides the best credit any organization could _possibly_ have?

~~~
roenxi
That is a very low bar though, any country still functional enough to run a
printing press can make coupon payments.

The issue is, if someone lends the US enough money to buy a coffee, it is
difficult to see why they believe they are guaranteed to get a coffee+ worth
of money back.

The numbers are staggering, the economic growth isn't there. The US has a
technological edge and a big army, but at the end of the day it is 'just' a
country like all the others. At this point, a reasonable observer could
conclude that the political process is locked in to running up debt until the
interest can no longer be paid. Neither the Republicans nor Democrats are in a
position to improve the numbers.

After the '07-'08 era crisis, it seems a legitimate question to ask why the
taxpayer should pay their debts if the financiers seem to get a pass when it
all gets too hard for them.

~~~
intended
At nation scale, lending money does not work like buying coffee.

ITs an entirely different mechanism. Think of the difference between breaking
styrofoam apart and pulling atoms apart.

~~~
hiram112
> At nation scale, lending money does not work like buying coffee.

This seems to be the econ 101 answer all modern day Chicago - school
influenced economists give out.

Student: if the US has a debt that's more than their current GDP, isn't that
bad? If a family had a credit card debt higher than their current salary, we'd
say that they were in bad financial shape.

Economist: The macroeconomics of a nation work much differently than a single
family's budget.

Student: Well, when the family has no plans to cut expenses, continues to
charge more and more each year on the credit card, and their solution involves
some vague plan of getting a huge raise sometime in the future, how does this
not end in disaster for the family, but turn out fine for a government doing
the same thing.

Economist: Running deficits and borrowing money in perpetuity is good for a
large country to do, just not for an individual. It is known.

Student: well eventually the family's interest payments will be more than they
actually make, leaving nothing left for actual expenses. At that point, their
card is canceled and they have to sell all their stuff, move out of their
home, and crash with the parents. And nobody lends to them again for a long
time, and only at high rates. How does a nation avoid this outcome when the
math is the same?

Economist: Trust us <waves Jedi hand>.

I get the feeling we're going to someday look at today's accepted
macroeconomic theories, and wonder just WTF we we're thinking.

~~~
diffeomorphism
> Student: How does a nation avoid this outcome when the math is the same?

Economist: As I have told you multiple times by now, it isn't. That is what we
taught you in first year. You can't simply arbitrarily scale up models from
lemonade stand to international trade. Things are not all linear,
simplifications in one model are simply not valid in another model.

Arguments like these always strike me as similar to "if evolution, then why
are there still monkeys". Maybe you are right, everything is really simple and
everybody else has been too stupid to see it. Or maybe people are right when
they tell you that you don't quite understand what you are talking about.

~~~
leetcrew
there are many facts about computers that seem trivial to me, but would take
weeks of background to even begin to explain to my intelligent friends in
other fields, so i can accept that there might be some complex topics in other
disciplines where you just have to take the experts at their word. that being
said, are there any economists here who can ELI5 the actual difference between
private and public debt?

~~~
roenxi
I've been experimenting with explaining this - here is the current draft.

An ordinary borrower has a number of ways they can get in to trouble - like
losing their job and so being unable to repay a loan. The government avoids
all that because government writes the law and it controls the creation of
currency so it can always choose to technically not have a problem.

These changes make it almost meaningless to assess a government's debt in
norminal terms (eg, 'the debt is $x trillion!' isn't actually a concern,
because the government as a body can simply create $x trillion if it wants.
Wish I could do that :P).

So we have to look at the governments debt in real terms, at which point we
need a completely different model than a small time player, who is mostly
concerned with by nominal issues. Then you run in to the issue that in real
terms, nobody agrees on anything - which is why the economy is run with a
nominal currency system. But there are people, like me, who think in real
terms the US of today is a completely different beast from the US of the
1970s. There are massive demographic and political differences.

~~~
leetcrew
thanks for the stab at an explanation.

it sounds like you're saying that the debt load vs GDP _is_ important, but the
relationship in nominal terms doesn't say much. is that an accurate reading?

~~~
roenxi
Yes. But even then it is a bit difficult to speak with certainty because
governments choose the tax rate and as long as the army stays intact can
recover from nearly anything.

In this context, I believe debt load to GDP for the US after WWII, and that
didn't cause a problem. The concern is that the US has a debt load consistent
with a world war and conditions that are really quite favorable. So the
obvious questions are "at what point does this get paid back?" and "in like-
for-like real terms, assuming politicians are cynical and greedy, is there any
reason to believe this debt will be honored?".

~~~
someguydave
You make it sound like the answer to the student’s question is something like:
“Government debt is different because it’s in a currency that the government
can arbitrarily create. The government can force its subjects to use this
currency through the power of taxation and in the worst case, military
occupation and martial law”

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swedish_mafia
I read a time ago corrupt officials take a cut of every project. Don’t know if
still a fact.

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suff
The country that banned banks from buying crypto is about to go bust. Cause or
effect?

~~~
sn41
Probably unrelated. This crisis is due to aggressive lending to unreliable
parties, leading to mass default. The Lehman analogy is apt and to the point.

~~~
suff
I wonder if they fear higher liquidity in cryptos leading to lower liquidity
in bonds.

~~~
UncleEntity
My (off the cuff) theory is they want the money to stay in the banks and the
reason is the same as for them getting rid of large denomination bills to make
the friction of holding cash higher. Can't really recapitalize the banks if
everyone has their money on some blockchain or in their mattresses.

