New York Times: How India Avoided the Crisis
No country nor system is perfect; certainly not India's. But
this is an interesting view on how regulation actually works - and that human greed left to itself (to be it's own watchdog no less), will lead to bad outcomes. Contrary to dogma that has washed over the American psyche the past few decades - ironically those countries with the greatest lack of regulation are those being pole axed the hardest. Just coincidence I am sure. Both extremes (little regulation or massive regulation) generally lead to bad outcomes; certainly there must be happy mediums.
Each time regulation is brought up we hear about lack of innovation - as if they cannot co-exist. It's black or white. You can have regulation. Or innovation. But they cannot co-exist. It's political dogma advanced by those who would actually have to give up a cushy system for the greater good. As Mr. Obama says - it's time we get some adult supervsion; you can hear the scoffing at what we've done from thousands of miles away.
- “What has taken a number of us by surprise is the lack of adequate supervision and regulation,” Rana Kapoor was saying the other day. “This was despite the fact that Enron had happened and you passed Sarbanes-Oxley. We don’t understand it. Maybe it’s because we sit in a more controlled economy but ....” He smiled sweetly as his voice trailed off, as if to take the sting off his comments. But they stung nonetheless. Mr. Kapoor is an Indian banker, a former longtime Bank of America executive with a Rutgers M.B.A. who, along with his business partner and brother-in-law, Ashok Kapur, was granted government permission four years ago to start a private bank, which they called Yes Bank.
- My hope in traveling to Mumbai was to learn about the current state of Indian business in the wake of both the credit crisis and the attacks. But in my first few days in this grand, sprawling, chaotic city, what I mainly heard, especially talking to bankers, was about America, not India.
- How could we have brought so much trouble on ourselves, and the rest of the world, by acting in such an obviously foolhardy manner? Didn’t we understand that you can’t lend money to people who lack the means to pay it back? The questions were asked with a sense of bewilderment — and an occasional hint of scorn. Like most Americans, I didn’t have any good answers. It was a bubble, I would respond with a sheepish shrug, as if that were an adequate explanation. It isn’t, of course.
- “In India, we never had anything close to the subprime loan,” said Chandra Kochhar, the chief financial officer of India’s largest private bank, Icici. (that's because you lack innovation - only the best snake oil salesmen in the world could pull this off. USA! USA! USA!) “All lending to individuals is based on their income. That is a big difference between your banking system and ours.” She continued: “Indian banks are not levered like American banks. Capital ratios are 12 and 13 percent, instead of 7 or 8 percent. All those exotic structures like C.D.O. and securitizations are a very tiny part of our banking system. So a lot of the temptations didn’t exist.”
- And when I went to see Deepak Parekh, the chief executive of HDFC, which was founded in 1977 as the country’s first specialized mortgage bank, practically the first words out of his mouth were these: “We don’t do interest-only or subprime loans. When the bubble was going on, we did not change any of our policies. We did not change any of our systems. We did not change our thought process. We never gave more money to a borrower because the value of the house had gone up. Citibank has a few home equity loans, but most banks in India don’t make those kinds of loans. Our nonperforming loans are less than 1 percent.” (Mr Parekh, in case you have not heard ... Greed, for the lack of a better word... is Good)
That all sounds nice and dandy but India was not much unlike the U.S. a few years ago...
- Yet two years ago, the Indian real estate market — commercial and residential alike — was every bit as frothy as the American market. High-rises were being slapped up on spec. Housing developments were sprouting up everywhere.
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