On the other hand, it meant they still had the incentive — as American banks did not — to see those loans paid back. (very old fashioned and NON innovative - keeping loans on your own balance sheet. Expecting loans to be paid back. WHERE is the innovation in that?)

Seeing inflation on the horizon, Mr. Reddy pushed interest rates up to more than 20 percent, which of course dampened the housing frenzy. He increased risk weightings on commercial buildings and shopping mall construction, doubling the amount of capital banks were required to hold in reserve in case things went awry. He made banks put aside extra capital for every loan they made. In effect, Mr. Reddy was creating liquidity even before there was a global liquidity crisis. (Can we get this Mr Reddy over in the US as Treasury Sect? Ah no - instead we'll have the head of the NY Federal Reserve - the regulator of regulators that was overseer of the banks that destroyed the global financial system as our Treasury head. Sounds like a plan - the markets loved it because he is one of "us"! A wink wink here, a nod nod there - business as usual soon enough)

Did India’s bankers stand up to applaud Mr. Reddy as he was making these moves? Of course not. They were naturally furious, just as American bankers would have been if Mr. Greenspan had been more active. Their regulator was holding them back, constraining their growth! (I find it far better to have unchecked growth, and then crashes, and then unchecked growth and crashes - it's been working wonders for the US the past decade. Who wants happy mediums? That's for backwards 3rd world countries. USA! USA! USA!)

“For a while we were wondering if we were missing out on something,” said Ms. Kochhar of Icici. Banks in the United States seemed to have come up with some magical new formula for making money: make loans that required no down payment and little in the way of verification — and post instant, short-term, profits. (and why would they do that? ah, executive compensation in a "heads you win, tails you also win" system - just turbo charge short term profits and if you leave a hulking mess of a company in your wake - you still get your fat paydays, and the US taxpayers can take care of the mess) As Luis Miranda, who runs a private equity firm devoted to developing India’s infrastructure, put it: “We kept wondering if they had figured out something that we were too dense to figure out. It looked like they were smart and we were stupid.”

“At times like this, you tend to appreciate what he did more than we did at the time,” said Mr. Kapoor. “He saved us,” added Mr. Parekh.

As the credit crisis has spread these past months, no Indian bank has come close to failing the way so many United States and European financial institutions have. None have required the kind of emergency injections of capital that Western banks have needed. None have had the huge write-downs that were par for the course in the West.

When I asked Mr. Kapoor for his take on what had happened in the United States, he replied: “We recognize it as a problem of plenty. It was perpetuated by greedy bankers, whether investment bankers or commercial bankers. The greed to make money is the impression it has made here. Anytime they wanted a loan, people just dipped into their home A.T.M. It was like money was on call.”

A compare and contrast of systems if you will - plus we've been investors in ICICI Bank (IBN) and HDFC (HDB) - both stocks have been perking up quite nicely of late. Lost in the constant hubbub about China, is the forgotten stepchild India - with less reliance on exports (just over 20% of the economy) it might have a chance to fare better in 2009; should be an interesting year.

After reading all that let me remind (I had a fraction of readers back then) what I wrote in October 2007 as my ironic quote of the month, year, and perhaps decade - as the a most striking indictment of the pathetic con job of 'financial innovation'

Emerging markets are being favored in part because "financial innovations are less common in developing countries," said Heidemarie Wieczorek-Zeul, German economics minister, in remarks to the IMF/World Bank Development Committee.

And this folks is one reason our financial system is still on life support - we still continue to have off balance sheet accounting (hiding stuff) and lack of transparency - hence a lack of trust. Our Federal Reserve will not even disclose what it has on its books to news agencies - and its our REGULATOR. Oh, I'm sorry - that's innovative.