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India’s banking system is flirting with a Lehman moment
- nafey 8y agoIn 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-ilampfs-and-the-indian-financial-system http://www.seenunseen.in/episodes/2018/10/22/episode-91-ilam...
- intended 8y agoHey its Amit Verma's podcast. Fancy seeing that in the wild.
- skbly7 8y agoFull Version: https://web.archive.org/web/20181110084624/https://www.economist.com/business/2018/11/08/indias-banking-system-is-flirting-with-a-lehman-moment https://web.archive.org/web/20181110084624/https://www.econo...
- llampx 8y agoThanks, 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 8y agoLoads fine with JavaScript disabled (via uMatrix).
- codewithcheese 8y agoThanks for the tip
- OJFord 8y agoAs does the unarchived version.
- amriksohata 8y agoWhat 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?
- amriksohata 8y agoEU states
- kchoudhu 8y agoWhen was the last time the US or the UK defaulted on their debt? The credit rating system is necessarily bayesian, and EM markets all have their most recent defaults within the models' event horizons.
- tonyedgecombe 8y agoThe UK defaulted in the thirties although I think there were unusual circumstances and it was a debt to the US government.
- kchoudhu 8y agoYeah, interallied debt to the US was linked to German reparations which stopped in 1932 (I think?). The US wasn't fussed about it...so I'm not sure it was a default. The other one I can think of was the downgrade of the coupon on WW1 war bonds from 5% to 3.5%. Again, seemingly everyone agreed with this, so there is some debate over whether it was an actual default.
- arcticbull 8y agoUSA: 1979, 1933, 1861 and 1790. [1] https://www.theglobalist.com/a-brief-history-of-u-s-defaults/ https://www.theglobalist.com/a-brief-history-of-u-s-defaults...
- suff 8y agoThe country that banned banks from buying crypto is about to go bust. Cause or effect?
- sn41 8y agoProbably 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 8y agoI wonder if they fear higher liquidity in cryptos leading to lower liquidity in bonds.
- sn41 8y agoI have not seen a cogent explanation for the ban, other than their volatility. I suspect the ban is because of the fact that governments are wary of cash outflow from the country. This is a problem with developing countries, especially. I think probably crypto currencies are being equated with "hawala"[1]. [1] https://en.wikipedia.org/wiki/Hawala https://en.wikipedia.org/wiki/Hawala
- UncleEntity 8y agoMy (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.
- sn41 8y agoOne 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.
- throwawawy42348 8y agoI don't think that's due to 'freedom of press'; I think it's probably more due to 'lack of intellect'. Don't worry this affects every other part of the world.
- periya 8y agoYou’d to create a throwaway to make that comment? ️
- billfruit 8y agoPerfectly valid comment, I do not see reason why it is being downvoted. Despite being a democracy, many things the government does in India lack transparency, and the press despite being nominally 'free' are very much complicit in maintaining the status quo.
- KrishnaAnaril 8y agoI don't know how this is related to press freedom. It's more related to the quality of the press these days. They are more interested in click-baits and twisted quotes.
- throwawawy42348 8y agoIt'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).
- throwawawy42348 8y agoI'm not sure who the planned intervention is for, but it looks very much like it's for the corporate sectors. The MSME sector, which is touted to employ 92% of India's labour has widely been reported as having taken a very bad hit after the double attack of GST and demonetization. RBI on the other hand is said to favor vulture funds (resembling IMF's 'solution' during the Asian crisis). Then again, the Indian state has let high profile defaulter escape with impunity in the past few years. There are indications that this was done consciously, through PMO/CBI intervention. All in all, I have very little trust in any institution of the Indian state.
- throwawawy42348 8y agoIndeed, I suspect demonetization was in part a scheme to replenish the reserves of the state banks.
- throwawawy42348 8y ago... of course low credit rate means money has a tendency to go into unproductive sectors (ala Japan's Bubble heydays). (I'm glad to see Economist reflect my understanding.)
- nhauz 8y agoWhy don't you write all of this in just one post?
- vijaybritto 8y agoI think it was bring back cash and also to win Uttar Pradesh state elections. A 100+ plus people died because of that and not many people cared. Sigh
- swedish_mafia 8y agoI read a time ago corrupt officials take a cut of every project. Don’t know if still a fact.
- vadym909 8y agoThe 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.