Tuesday, October 28, 2008
How the mighty have fallen!!!
“If it can’t get any worse it can only get better”
“If you fall, fall on your back that you may see the sky and rise again”
In the midst of the financial crisis that is sweeping the world these two statements may be a band aid to many bruised, battered and wounded souls. Crashing markets, sub prime crises, pink slips, pay cuts, layoffs, downsizing… the list of taboo words are growing.
In the middle of this carnage, I remember seeing an article where people have started reading Marx again and another in which better the west is slowly accepting that the Indian banking system was not a bad thing after all. What goes around comes around…
Sub prime crisis to the unknowns is simply giving a loan to somebody who is not credit worthy. When I joined work in lending, the two basic principles of lending were clearly laid out to me by my first boss: Before you lend check 1) The ability to repay and 2) The intention to repay, common sense tells you that ONLY if 1 AND 2 are right the client generally will repay. So why did no one tell this basic rule to these giant organizations who have crippled so many economies with foolish lending? What is even worse is that the company that taught me the basics of the lending business has forgotten its roots and is facing its first ever loss in 30 years of existence. The erstwhile prudent and conservative organization tied up with a financial whiz kid from the South East and went the same way as so many others who have fallen by the wayside. The culprit here was not secured loans like housing but an unsecured clean loan that went by the name of STPL (Small Ticket personal loan) to many undeserving candidates. I call them undeserving simply because they did not have the ability to repay and it did not take any rocket science to detect that.
Often the solutions for many big problems lie inside and I’m sure many of these mighty organizations will realize it when see look within and realize that strong fundamentals will stand the test of time.
And as I sing off it seems that prudent, conservative and many other unfashionable attributes are not bad things after all.