Monday, December 22, 2008

The Most Important Article You Maybe Didn’t Read this Weekend

Being wrapped up in year-end matters, not to mention a review of holiday songs that will appear in these virtual pages whenever we get around to it, we here at NotMakingThisUp can do no better than point potential readers to what may well be the most important article you might not have read this weekend.

The article is by ace NY Times columnist Joe Nocera, and the headline explains it all:

How India Avoided a Crisis.

The URL is as follows:

Here’s how Nocera frames the central question of his piece:

… 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. And there was plenty of money flowing into India, mainly from private equity and hedge funds, to fuel the commercial real estate bubble in particular. Goldman Sachs, Carlyle, Blackstone, Citibank — they were all here, throwing money at developers.

So why did the Indian banks stay on the sidelines and avoid most of the pain that has been suffered by the big American banks?

For the answer, read the column.

Jeff Matthews
I Am Not Making This Up

© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.


Anonymous said...

Jeff - I appreciate your consistent thought process.

Ben said...

I just got back from Brazil, which acted similarly. Crazy how the world has changed - Brazil's central bank is acting like Switzerland and the developed world is printing money like the Argentina of yore.

Anonymous said...

If the Fed had tried this, Congress would have jumped all over them. Especially because the 'beneficiaries' of subprime loans were the poor and minorities, all the advocacy groups, minority 'leaders' (Sharpton, Jesse Jackson) would have tried to have Congress stop any controls. Not to mention all the mortgage brokers, real estate agents, appraisers, contractors, construction workers,... who would have lost income or their jobs. Greenspan learned from his 'irrational exuberance' comment that he wasn't supposed to rock the boat.

Anonymous said...

Jeff -
thanks for bringing interesting stories to us. Nocera's column hits the right tone that Indians are conservative regarding their spending habits mainly due to lack of any social security system and trust in the government. However, column is superficial and the chest thumping by Indian regulators/bankers is quite premature. I believe in the next year, deep problems in the banking sector will be exposed by rising consumer and business default rates. Here is what the column does not tell you 1) India does not have a debt tracking system (aka social security number), people take multiple loans with the same income/collateral. 2)The incomes/job growth in the last 4-5 years went up dramatically due to global influences, and it will come down as fiercely exposing banks who lent liberally based on a couple of years of income.
3) Indian banks lend aggressively to Indian corporates expanding abroad and they will get hurt. I know personally of a multi billion transaction that was financed by Indian banks that a developed country bank would not touch with a 10 foot pole (even in the bubble years). Couple of these defaults are enough to cause substantial damage to banking sector in India.
Banking sector expanded rapidly in the last 5 years especially to the Indian elite consumer levered to the global economic growth. Indian banking system has not been tested yet on its ability to handle consumer defaults. It will be tested in the next year and I can wager that it will fail.

120wallace said...

The Sensex is down over 50% this year, I wouldn't say they exactly missed it.

Anonymous said...

Very nice article, being an indian I can truly relate to the conservative and saving nature of virtually every indian. Debt / Loans are considered evil and this has really helped keep the economy less leveraged. As far as 120wallace's comments are concerned, all I can say is that some people simply do not understand the difference between economy and financial markets.

Anonymous said...

Well, you have to be here to see the carnage the real estate has caused or has been put through as a sector.

Hold off for a little while before you pass judgement on this sector and the banks. The evidence will be in in a few quarters.

Key things to look for in future will be the NPAs of banks...and the churn in the real estate sector itself.