Thread by @andymukherjee70

I have a few things to say about this — Need to eliminate distrust within private sector, ‘extraordinary’ steps needed: NITI Aayog on slowdown | Business News, The Indian Express. indianexpress.com/article/busine…

My first warning of an impending crisis of confidence in Indian finance was one year ago: google.com.hk/amp/s/www.bloo…

As the crisis deepened, I outlined a 5-part solution. google.com.hk/amp/s/www.bloo…

The official response was to view the crisis as a liquidity issue when the problem was of dubious collateral value (land/buildings); dwindling faith in counterparty solvency; and depressed cashflows of ultimate borrowers — shorthand it as 3C (collateral, counterparty, cashflows)

Take collateral first. We never paid any systemic attention to the problem of sold-but-not-completed homes even though in the aggregate it’s a much bigger mess than IL&FS. It’s really not a problem to dump on the judiciary.

Now to counterparties. Crises emanate from, but don’t get triggered by, dodgy stuff on a financier’s asset side. They spread when on the liabilities side, someone wakes up and says, “Without me, he’s dead; with him, I’m dead. Better him than me.” That’s the past 1 year for you.

Finally, borrower cashflows. It’s here that folks at Niti need to do serious introspection. Their bizarre GDP data, borne out of a mandate to justify the unjustifiable demonetisation, led to wrong monetary policy choices. What should’ve been cyclical problems became structural.

As to what a gigantic failure the “liquidity approach” has been, here’s some evidence. Read the piece on @dugalira’s thread:

In Merchant of Venice, Shakespeare solved all of my 3Cs: Portia sequestered the collateral; the aggrieved counterparty, Shylock, changed his religion (NBFC became bank, Indiabulls?). As for Antonio’s cashflows, the ships are truly sunk like Niti GDP. But hey, he’s on to tomorrow!