What would you say if the chairman of an airlines became civil aviation minister? Or an arms dealer was appointed defence minister? Or the head of a private bank, other than the central bank, became finance minister? The media would make the appointment stink to high heaven, even if the appointee was completely clean and competent.
But Mr Nandan Nilikeni’s inclusion in the cabinet to head the government’s biggest IT project is welcomed with 1 & 1/2 pages of paeans in The Times of India.
Why?
According to this cover story in this week’s India Today (The lotus eaters, Prabhu Chawla, June 18, 2009), “With over 55 million active members spread across the country, the RSS has provided the BJP with an ideological framework and a dedicated workforce to fight and win elections.”
Now, the RSS is overwhelmingly Hindu male.
About 72% of our population is Hindu, and 52% (51.73%) male. So a back-of-the-envelope calculation says 13% of Hindu males – nearly 1 in 8 – are active RSS members. Drop the babies in arms and grandpas and you have an even higher fraction. Really?
Download any MR research file. Start reading. You can’t. It’s horribly written. Academic papers are supposed to be written in a certain way, to keep the plebeians away.
But you persist. The first four pages go in quoting other papers. I quote you, you quote me. Can’t be avoided.
Then there’s the hypothesis. And the method. Great. Takes care of statistics.
Then comes the tell-tale phrase: ‘70 students of a north-western university’.
After this you can stop reading. Because there are only two possibilities now. First, the sample is horribly unrepresentative of the balance 6.7 billion of us, which makes the research horribly suspect.
Or, the conclusions can actually be extrapolated to everyone, in which case, it probably states the obvious (Research shows that when an item is on discount only morons pay full price.) So, the research was redundant.
A variation to this theme is asking people what they will do. This is worse – in so far as nonsense can be worsened. Because we humans rarely do, or can do, what we say.
No marketing professional who makes his living in the real world will bother about such research. Yet they are conducted and doctorates are awarded too. Why?
Self-employed professionals pay more interest on personal loans, have a tough time getting credit card, and are eligible for far less home loans than employed people of equal income.
Why?
Because they are less creditworthy. How?
How is a doctor, architect or lawyer who can earn, say, Rs 2,00,000 a month on his own steam less creditworthy than an engineer or executive drawing the same salary. Isn’t the former more creditworthy, because he doesn’t have a job to lose?
How about fluctuating income? Well, shouldn't the lender be more concerned about how disposable income instead? I mean, if the employee has wildly varying expenses, wouldn’t that effect his ability to repay?
So, why is the self-employed professional sub-prime? The only explanation that comes to my mind is that lenders forget to adjust for income. Among poor, the self-employed are worse off than the employed. (Hence, they are denied credit by the institutions and have to turn to autarkic moneylenders.) This disparity diminishes with rising income, but banks refuse to take note.
Why?
I needed money to pay for my MBA. “Borrow the money from me,” offered my father. “Let’s pay from our savings,” said the wife. Both wanted to save on interest. Fair enough. But I argued, “Let’s take a student loan, so that our savings stay liquid. We’ll repay once I get a job after my course. That way our cash flows stay better.”
They agreed. I applied.
First problem: I’m over-age. Umm… what has age got to do with this loan? I mean, at 39, what are the chances of my popping off tomorrow from age-related diseases? And how does it effect my chances of getting a job, provided I’m realistic about the salary a 40-year-old fresher can expect, and considering I am employed right now?
Second problem: My father, the guarantor, is over-age. But the security offered is his property, which has nothing to do with his age.
Third problem: The property is inacceptable as security because it is in Salt Lake, where all land is leased and none sold. So my parent’s home is built on land leased from the government for 999 years. If my parents want to get rid of it, they must give it back to the government and take whatever the government deems fit.
But doesn’t that disqualify all landowners in Salt Lake from getting home loans?
Anyway, there is a solution to all these problems: Ask for a loan of Rs 7,00,000 instead of Rs 20,00,000 and open a fixed deposit of Rs 3,50,000 (as a mark CBM [Confidence Building Measure]?).
Very well, my father opens the fixed deposit. But shit happens. So they don’t take a decision on the loan by the time I must pay my fees. I borrow the money from my father.
Then yesterday, 15 days after the last date for paying fees, I get a letter from the bank, denying the loan.
Big question: Why did the bank drag its manager all the way to my father’s office and assure him that the loan will come through once the FD is opened? Why did they make so many phone calls? The FD amount was trivial on the scale that big banks deal with. Why were they so eager?
Real estate prices had shot up in the last few years, by as much as 100% a year in some places. Developers were getting any price they quoted. Ask anyone and he’d say it was a simple matter of demand and supply. But when we saw a single room going for Rs 500,000, I instinctively knew it couldn’t be so simple.
There had to be something fundamentally wrong.
Prices have come down since the global crash, but developers’ ads insist that they will not go down any more.
I’m not so sure. Anyways, I’d like to ask two questions.
Why must one own a home? ‘Land to the tiller’ is a wonderful political slogan; it’s economic merits are debatable – ask any Bengali farmer who got land during the Barga ‘reforms’.
(It can be easily argued that a lot of other things have gone wrong for them since, but surely quite a few of them can be traced to the miniscule size of their holdings.)
Perhaps the blessings of ‘my own home’ are mixed too. Huge amounts are involved and at least two powerful industries, the banks and the builders. Such forces can mould minds of millions.
Let’s go a little deeper. Tell anyone you find prices too high and you get a stock reply: ‘If you’re going to live in it, don’t think about the price.”
By that logic you shouldn’t think of the price of the food that you will eat. But you do. And if you think it’s too high, you do buy cheaper alternatives.
And renting can be a cheaper alternative than paying EMIs. Because rents can go down, while the EMIs won’t – at least not the principle involved. So, you need to think through the time cost of money before spending it, even if it’s for your home.
I suppose the unsaid part of the justification (of not looking the price of your home) is the hope that the property will certainly appreciate substantially by the time you sell it, several decades later.
This brings me to my second question.
What’s the guarantee that property prices won’t come down? In The Wall Street Waltz, Ken Fisher shows how home prices came down in the US during the Depression. In Irrational Exuberance, Robert J Shiller records several instances of crashes in real estate markets, including the Indian market.
But let’s say those crashes never happened. Fact remains real estate prices have crept up till quite recently.
(Real estate gave the appearance of being a great investment because there was, usually, an enormous time gap between buying and selling, in which compounding interest showed its power. Moreover, the investor would be daddy and beneficiary sonny. One sowed, the other reaped, for free.)
In the last few years, it has galloped. That may have changed the very nature of this investment.
(Think of a parallel. ‘What goes up, comes down.’ True, but that was as long we didn’t know about escape velocity. Since we blasted off, all that goes up hasn’t come down.)
For starters, it may fall. Second, even if it doesn’t, it may solidify.
That is, it can suffer an enormous and crippling loss in liquidity, because too few people would be able to buy homes, or would want to. Convertibles and yachts may not deprecate, but you can’t sell them as easily as you can sell, say, old newspapers.
In other words, homes may become a luxury, with a economics very different from what it had half a decade ago.
The home market is a case of sour grapes with me. Yet, these questions will need answers.
On the face of it, Indian banks may not have made subprime loans. But in a recession, one cannot be so sure.
Also, those who bought solely to sell and pocket the difference may behave very differently from those who wanted to move in: It doesn’t take too many sellers for bears to rampage. Let’s not forget that the majority of subprime debtors are still repaying their loans.
Third, do we know what will happen if there is a sudden drop in the number of applicants for home loans? Will banks rethink the security afforded by the properties mortgaged by existing debtors? Will home loan laws change? What fraction of homes are bought with loans anyways? What will home owners, who need not be landlords (i.e., they may be living in the property themselves) do if they see rents going down?
Why did Hitler become chancellor? Because the German magnates wanted a strong man instead of the rule of law. They used slave labour, rode the war economy, and generally dirtied their hands for Hitler’s sake and their own, and the rest of it.
Why do have goons and corrupt politicians? Because we prefer them to a real police and real laws.
A real police will close down unauthorised shops, including the ones on sidewalks that we are so fond of, will tug away our cars when we park in the middle of the road, will stop our servants – in fact, the entire blue-collar work force - from slumming on government land, and stealing electricity and water… even fine us for spitting!
Real law will make us pay taxes.
It’ll mean we should have the approvals and clearances we need to have.
It’ll mean competition, with its fairness and uncertainty, instead of bribes and nepotism.
Arbitrary, one-man ‘authorities’, who we can buy, work for us. That’s why we have them. We’re all little magnates with our little Hitlers.
No wonder our 1,000-year reich is crashing.
