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Executive Interviews: Interview with Bala V Balachandran on Government and Business
December 2009
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By Dr. Nagendra V Chowdary
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Having served on the boards of
several MNCs and also Federal
Reserve, what did the recent US
financial crisis mean to you and what
are your reflections on the way the
world changed since then?
The US financial crisis was expected
as early as 2006 because of
instruments like subprime lending
and under regulated environment,
irrational exuberence as Alan
Greenspan stated and many other
things. It was clear to me that in
many companies both in the US and
in India, the top line was a VANITY,
the middle line was a CALAMITY
and therefore the bottom line has no
SANITY. It is clear that the only
REALITY is cash flow. The
mathematicians use complicated
models to create financial
instruments and “Sophisticated”
derivatives which are not easily
comprehensible and more
importantly do not stand the test of
time in a fiercely competitive, highly
dependant and dynamic commercial
environment and to add to that these
innovative instruments have beaten
all fundamentals of finance and
economics, created illusory revenues
and booked profits so that the top
brass have been making hefty
bonuses without understanding
what is going on and overruled those
who doubted these in the ranks since
money and profits were in
abundance. The basic premise of this
subprime mess was the future
income capable of being earned based
on the potential of the individual
couple with excessive greed. Right
from the final consumer to the banker
to the insurance company that has
guaranteed the loan, everyone has
been motivated by the easy money
that the model was capable of
yielding. Real estate prices soared
from $250,000 to 650,000 in 6 years.
As expected, the bubble burst in
2007-08 and the prices normalized
themselves. This is when my friend
the then Governor of RBI Dr. YV
Reddy asked me “Bala: are we lagging
behind the US in 2007. How can I
regulate the new economy and related
instruments?” I asked him, “Venu, do
you understand the instrument?” I
have to add here that he is a very
smart person like his predecessor
Shri Rangarajan. He said no. The
answer therefore was quite clear: “If
you don’t understand what it is, how
will you regulate?” In a way, I am
quite glad that we are 10 years behind
the US – just watch out for some
fireworks in one to two years. Things
will be crystal clear why we NEED to
be behind such scams and
Shannanigans by at least 10 years!
Having said All these; the real
question is “Did the assets in the US
go away or were they overvalued
assets? In my view they fall in the
latter category – fundamentally asses
but with the addition of a ‘t’,
overvalued and celebrated as assets!
The regulatory framework has now
kicked in, albeit a bit delayed, but is
playing its part in ensuring that the
perpetrators of fraud and scam are
behind bars and a very critical
examination of the entire mess is
underway which would probably
lead to corrective action, and a slew of
legislative procedures will soon be
under way leading to prevention of
such large scale frauds in the future.
I always say, “If your shadow is much
bigger then your body, then the sun is
setting”. Now if your ego is larger
than your logo, then Sun is setting for
you and to your company. In the long
run, I go, u go, why e go. Thus, in
our Baghwad Gita lies the answer.
“Karmanya Wadhi Kaarasthey Maa
Paaleshu Kadhaachana” do your duty
and don’t expect a return. Your duty
itself is the reward. When you create
wealth for others you will get wealth.
The goal is to ensure that others
become rich with giving and not with
wealth or greed. Yes, incentives are
OK, but incentives turned to greed is
not OK. Yes, profitability is OK, but
profiteering is not OK.
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How is your book on Satyam saga
shaping up?
My book with some Great Lakes
Students and the Ministry of
Corporate Affairs is moving slowly,
because the Business Standard book
that was recently published on the
subject has some of our punch lines
and thus we need to revise our book
to reflect other findings and is
expected to be finished by May 2010.
US Financial Crisis: Causes and
Consequences -
What were the prime reasons for
US Financial crisis that has engulfed
global economy forcing everyone to
liken this crisis as worse than Great
Depression?
I am not going into the actual details
of the crises. Some of the main
reasons were:
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