Monday, April 13, 2009

When governments do a Ponzi

  • When a private person does Ponzi , he is called Madoff. When a government runs a Ponzi scheme like US-64, what should it be called ?
  • When corporate fudge books of accounts they are called Enrons and Satyams. When governments (India and US) suspends MTM rules and relax provisioning for ‘restructured debts’ allowing corporates to inflate profit, what should they be called?
  • When corporates miss estimates, the top honcho goes. What happens when governments fail to acknowledge a recession/ slowdown till it is all over us. Or the government gives an estimate of 9% GDP rise while the actual turns out to be less than 5 %.
  • When corporates are slow to act to changing economic scenario, the company goes into a huge loss and again the top honcho goes. When governments are slow to react it is called TALF/ TARP / PPIP/ Fiscal Stimulus

Its when governments indulge in such Ponzi schemes and fudging, that a illusion of well being is created when actually things are bad. US government was not willing to accept a recession, till the time things went from bad to worse and beyond, losing precious time. Indian government kept clinging to the 10% GDP growth estimates when things were falling apart all over the world and US had already accepted a recession.

It’s when such illusions are created that banks like Wells Fargo will post a profit , banks like Citibank and JP Morgan will make public statements that they will make profits in Q1-09, and many Indian corporates will post good results. This, at a time, they are sitting on MTM losses, but don’t need to disclose those as the government has ‘suspended’ (allowed to fudge?) the books of accounts.

It’s when such illusions are created that Indian Banks will post far higher profits, because the government has ‘allowed’ the banks not to book a loss on such ‘restructured loans’, on which they would have had to otherwise book a loss.

And its when such illusions are created that the stock markets rise in a false sense of optimism.

And when the reality hits, it hits really hard.