Thursday, November 20, 2008

"Don't disgrace potato buyers"

Nitin Desai in Business Standard talks about the market for credit.

“The market for credit is not like the market for potatoes. When I buy potatoes, I choose a vendor, select the spuds, pay the cash and that is the end of it. I do not need to know much about the vendor; nor does he need to know much about me. Once I have paid for and collected the potatoes, the relationship between us is at an end.”

I would say the metaphor is just not up. When my wife buys potatoes, she checks each spud out, rolls it in her hand and looks for any sign of decay or staleness. No she didn’t call that “due diligence”. I guess this must be the practice of every potato buyer since we don’t want to risk our health and that of the family.

But MBA’s do it differently. If there is a market for risk, then it’s not risk for them. Name of the game is slice and dice. So are the credit rating agencies. They just sniff around for a (seemingly) credible issuer (just a name) and that’s it. That’s why capital adequacy and other supervisory arrangements have failed to prevent an elaborate tower of debt, built on shaky foundations that came crashing down when the first high flyer crashed into it.

"Nitin, for God's sake, don’t bunch ordinary potato buyers with those gilt edged MBAs. They are far more caring.

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