Business Case Studies, Executive Interviews, Bala V Balachandran on Government and Business

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Executive Interviews: Interview with Bala V Balachandran on Government and Business
December 2009 - By Dr. Nagendra V Chowdary

Bala V Balachandran
Founder anf Honorary Dean of Great Lakes Inistitute of Management

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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.

  • 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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