The Momentum of Stupidity

For eight long years, GW Bush ruined America, taking down with him several good things he inherited from Bill Clinton's presidency. For several years longer than that, India was hijacked by archaic notions, too much government control, protectionism and corruption. Corruption still exists, but impacts us a little less these days because the government has given up some of its control. In hindsight, India was down the wrong path up until the time we nearly became bankrupt and then Manmohan Singh came along with reforms that slowly brought us to the light.

In George W Bush's case, he had the support of most of the morons in his country who were willing to panic under the threat of terrorism - to the point where they continued to support the very government that had allowed Sept 11th, attacked the wrong country, did not find the perpetrators of the greatest act of terror on its soil, lied to its people about threats, gave no bid contracts in billions and essentially stole all semblance of order! In India's case, we simply had no experience with democracy and even less with self governance. We were too busy being pious and holy that we never realized for a long time that we needed a strong economy! It took a near catastrophe to wake us up and take up reforms.

In both cases, stupidity gained momentum, simply because there weren't enough minds applied against it. What is it about humans that allows stupidity when it is so obvious? Just fear of bucking the momentum? How does stupidity gain momentum in the first place? Panic? Collective ignorance? A pathological attraction to the 'wrong' choice in case the right choice looks too good to be true?

The financial crisis that started in Wall Street and is threatening to hit a lot of people around the world is no illusion. It is the unmasking of a bag of illusions. Americans thought for a long time that they could continue building their wealth on speculation rather than productivity, by just juggling money. Stupidity again, but nobody questioned it for a long time. Now, they are being forced to re-evaluate a lot of things. India has reacted with fear in the stock market, panicked at the marketplace and is still scared for no great reason. We should have known when we made our future plans based on an exaggerated expectation of continuous growth in the foreign currency dependent outsourcing business that there could be trouble. We didn't. Stupidity gathers momentum much faster and stronger than intelligence.

The CEOs of Indian companies in the IT and BPO sectors aren't leaders but Chief Emulation Officers, who seem to blindly replicate the models of the companies they aspire to be like. Well if Citibank was one of those companies, we should be seeing a one shot 50,000 strong layoff in India soon. News just came in that our marquee "Indian" CEO of Citigroup is likely to be fired. Sounds like a good plan to me if he allowed Citigroup's market value to drop 50% in three days.

If there is one thing to learn from becoming "global" it is that there are enough and more people in senior management circles unwilling to be individually chastised for being different and visionary, while very happy to be found collectively guilty of massive stupidity later. Why shouldn't these overpaid fools lose their jobs for failing to warn their companies of impending doom? If they are "helpless" why the heck do the companies need them in the first place? A duck would be equally helpless, and would even lay eggs at a fraction of the salary. Is anybody questioning the logic of hiring dummies with MBAs? Not with the helpless watching game called stupidity that is pervading corporate India right now.

Every downturn is supposed to bring opportunities with it. With the reduced demand in oil and lowered consumption, environmentalists should be really happy that there won't be so much carbon di oxide in the atmosphere for a while, but in reality they will be unhappy that cash crunches will hold back investment in newer technologies! Add to this lower oil prices and there is no incentive at all for anyone to complain about burning more oil. The next time oil goes up, it will be at the most inopportune time and then we will look back at the stupidity of not running away from oil when we could afford to, which is now, when we have extra money that we didn't spend on expensive oil! But we're so scared now that we're most likely to make mistakes. Humans don't take pressure all that well.

Last night came the news that the big automakers in the USA didn't get the handouts they wanted. It is kind of stupid to start with, like losers asking for medals, but when the BIG 3 are not likely to share profits with the taxpaying public, why the heck should taxpayers' dollars be used to bail them out for not being competitive enough? If Toyota and Honda can do well in the same market with the same pool of labour and skill, there is no reason for GM to be complaining. Of course this has to do with not knowing how to make a single good car, but just because the impact would be huge if GM, Chrysler and Ford went bankrupt, that doesn't mean taxpayers should bail them out. That is just thievery, and the thieves have been fended off for now. There are big auto ancillary manufacturers in India that supply the big three and many are OEMs (Original Equipment Manufacturers). They're going to hurt, without a doubt. That's the thing about momentum - you cannot stop it unless you oppose it with an equal or greater force.

Indians are going to lose their jobs. No question about that. Quite simply because we are great at competing against each other here at home, but lousy when competing against the rest of the world. While it is unlikely that Eritrea will be making more steel than India in the next fifty years, it is highly likely that we find our economy has bloated because of IT dollars and a higher standard of living that we briefly subscribed to is suddenly going to be unsustainable. We don't have to look far - we don't sell software to end users, we write software for others who sell products and solutions. The "others" are mostly American and some European. These people aren't going to do anything new for a while, and we would have rolled in the momentum of their stupidity! They're owning up to their failed economic models, but we're yet to own up to our overdependence on the US dollar. More stupidity that is not being questioned right now, because of some dangerous remnants of optimism. After all, when we love the Americans so much, you bet we bought some of their delusionary talents too!

The Indian real estate industry is getting the wake up call right now, but is not responding to it. If you ask one developer why he isn't dropping prices, he will tell you nobody else is, so he is going to wait and watch! Momentum. Nobody escapes it, and very few want to escape it. Sheep falling off the cliff, and more to follow. About a billion. The only reason Indians won't get killed jumping off the cliff is because so many of us jumped before us that the valley has been filled! When we do see prices drop, we still won't see sales pick up because people will expect prices to drop some more! That will throw more panic into the industry, and builders won't be cashing in on cheaper cement and steel prices because their moneys are stuck in unsold properties. The biggest ones will see the opportunities and wait out the trough, but the bottom feeders will all look for other industries to play in. We haven't seen the worst panic yet, but the show is coming!

Somehow the Indian government, as if it is qualified to talk about this, is throwing out assurances, based on absolutely nothing, that India is not likely to see layoffs! This is beyond stupidity. It is delusion, which has had momentum a lot longer than stupidity.

The heady smell of failure

Most good stories come full circle. The adventurers who return to their village, the hero who comes back to his roots, richer for the ride and wiser for the experience, but essentially coming back to starting point after victory to share it with his tribe. The sense of belonging is one we can all identify with, and is used in no small measure by good story tellers. But for that, we must identify with the characters, the journey they chose to go on, and the ordeals on the way that made them better. In the very least, we must care.

Of late, Americans have shown up to be the drunks who went to the party, trashed the palace, and puked on the lawn and let it flow down the street called Wall Street. That's no hero's journey - it is a fool's parade and isn't funny when it takes 700 billion dollars to begin to fix, and most of the people who paid this in taxes weren't even invited to the party. But some people have such a hangover that they still don't realize the palace stinks to high heaven, and the neighbourhood is sick of the scene.

There was a segment today on NDTV called "A view from Wharton", which had a bunch of Indian clowns studying at Wharton Business School, offering their views on the financial crisis. The puppies all had rather optimistic views about them finding jobs and I wondered how and why any of us would give a rat's arse if any of them got jobs or not! When none of them was talking about getting jobs in India, how could this possibly be relevant to us here, apart from paying bored attention to some specimens from a well known tribe of Indians wanting to study and work abroad. Who cares if some Indian guy graduating from some school in the USA gets a job or not?

More than anything, I'd be worried if we're celebrating those who have chosen to learn from a failed system! I really don't want to hear from the losers on how it is done! I have always believed that you get expert opinions from people who are reasonably successful at what they do. If you want to talk about a formula one racing, you try and get Michael Schumacher, or if you have to settle for someone less, maybe Narain Karthikeyan has some insights. You most certainly do not ask the village idiot who crashed his bullock cart into the train you can hear two miles away.

But the amusement value, priceless! One of these puppies thought they had the best ringside view of this crisis, and it helped them learn first hand from their faculty how exactly these things came about and they were interested in seeing how this kind of crisis could be prevented from spilling over to the rest of the world, and affect countries like India that might be more vulnerable to this kind of situation! I can usually smell stupidity coming round the corner at full speed, and even the geniuses at Wharton did not disappoint!

What exactly are these idiots learning at Wharton? This financial crisis isn't a nuclear bomb that somehow spills over the border with the wind carrying deadly radiation to other countries. It simply isn't going to be felt in areas that are not vested and dependent on the American economy. It most certainly isn't going to affect countries that have long since insulated themselves from this kind of fly and crash cycle by keeping their economies slow and steady. We in India certainly know what slow is even if we may forget steady once in a while, so who exactly has been affected in our "vulnerable" country? We don't know yet, but we are not the country pissing off billions in a war with no end in sight, and we certainly aren't going ga-ga lending to people who can never pay back.

The professor at Wharton had a better view of Indian economic experts - he said they had a mindset quite different from those of their American counterparts and while they thought about building their companies, they also thought about building their countries. Quite a fascinating viewpoint, and timely. When America was trying its best to bully us to open our markets some more in the 90s, nobody quite thought about India as being correctly cautious. Our own "financial experts" were busy comparing us to the rapid growth of the Far East and wanted more and more deregulation right away. Are we in the same planet today?

So, why are we supposed to take Wharton seriously? Apparently, there is a Wharton business school alumnus who is in charge of Bush's $700 billion bailout package, which he must dispense with in the next two months. All right genius. What about the thousands of idiots schools like Wharton must have unleashed over the years to cause this mess in the first place?

What meltdown?

This financial "m e l t d o w n" that our media loves to directly copy from American media is to say the least, comical. Why can't the fools who get paid insane amounts of money to serve as financial experts see a bubble when it is blowing sky high? It isn't as if Wall Street didn't know this was coming. But nobody wanted to poke the balloon and question the unreality of banks that lent fifty times their asset base, and obviously American borrowers were stupid enough to buy homes they could not afford now, but based on how much their precious homes would be worth thirty years down the line!

Stupidity - and this is fast becoming my favourite word - is always expensive. The speculative optimism of American people doesn't border on stupidity, it is entrenched and enshrined in it. Just after Sept 11th, I had a conversation with an American man - I told him I wanted no part of the American Dream where each citizen owed an average of $36,000. He brushed off my concern and said his money was making him more than he was paying for. In other words, he was telling me that his investments were raking in good returns while he was paying a small interest on the money he owed. Of course that means some bank was being a sucker and he was in a good part of the food chain, where he could essentially grow fat without doing much.

Somehow, in a connected world, when you are unproductive, you tend to get your arse kicked sooner or later. Sure enough, American banks went crazy over easy money they were making based on home values bloating all over the place, and it is such a great economy that there were a great number of people buying homes, and then refinancing them to pocket a good chunk of money every so many years, and the few that weren't able to pay were becoming an acceptable percentage of repossessions. Now, in a bad economy, which Bush and Co. ensured Americans would face, people's confidence tends to sag as incomes aren't as rosy as they used to be, and jobs are harder to come by as more and more money went to Iraq and for buying oil!

So, a lot of loans went bad, and repossessions meant nothing when there were no "other customers" to push those homes to. The bubble had already burst but nobody was willing to use the word "recession" in case it threw people into a bigger panic. See, it is all about perception, and relying on perception instead of knowledge is .. you said it, "stupidity". The stock market is all about perception too. Stock value is buoyed up by the perception of a company doing well and how badly people want or do not want to be a part of that company. Fair enough if things are going well. But when one thing connects to another and big lending institutions like Fannie Mae and Freddie Mac have to face the reality of having bet on the bubble, all they get is soap water.

So, Bush, after pissing away billions in Iraq, and having done nothing to improve his country's competitiveness or productivity (America consumes 6% to 7% more than it produces), knowing fully well that the Chinese own the 3 trillion dollars of credit card debt that Americans have all accumulated, did nothing but put on a show for the fools watching the superfool on TV. The reason he could afford this luxury was because for nearly the entire second half of the last century, America was the engine for the world's economy, by the power of consumption alone. But to get to the bottom of it all, at some point, laziness comes at a price, and when America isn't quite as productive as it once was, it is bound to be forced to correct itself. Add high oil prices to this mess, and Americans are really being squeezed - because, guess what, surprise, surprise, they also consume the most oil per capita! (It is another matter that the USA with 4% of the world's population also consumes 25% of the world's energy)

So, as money kept drying up in American institutions, others stepped in to lend, because who doesn't want the animal that consumes so much? It's like a bar loves big drinkers, but doesn't like drunkards! As if debt is going to really mean anything if the borrower commits suicide! That suicide is what is being prevented by Bush and Co. with this famous 700 billion dollar "bailout", but the joke continues beyond the American tax payer!

This is what the "liquidity crunch" is really due to. Americans could show their houses as their "piggy banks" (to quote George Soros) and keep borrowing and spending out of notoriously good "refinancing" schemes! But when the housing bubble burst, everything went down the toilet rather fast! Houses were suddenly worth less, or worthless depending on how candid you want to be, and banks couldn't do much beyond gawk, since there were hundreds of such bad loans and nobody to palm the bad loans off to, based on these houses!

Since most banks are international institutions now, money flows across borders quite a bit in this free market economy we have all signed on for. It is all nice and dandy when our products and services are being consumed by others, and when we are raking in the money, but not quite so nice when we lend to unproductive fools. Luckily India doesn't usually lend to unproductive fools, and we are rather tight fisted about giving out large loans based on sentiments. That is the reason our economy here in India is fundamentally sound and nearly impossible to whip up to any frenzied activity - in growth or in decline. We are, thankfully, like financial donkeys.

The clowns on Dalal Street that are busy selling in panic induced frenzy clearly do not have an understanding of realities beyond their own sentiments. The idiots who spread rumours about ICICI going down, without even checking the facts on the ground, sent text messages to people that their insurance companies were going down are nothing but idiots who suddenly see themselves as "global" carriers of panic, who reel under imaginary winds of enormous change, who almost by whim or fashion, have to react to something like this, just in case they don't look out of place!

Quite staggeringly, there are a lot of people here in India, that seriously believe America will not pay that heavy a price for its follies. They feel that some "innovative" move will give them a genius break out of this and somehow the American financial flag will fly high again very soon. That is not a bad wish, and this is not to piss on the optimism or wish anything bad on American people, but from my understanding of "fundamentals" of any economy, you have to produce more than you consume in order to be competitive.

America needs to find a way to become competitive again. It is as simple as that, but for that to materialize, a lot of things have to fundamentally change, starting from curing the fever of betting a large amount of money on speculation of unending growth. That kind of growth is no longer happening in America. It is happening in India and China, but both these countries have such enormous cushions of populations that are coming into new habits of consumerism coupled with good, traditional, conservative fiscal sense, that there is hope we won't repeat the mistakes of the West here in the East.

I remember the time in the 90s when the developed "world" complained that India wasn't opening up its economy soon enough, while Indonesia, Malaysia, and the Far East were doing that. I remember our wise men didn't follow suit and sure enough all tigers turned out to be made of paper and India stood strong enough. It is no different now, but there is madness in the air of this New India. Baseless madness. Financial meltdown, my left foot toe, we have a bit of a character meltdown!