It is September 20, 2021. Netaji nervously eats his fourth samosa while watching the Evergrande crisis unfold on television. It begins as Clever Guptaji enters the room.
Netaji: Oho Guptaji, have you seen this news? This Chinese company Evergrande is now apparently bankrupt! My God, will my steel and cement stocks go down? Oh, look at the ticker on the BSE – all red. It is really miserable.
Smart guptaji (toasting): I think we need to worry more about falling GDP, Netaji.
Netaji (looking at the teleprinter in despair): Huh? Eh ? GDP? I don’t see it here! It’s GKP, GD, GE, GR, where’s the GDP? Am I also exposed to this GDP?
CG (exasperated): Sir, I’m talking about Gross Domestic Product – India’s GDP, sir. Let us hope that the crisis is contained and does not spill over into a real sectoral issue.
Netaji (relieved): Arre Guptaji, you are always high placed and powerful on all these country questions. Am I not a part of the country? First of all, you help me to maintain my income, that is to say your contribution to the GDP. These Chinese are going to kill all my hard earned money. Don’t look at me like that – organizing thousands of hooligans to leave, all too exposed, in long, long morchas and rallies is hard work. Yes sir!
CG (rolling his eyes): Now calm down, Netaji. Nothing is going to happen in the stock markets. Analysts say Evergrande is not TBTF.
Netaji (interested): You’re the cool one, Guptaji! You really know all these slang stories! What is this TBTF?
CG (exasperated beyond belief now): Sir, aren’t you reading anything? Ok, don’t answer that – I know the answer. I mean (gratifyingly, as Netaji turns angry eyes on him), I know you don’t have much time to read, given your, uh, busy schedule with morchas and gatherings. Well, TBTF stands for Too Big To Fail. When an entity grows too large, its collapse can trigger the collapse of several other organizations with it. In such a situation, governments try to prevent the collapse of the TBTF entity, thereby preventing a larger crisis from occurring. In the current environment, Evergrande has taken out a lot of loans – $ 300 billion, Netaji! – banks, not only in China but also elsewhere in the world. Today, the company is on the verge of failure. If this company goes bankrupt, it will also mean a lot of pressure for many banks. Thus, the stability of the entire global financial system could be undermined.
Netaji (with understanding dawning in his eyes): Oh, that’s why all the markets are down. And financial stocks are in the red. And what is this new contagious disease, Guptaji? All these analysts keep talking about it: will pharmaceutical stocks rise?
CG (totally frustrated): Sir, they talk about “contagion”! If Evergrande defaults, it won’t pay back banks in the United States, Europe and Australia, triggering episodes of panic elsewhere as well. I think the Chinese government will have to create some kind of support soon. Evergrande is a construction company. She had bought equipment from her suppliers on credit. Now, if Evergrande goes bankrupt, it will default on its loans and suppliers will default on their loans as well. It’s a double whammy for the banks – in fact, make it a triple whammy! Employees will also default on their loans!
Netaji (confused): Employees will not receive their payments from the company, Guptaji. So they are protesting in the streets – just see the videos coming from China! But are you saying they will default on their loans? Why?
CG: Sir, when Evergrande was on the verge of failure two years ago, they released a new financial product for their employees. It was called ‘Chaushoubau’. They took loans from their employees by promising them 25 percent per year.
Netaji (stars in the eyes): Wow, that’s teen saal mein pisses double yojana!
CG: Exactly. Many employees actually took loans at lower rates from their banks and put their money into the business. Last year, when the company had to return the funds, it requested a one-year extension. And now it looks like it will be a multi-year extension.
Netaji (dreamily): Guptaji, this chaushoubau looks very interesting. I think we are also going to release a pol-fin product for our constituents. We will offer a 50% refund and the full refund in three years!
CG (scared): But sir, where are you going to invest this money? How are you going to return it?
Netaji (smiling): Arré Guptaji, didn’t you just tell me that chaushoubau should not be returned? Chill, Guptaji, we are also TBTF. And, after all, YOLO!
The author is a brave economist who tries to laugh through thick and thin.