Recession Made Easy (Lahori Style)

By Anonymous

Pajja is the proprietor of a Siri-Paya and Nehari Shop in Lahore. Sales are low and, in order to increase them, he comes up with a plan to allow his customers to eat now and pay later. He keeps track of the meals consumed on a ledger.  

Word gets around and as a result increasing numbers of customers flock to Pajja’s shop. Pajja’s suppliers are delighted and are very willing to sell more and more raw materials for the meals he prepares. Pajja shows them his ledger of receivables and they extend him credit. 

A young and dynamic customer service consultant at the local bank recognizes these customer debts as valuable future assets and gives Pajja a credit line and then increases Pajja’s borrowing limit.

Taking advantage of his customers’ freedom from immediate payment constraints, Pajja jacks up the prices of his Nehari and Siri-Paye. Customers dont mind as they are not required to pay on the spot. Sales volume increases massively; Banks and suppliers lend more; Pajja opens more outlets. He sees no reason for undue concern since he has the debts of the customers as collateral.

At the bank’s corporate headquarters, expert bankers recognize Pajja’s customer loans as assets and transform these customer assets into BONDS. These negotiable instruments are given exotic names such as SIRIBOND, PAYABOND, MAGHAZBOND AND BONGBOND. These securities are then listed on the Stock Exchange and traded on markets worldwide. No one really understands what the names mean and how the securities are guaranteed but, nevertheless, as their prices continuously climb, the securities become top-selling items.

One day, although the prices are still climbing, a credit risk manager of the bank decides that the time has come to demand payment of one of the debts incurred by Pajja. Pajja in turn asks his clients to pay up. One by one they refuse; the clients cannot pay back the debts. Pajja refuses to serve them any more. The clients stop coming.

Pajja is really screwed now. He cannot fulfill his loan obligations and therefore claims bankruptcy.All Bonds drop in price by between 80 to 95%.

The suppliers of Pajja, having granted generous payment due dates and having invested in the securities are faced with similar problems. The meat supplier defaults on payment to the sheep and cattle supplier and claims bankruptcy. The atta supplier is taken over by a competitor; Pajja lays off the cook and staff. Bankruptcies soar, unemployment mushrooms.

The bank that lent the money in the first place is set to collapse. It is saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties with Pajja commuting back and forth in his Executive jet and Mercedes 500SEL, brokering the deal.

The funds required to save the economic collapse are obtained by a tax levied on the citizens, most of whom do not eat Nehari or Siri-paye.



Filed under Economy, Pakistan

12 responses to “Recession Made Easy (Lahori Style)

  1. Majumdar

    I think this is a fair depiction of the mess we are in and why?


  2. aliarqam

    Good depiction…..

  3. Wow! Brillianly written! The person who came up with this should not have remained anonymous.

  4. Amber

    Good one. A fresh change from the usual stuff.

  5. Ex-Banker

    Why is there nothing about the Food Safety inspector who was caught sleeping at wheel when did dude was selling/securitizing $h1t?

    Unfortunately, the history of this crisis will be written by ignorant fools who will find a convenient scapegoat in the bankers, without even mentioning the regulators, or the biggest culprits of them all – Pajja’s gluttonous customers.

    Enjoy the recession – I know I am, now that I have my nice severance (££) and now that everything is so much cheaper. Should last me a few years.

  6. Dal Chawal

    Lol! This was awesome!

  7. Naeem Abbas Sahibzada

    Absolutely great Sir S-K, you have hit the nail on the head. Bravo !!!!!

  8. alok

    beautifully explained with a minor difference.

    In case of subprime loans there is no recourse of the bank except the property(legally) whose value is of course far less than the loan,
    here siri-paya, nihari eaters could be forced to sell their belongings to pay for the mess. (legally)

    morale: consumption after all may not be a bad thing, regulations should be in place to avoid fraud or consumption beyond means. We asians anyway have to go a long way to match the consumption standards of the west.

  9. stuka

    “Unfortunately, the history of this crisis will be written by ignorant fools who will find a convenient scapegoat in the bankers, without even mentioning the regulators, or the biggest culprits of them all – Pajja’s gluttonous customers.”

    Wah, typical banker response. Abay the customer will eat if extended credit without collateral. The story is wrong in the sense that it was not Pajja who himself allowed credit. It was the banks that told the customers to take loans from them and pay for the houses.

  10. Ex-banker

    Not, without collateral, its just that the collateral was really shit. And its not like the banks held a gun to their heads and asked them to borrow.

    That’s the problem with the customer – the fools think money is free and that they don’t have to pay up in the future. Treat these jokers in the same category as credit card monkeys who think that they dont ever have to pay their bills.

    And to further your argument, banks will extend credit ‘without collateral’ if the regulators don’t bother doing anything to stop them.

  11. If you replace Pajja’s receivables with sub-prime mortgages, I think this description captures the essence of the current crisis. Of course, it leaves out the part about how sophisticated mathematical functions such as mathematician David Li’s Gaussian Copula Function were used to persuade investors to buy Pajja’s debt as CDOs. To learn more about it, please read:

  12. This excellent fable proves the reality: dreams must always include the ingredient of those who benefit actually taking timely responsibility for their actions, otherwise it turns into a nightmare. From the hungry mouths, who say, who me? and may plead honestly that they cannot pay – to the the businesses, which, with malice aforethought take promises of impossible intent, knowing these cannot be honoured – to those who make myths, barely disguised and look surprised when the bare cupboard they sold is still bare later, but is now worth far less than a dream would allow.