Why NPA who is the root cause?

Non performing assets (NPA) who is at the root?

NPA affects:

A comment I wrote on 'ET on Bankruptcy issues blog' on 25th June 2017: (RBI can help is the question?

'Insolvency is really the cause of government policies only and mostly as no policy is steady and invariably dicey -

- Some like Laloo putting several projects on boards on the sites that never took up -
- That way most governments - full of politics - do in India as very politicians themselves are big fraudsters but they go 'scot free' -
- The sufferers are the industrialists who tryst  with banks are expected to be trustworthy but  'trust' with 'bankers trust' almost failed,

As most bankers are 'not really equipped in all kinds project appraisals as every industry is a different cup of tea; how the banking professional is equipped with that way ,one needs think; but we think 'as if',  like every IAS collector can handle every issue conceivable on earth;

and in the similar way, you tend to think 'the banker is competent to handle all kinds of industries;

'that way some 'smart' industrialists like Vijay Mallayya 'bribe the bankers and get as much loans, much more than they invested; and just 'flies away to some great distant places where it is very difficult to get extradition ; so the root cause of 'NPA', is the very govt itself and its politicians; but you don't or won't catch them as you face catch 22 position to catch the politicians; see several politicians turned into businessmen and simply 'swamp' on bank fund' ; and never pay loans back - by getting some CMs or PM's letter of support ;

But you catch the 'poor normal businessman', that man is 'be deviled', by so called 'meaningless' SARFAESI Act, 2002, sec/13 and that way some poor is caught in the 'web'; but poor normal business man looses ;

- I have seen such several 'such' cases being a management consultant ;
- I even saw once 'how SBI mercantile banker supported 'unrealistic share prices', in several IPOs. IPOs lost.

So  laws are made so most 'unrealistic.

What use of, by these 'incorrigible politicians as 'lawmakers' (but they behave as if   your 'great' helpers; What RBI can do? An 'unrealistic - 'what 'this' useless and Bankruptcy Act is  going to help is anybody's guess!

Plethora of Laws/Acts and laws can never do  help:( if one is serious of really  'running' banking system' - which is a fraud just because it also charges rates of interest for inconceivable reasons.)

- Indira Gandhi ''Nationalization of Banks'' is just a 'fraud'; just it too wanted government to have access to the 'depositors' funds' like the businessmen did earlier;

That way it 'just' is, to take away the control of banks from the 'wealthy industries'; but today 'neo rich' emerged in the form of 'politicians turned businessmen';

I wonder 'how politician' is allowed to run businesses by politicians in government in( a Public servant' by definition under General clauses Act,  whereas,  these very same politicians  in government , just  'road roll' the bankers as their public -'slave -servants' to them - I have seen how politicians beat these public servants if they talk law and rules, but some are 'killed' under the device of 'committed suicide paradigm'(while he is literally killed - one can see what is happening blatantly in Karnataka state today -

If 'that is so', is it not affecting like in the principle said  'being a prosecutor himself, one cannot be the judge in his own matter, when so, how he is a judge, under what doctrine ?' that indeed, affects the purity of impartial justice' ;

See now 'Bankruptcy Tribunals' may come; but will the  Government appoint its 'own' members; if so, where  is need of  'justice of  Judiciary' at all to appoint the judge members? Obviously, Government is some kind of 'Executo crazy' (worst black day India is facing as these 'executives are politicians themselves not service officers' one needs to know).

Very same politicians in the government , like they do, in ITAT today, under so called  'finance bill' 2016-2017 turned 'Act' 2017,

wherein the Finance ministry wants to decide ' who shall be the 'Judicial Member'; and the Ministry would determine 'when to remove the judicial member', like an  account member - 'Ministry obviously it wants to 'yoke' 'high court retired  judges'; but their future' at the  government hands on control - (i think retired judges reject to be the Tribunal's judicial members-)

[You can see how ITAT online .com is 'worried' in its articles.) [just because natural justice as some justice is  gone with the wind].

If Government is both 'Executive and Judiciary', will there be  'checks and balance in place' as conceived under Separation of powers doctrine?

It is like if you make  both the  'President' and 'Prime Minister'  'from same party', can you be  ' sure whether 'checks and balance ' is in place, as 'Montesquieu conceived in his Theory of Separation of powers whether the theory  is possible ?

You need 'your brain with reasonable thinking ability' (but is obvious missing in politicians 'dud brains', as they do take citizens as their own 'slaves', in India;

that is absolutely the indeed of the Time today to be 'checked promptly forthwith.

Else your democracy turn into some 'Arbitrary rule' on gullible innocent people by 'politico crazy'.

Similar such politco crazy 'situations' only would occur and arise, in all kinds of Tribunals appointed by government machinery.

Like in the   'Bankruptcy Courts' too ('Tribunals') like in Taxation 'Tribunals';

[Now Indian government are just in 'band wagon' of all kinds of Arbitrary  Plitico crazy -Executo crazy' governances,  can never be 'treated' as an 'exaggeration' by any right thinking man.]

Besides, there will be 'a situation questionable' - if 'fact finding' role  will be 'ending there' - if new situation arises , fact finding would 'move back to high courts' ( a relief would be gone for ever to the high courts as 'constitutional courts accountability is  in providing 'Natural justice' as is under Art 14', while similarly  'law questions' would 'revert back' to Apex courts - if the government does not mend its ways.

Unless 'Apex' court promptly 'sets aside' the finance Act 2016-17 or uses 'doctrine of severability' on the relevant sections of the very finance Act - so that the 'fang ' is just gets 'neutralized  by promptness' - speed is vitally  needed today -

Today government wants 'to take control on judiciary, by all kinds of means' or tries to 'neutralize the judiciary' as such;

We too have some 'black sheep', in our 'advocate community' who are basically 'politicians by nature', like Mr. Arun Jaitley himself or Mr Ravi Shanker Prasad or Ms. Shushma  Swaraj, 'president nominee' from BJP Mr. Kovind, are also 'some advocates', in the past; but they were 'not' obviously committed 'law officers' of the courts;

Being some 'advocate members' of 'bar councils' is 'just to' 'influence  Bar  Council elections', time to time otherwise their roles mostly precious big 'Nothing' -;

See Mulym Singh Yadav, Laloo Prasad Yadav  to name a few right from post independence their role just changed for their own 'best known reasons'; like from Dr. B.R. Ambedkar on, but he was  some exceptions to this drama,  

  • Depositors do not get rightful returns and many times may lose uninsured deposits.

  • Banks may begin charging higher interest rates on some products to compensate Non-performing loan losses

Bank shareholders are adversely affected

  • Bad loans imply redirecting of funds from good projects to bad ones. Hence, the economy suffers due to loss of good projects and failure of bad investments.

  • When bank do not get loan repayment or interest payments, liquidity problems may ensue.

Obvious this drama is to support the governments' drama as if it protects depositors - wher it protected, ask any depositor he will throw a light.

That way the National economy is affected is another drama played .

This is obviously 'policy deficit', economy changes  is like 'chameleon' changes its colors on and off;

why your so called 'policy' fails and  'affect' the industries that is 'obviously veritable question that need to be addressed', by the government of India ; why 'blame industries', they work on some thought of some  'stable policies' that is missing every where; the government ought to 'give guarantees' on behalf of the industries, as governments only change policies not industries; else one need not start any industries by taking immense loans, immense means that you  can't service.

What economists are 'concerned with are the 'phenomena deriving' not just from rationality, but from rationality coupled with a desire for wealth and larger bundles of goods and services.

Economists have 'flirted with', a less substantive characterization of individual motivation and with a more expansive view of the domain of economics.

In his influential monograph, -'An Essay on the Nature and Significance of Economic Science', Lionel Robbins defined economics as 'the science which studies human behavior as a relationship between ends and scarce means which have alternative uses' (1932, p. 15).

According to Robbins, economics is not concerned with production, exchange, distribution, or consumption as such.

It is instead concerned with an aspect of 'all human action' (behavior).

Although Robbins' definition helps one to understand efforts to apply economic concepts, models, and techniques to other subject matters such as 'the analysis of voting behavior and legislation,' - it seems evident that economics 'maintains its connection to a traditional domain.

Contemporary economics is extremely diverse. There are many schools and many branches. Even so-called 'orthodox' or 'mainstream' economics has many variants. Some mainstream economics is 'highly theoretical', though most of it is applied and 'relies on', only rather rudimentary theory.

Both theoretical and applied work can be distinguished as microeconomics or macroeconomics.

It is like GST [GOODS and Services Taxes India conceived] these

[Taxes are designed to depend on 'too many' micro economic enterprises, each works on its 'own calculation', based on macroeconomic perception it has; but macroeconomic management by the government which could be compared to some 'lame man unstable, unsteady walk like further disabled' ; and 'obvious disaster', as none could trust - ; could you trust your leaking Ocean liner', on mid ocean, that way your governments  do function, today; - 'could micro economic enterprises sustain?' .

Obvious, 'day by day', the value of your cash is 'crashing' due to   inflation, for any reason; and you are not sure what would be the Value  tomorrow, how could you trust the governments that handles  your 'macroeconomic environment' and your 'enterprises'.

Microeconomics 'focuses on relations among individuals'- (though firms and households often count as 'honorary' individuals (citizens), and little is said about the demand of particular individuals, for specific commodities, as opposed to 'aggregate demand' for those commodities).

Individuals have 'complete and transitive preferences', that 'govern' their choices.

It is like an 'employee ' if he cannot trust his employer for any reason would he work for him?

Consumers prefer 'more commodities', to fewer and have 'diminishing marginal rates of substitution'

i.e. they will pay less for units of a commodity when they already have lots of it than when they have little of it.

Firms attempt to maximize profits 'in the face of diminishing returns'-

- holding 'fixed' all the inputs into production except one, 'output' increases, when there is more of the remaining input, but at a diminishing rate.

Economists idealize and suppose that in 'competitive markets',; 'firms and individuals cannot influence prices'; but economists are also interested in strategic interactions, in which the 'rational choices of separate individuals are interdependent'.

Game theory, which is devoted to the study of strategic interactions, is of 'growing importance', both in 'theoretical and applied' microeconomics. The Economists model the 'outcome of the profit-maximizing activities' of firms and the 'attempts of consumers to best satisfy their preferences', as an equilibrium, in which there is no excess demand on any market.

What this means is that 'anyone who wants to buy anything' at the going market price is able to do so.

There is' 'no excess demand', and unless a good is free, there is no excess supply.

Macroeconomics grapples with the relations among economic aggregates, such as relations between the money supply and the rate of interest or the rate of growth, focusing especially on problems concerning the business cycle and the influence of monetary and fiscal policy on economic outcomes.

Macroeconomics is immediately relevant to economic policy and hence (and unsurprisingly) subject to much more heated (and politically-charged) controversy than microeconomics or econometrics.

Branches of mainstream economics are also devoted to specific questions concerning growth, finance, employment, agriculture, housing, natural resources, international trade, and so forth.

Applied work in institutional economics is sometimes very similar to applied orthodox economics.

More recent work in economics, which is also called institutionalist, attempts to explain features of institutions by emphasizing the costs of transactions, the inevitable incompleteness of contracts, and the problems 'principals' face in monitoring and directing their agents.

Most economists and methodologists believe that there is a reasonably clear 'distinction between facts and values', between what is and what ought to be, and they believe that most of economics should be regarded as a ' positive science that helps 'policy makers choose means', to accomplish their ends, though it does not bear on the choice of ends itself.

First economists have to 'interpret and articulate', the incomplete specifications of 7 (seven) goals and constraints provided by policy makers .

Second, economic 'science' is a human activity, and like all human activities, it is governed by values.

Those values need not be the same as the values that influence economic policy, but it is debatable;

whether the values that govern the activity of economists can be sharply distinguished from the values that govern policy maker?

Third, much of economics is 'built around'  a 'normative theory of rationality'.

[One can question,  whether the values implicit in such theories are sharply distinguishable from the values that govern policies. ]

it may be 'difficult to hold a maximizing view of individual rationality', while at the same time insisting that 'social policy should resist maximizing growth, wealth, or welfare in the name of freedom, rights, or equality'.

Fourth, people's views of what is right and wrong 'are, as a matter of fact', influenced by their beliefs about how people in fact behave.

There is evidence that studying theories that depict individuals as self-interested leads people to 'regard self-interested behavior'.  more favorably and to become more self-interested. People's judgments are clouded by their interests.

Since economic theories bear so  'centrally on people's interests', there are bound to be ideological biases at work in the discipline .

Virtually all 'economic theories' that discuss individual choices take individuals as acting for reasons, and thus in some way rational, questions about the role that views of rationality and reasons should play in economics are of general importance.

Economists are typically 'concerned with the aggregate results' of individual choices rather than with particular individuals; but their theories, in fact,  offer both 'causal explanations', for why individuals choose as they do and accounts of the reasons for their choices.

Reasons can be evaluated, and they are responsive to criticism.

Reasons, unlike causes, must be intelligible to those for whom they are reasons.

On grounds such as these, many philosophers have questioned  - whether explanations of 'human action', can be causal explanations?.

Merely giving a reason — even an extremely good reason — 'fails' to explain an agent's action, if the reason was not in fact 'effective.'

Donald Davidson (1963) argued ; that what distinguishes the reasons: that explain an action from the reasons; that fail to explain it are that the former are also causes of the action.

Although the account of rationality within economics differs in some ways from the folk psychology

['people tacitly invoke in everyday explanations of actions, many of the same questions carry over' - 'Rosenberg 1976, ch. 5; 1980, Hausman 2011)'].

The beliefs and preferences that explain actions may ' on mistakes and ignorance'.

As a first approximation,  - 'economists can abstract from such difficulties caused by the intentionality of belief and desire'.

They thus often assume that people have perfect information about all the relevant facts.

In that way 'theorists need not worry about what people's beliefs are'. (obvious error) (if so why we need theory at all ?).

But once one goes beyond this first approximation, difficulties arise which have no parallel in the natural sciences.

Choice depends on  - 'how things look 'from the inside', -'which may be very different from the actual state of affairs'.

The 'true' value of a stock 'depends on the future profits of the company', which are of course uncertain.

In 2006 'house prices in the U.S'. were 'extremely inflated'.

That way was 'sub prime occasioned that is yet to settle down. (say after a decade)

But whether they were 'too high' depended at least in the short run, on what people believe.

'No matter' -  'how overpriced homes might be', they were excellent investments; 'if tomorrow or next month somebody would be willing to pay even more for them' (None knows  your tomorrow - if none pays you have it!).

'Economists disagree about how 'significant', this subjectivity is'.

Members of the Austrian school argue -

'that 'these differences are of great importance' and sharply distinguish theorizing about economics', from theorizing about any of the natural sciences'.

Economics is thus a test case for those concerned with the extent of the similarities between the natural and social sciences.

Those who have wondered whether social sciences must differ fundamentally from the natural sciences seem to have been concerned mainly with three questions:

(i) Are there 'fundamental differences' - between the 'structure or concepts of theories and explanations', in the natural and social sciences?
(ii) Are there fundamental 'differences in goals'?
(iii) Owing to the 'importance of human choices'

(or perhaps free will), are 'social phenomena too 'irregular' to be captured within a framework of laws and theories'?

[Given human 'free will', perhaps 'human behaviour is intrinsically unpredictable and not subject to any laws.'

But there are, in fact, many regularities in human action, and given the enormous causal complexity characterizing some 'natural systems', the natural sciences 'must cope with many irregularities', too. Economics raises questions concerning the 'legitimacy' of severe 'abstraction and idealization'.

[Study economic phenomena as constituting a 'separate domain',

-' influenced only by a small number of causal factors',
- the claims of economics are true only ceteris paribus - that is, they are 'true only if there are no interferences or disturbing causes'.]

Many 'important generalizations in economics' are 'causal claims'

Econometricians have also been deeply concerned with the possibilities of determining 'causal relations' from statistical evidence and with the relevance of causal relations to the possibility of consistent estimation of parameter values.

[That way only Mandal commission on castes is questioned' even today.] Since concerns about the 'consequences of alternative policies', are so central to economics, 'causal inquiry is unavoidable'. Need not to be completely depended upon.]

Before the 1930s, economists were generally 'willing to use causal language explicitly and literally', despite 'some concerns', that there 'might be a conflict',  between causal analysis of economic changes and 'comparative statistics' treatments of equilibrium states. Some economists were also worried, that 'thinking in terms of causes' was not compatible with recognizing the multiplicity and mutuality of determination in economic equilibrium.

In the 'anti-metaphysical intellectual environment of the 1930s and 1940s' (of which logical positivism was at least symptomatic), any mention of causation became highly suspicious, and economists commonly pretended to avoid causal concepts.

Some Economists tried to confine themselves to discussing the mathematical function',  relating 'price and quantity demanded'. During the past generation, 'this state of affairs has changed dramatically'.

If the 'experimenters' sorts subjects randomly into experimental and control groups and varies just one factor, then unless by bad luck the two groups differ in some unknown way, changes in the 'outcomes' given the common features of the control and treatment groups should be due to the difference in the one factor.

This makes 'randomized controlled trials very attractive, 'though no panacea', - 'since the treatment and control groups may not be representative of the population', in which policy-makers 'hope to apply the causal conclusions', and the 'casual consequences' of the intervention might differ across different subgroups within the control and treatment groups (Worrall 2007).

For both practical and ethical reasons, it is often hard to experiment in economics.

As a substitute for experimentation, 'in recent years econometricians' have become very enthusiastic about so-called 'instrumental variable' techniques.

Correlation between 'economic growth and development aid',

- even 'controlling for other factors',  known to influence economic growth is unlikely to reveal the causal influence of aid on growth,
- because 'aid' may depend on growth and well as 'many factors- - that are 'hard to measure' that also influence growth.

The success of research projects in economics is controversial, understanding their global structure and strategy may clarify their drawbacks as well as their advantages.

Can a science rest on  'false' generalizations?
If these claims are not universal generalizations, then what is their logical form?
And 'how can claims that appear in this way to be 'false' or 'approximate' be tested and confirmed or disconfirmed?

These problems have 'bedeviled economists and economic methodologists', from the first 'methodological reflections' to the present day.

David Ricardo's Principles of Political Economy (1817), draws a 'portrait in which wages above the subsistence level'

-lead to increases in the population, which in turn require more 'intensive agriculture or cultivation of inferior land'.

The extension of cultivation leads to 'lower profits and higher rents'; and the 'whole tale of economic development leads to a gloomy stationary state',  in which profits are too low to command any net investment, wages return to subsistence levels, and only the landlords are affluent.

Mill's famous methods of induction provide an 'articulation of' the method a posteriori.

In his method of difference, for example, one 'holds fixed every causal factor except one and checks to see' - 'whether the effect ceases to obtain when that one factor is removed?.

Mill maintains that 'direct inductive methods cannot be used', to study phenomena in which many causal factors are in play.

'Prosperity of Nations' with 'high tariffs' and nations without h'igh tariffs', the results will be 'worthless' - ' because the prosperity of the countries studied depend on so many other causal factors.

Mill argues, 'one needs instead to employ the method a priori'.

Despite its name, this too is an inductive method.

The difference between the method a priori and the method a posteriori is that the 'method a priori' -  is an 'indirect inductive method.'

Scientists first determine the laws governing individual 'causal factors' in domains in which Mill's methods of induction are applicable.

Having then determined, the laws of the individual causes, they investigate their combined consequences deductively.

The testing of the conclusions serves only as a 'check on the scientist's deductions' - and as an indicator of 'whether there are significant disturbing causes' that scientists have not yet accounted for.

Its predictions will be imprecise, and sometimes far off. The statistical data are ambiguous 'concerning the relationship between minimum wages and unemployment of unskilled workers'; and since the 'minimum wage' has 'never been extremely high', there are no data about what unemployment would be in those circumstances.

Everyday experience teaches economists that 'firms can choose among more or less labor-intensive processes 'and that 'a high minimum wage will make more labor-intensive processes more expensive'. On the assumption that firms try to keep their costs down, economists have good, though not, conclusive reason, to believe that a high minimum wage will increase unemployment.

Mill's vision survived the so-called 'neoclassical revolution', in economics beginning in the 1870s; and is clearly discernable in the most important methodological treatises concerning neoclassical economics,;

such as John Neville Keynes' The Scope and Method of Political Economy (1891) or Lionel Robbins' An Essay on the Nature and Significance of Economic Science (1932). Hausman (1992)

'- argues 'that current methodological practice closely resembles Mill's methodology', despite the fact that few economists explicitly defend it'.

Friedman argues, economists have supposed that they could test 'theories', by the 'realism' of their 'assumptions' rather than, by the 'accuracy of their predictions'.

Friedman argues at length that this is 'a grave mistake'. Theories may be of 'great predictive value', even though their assumptions are extremely 'unrealistic.'The realism of a theory's assumptions is, he maintains, irrelevant to its predictive value. It does not matter whether the assumption that firms maximize profits is realistic.

Theories should be appraised exclusively in terms of the accuracy of their predictions.

What matters is  - 'whether the theory of the firm makes correct and significant predictions.?'

Friedman aims 'his criticism', to those who 'investigate empirically', whether firms in fact attempt to maximize profits,

- he must take 'assumptions' to 'include central economic generalizations', such as 'Firms attempt to maximize profits,' and by 'unrealistic,' he must mean, among other things, 'false.'

In arguing that it is 'a mistake to appraise theories',' in terms of the realism of assumptions',

- Friedman is arguing at least that it is a 'mistake to appraise theories by investigating'
- Whether their 'central generalizations' are true or false.

Economists are interested in only some of the implications of economic theories. Other predictions, such as those concerning the results of surveys of managers, are irrelevant to policy. What matters is whether economic theories are 'successful' , at predicting the phenomena that economists are interested in.

In other words, Friedman believes, that 'economic theories should be appraised in terms of their predictions concerning prices and quantities exchanged on markets'.

In his view, what matters is 'narrow predictive success' (Hausman 2008a), not overall predictive adequacy. They need not be troubled that some of their models suppose that 'all agents' know the prices of all present and future commodities in all markets. All that matters is whether the predictions concerning market phenomena turn out to be correct. And since anomalous market outcomes could be 'due to any number of uncontrolled causal factors',

While experiments are difficult to carry out, it turns out that 'economists need not worry', about ever encountering evidence that would 'disconfirm fundamental theory'.

But they are 'still enormously influential, and they still serve as a way of avoiding awkward questions concerning simplifications, idealizations, and abstraction in economics rather than responding to them'. From this reading one can understand how NPAs idea is just controversial like the very fiscal policies of the governments in place, as macro economics and micro economics never meet like two parallel lines never meet.

No government policy is worth the paper they print on. India does not seem to be a meaningful democracy as it is so questioned by every one I come across. .

Used several economic theories of several authors of theories including Nobel laureates.


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