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Current Economic Crisis – A “Lahori” Explanation

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On this lazy Saturday, how about a little more on the state of the world economy, mixed with a tinge of humor? The following is a humorous  little story (credit: unknown author via email) that has a lot of truths in it. It is mixed with a little cultural humor and Urdu words used, so feel free to seek clarification if anything is unclear:

nihari-economy

THE CURRENT ECONOMIC CRISIS EXPLAINED

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Pajja is the proprietor of a Siri-Paya and Nehari Shop (a beef stew dish) 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 don’t 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.

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 in deep trouble 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 (flour) 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.

That’s the reason……………………

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Abu Reem is one of the founders of MuslimMatters, Inc. His identity is shaped by his religion (Islam), place of birth (Pakistan), and nationality (American). By education, he is a ChemE, topped off with an MBA from Wharton. He has been involved with Texas Dawah, Clear Lake Islamic Center and MSA. His interests include politics, cricket, and media interactions. Career-wise, Abu Reem is in management in the oil & gas industry (but one who still appreciates the "green revolution").

35 Comments

35 Comments

  1. Amad

    March 14, 2009 at 7:12 PM

    This post made me really hungry.. craving for some nihari right now!

  2. ibnkhalil

    March 14, 2009 at 7:30 PM

    :)

    Economic crisis in a nutshell.

    One key point in the story was that the bank was trying to capitalize on Berney Madoff’s investments to save themselves but that also collapsed. Just kidding!

    Loved this piece. Good work mashAllah!

  3. midatlantic

    March 14, 2009 at 8:47 PM

    Paya Soup for the Bankrupt Soul

  4. mofw

    March 14, 2009 at 11:43 PM

    I think i understood it better before.

  5. abu abdAllah Tariq Ahmed

    March 14, 2009 at 11:54 PM

    bismillah. ummmm. best nehari is from dehli. or was before the Indians bailed out all the cows.

  6. ALGEBRA

    March 15, 2009 at 3:47 AM

    Aslamu-alaikum:
    @AMAD
    this post made me hungry too. I didnt’ know you were from Lahore????? I thought you were from Gujranwala………..

    Oh i know Pajjahs Payee,, but the BEST PAYA AND SIRI AND NIHARI is in GUJRANWALA…………
    even the BEST BARBECUE is in GUJRANWALA…………………. Sialkoti dirwaza and the Bypass……………… thats where the Ahli-hadith place.
    anyway………….. reminded me of pakistan……………and sooooooooo many memories………….

    don’t worry i got the gist of the story……….. BANKING

    salam

  7. ALGEBRA

    March 15, 2009 at 3:51 AM

    don’t worry i got the moral of the story………………. banking and corruption!!!!!!!!!!!!!!!!!!!!
    well written though

  8. Sister: No Non-sense please!

    March 15, 2009 at 10:30 PM

    I thought the urdu word for flour was AAta, not atta! Atta sounds so weird. It bothers me. Is atta slang for aata or is it vice versa? Or is it the punjabi/lahori version of aata?

  9. Sister: No Non-sense please!

    March 15, 2009 at 11:25 PM

    Actually I just asked my Mom and she said some Hindus refer to AAta as atta! So, I’m assuming it’s originally a hindi word that Pakistanis borrowed from Indians.

  10. Faiez

    March 16, 2009 at 1:25 AM

    lol wow this actually made me understand the issue a little bit better.

  11. MK

    March 16, 2009 at 1:46 AM

    Faiez, likewise….I thought I was the only one!

  12. Naeem

    March 16, 2009 at 3:47 AM

    AA-

    Just great…blame the poor Pakistani for all the economic woes.

    How could you sell out like that Amad?! :-)

  13. UmmOsman

    March 16, 2009 at 10:43 AM

    Assalmao elikuim
    Great post :)

    ” Oh i know Pajjahs Payee,, but the BEST PAYA AND SIRI AND NIHARI is in GUJRANWALA…………”
    FYI, the best Nihari is from Buns road in Karachi :)

    Wasalam
    UmmOsman

  14. mbslrm

    March 16, 2009 at 2:46 PM

    Haha Mercedes-BEnz 500SEL. That model is the most popular car among rogue dictators.

    Anyways, I like your explanation. It’s very simple and easy to follow.

  15. iMuslim

    March 16, 2009 at 3:07 PM

    Everything makes more sense when a food-based anology is used.

  16. Totally Forced Analogy

    March 16, 2009 at 3:42 PM

    The Nahari and Siri pie is barely helpful in the explanation.In fact, it’s quite distracting (makes me hungry). Otherwise a nice summary.

  17. abu abdAllah Tariq Ahmed

    March 16, 2009 at 4:31 PM

    @UmmOsman — Burns Road nehari is Delhi-style. :) But those guys have all become complacent. The best nehari in Karachi is Javaid’s — 100% authentic Delhiwala nehari. And the best time for nehari is of course, anytime. But if you want any chance at working it off, eat it in the morning. It’s called nehari for a reason! :)

  18. Al-Madrasi

    March 16, 2009 at 8:25 PM

    First of All, this post made me hungry, and I feel like changing the Siri-Paya and Nehari to Idli, Vada & Sambar (Cmon, after all my name is Al-Madrasi)… and spam the junta whom I know — just MM’s policy on copyright is nudging…

    Hilarious ways of complaining… (can be used as a technique to complain :) )

    • Amad

      March 16, 2009 at 9:25 PM

      Folks, I did not write this… as I mentioned in the post. So, we can’t copyright what we don’t own :)

      Thus, feel free to replace Nihari with Idli, noodles, caviar or whatever you may fancy :)

      P.S. I am not from Gujranwala. My mother is. My father is from Lahore.

  19. abu abdAllah Tariq Ahmed

    March 16, 2009 at 11:52 PM

    bismillah. more food posts, please. :) how about the biryani model of parliament? or the falafel sandwich of planning a university career? or the ten mithai of effective public speaking?

    note to self: go have nehari soon!

  20. abu Rumay-s.a.

    March 17, 2009 at 2:16 AM

    Nahari just isn’t what it used to be :)

    here is another good visual to get an idea about the process flow of the crisis..

  21. umtalhah

    March 17, 2009 at 4:20 AM

    as salam alaikum,

    a nice post. may Allah reward all responsible for bringing it to us.

    i like shan masala nihari and paye. though i do not eat paye myself.

  22. Maverick

    March 17, 2009 at 10:55 PM

    salamualaikum

    Am I the only one who didn’t find the story amusing? [if that was one of the intended points?]

    Also, its grossly oversimplified and barely scratches the surface of the current crisis.

    • Amad

      March 18, 2009 at 9:37 AM

      Maverick, the story was intended to be a gross simplification, though I would say it does more than scratch the surface.

      As a student of finance myself, I have attended talks (in classrooms and beyond) by various experts and Professors of Wharton. And I can tell you that if you had to boil down the crisis to one word, it would be “leverage”, or “debt”, whichever term you fancy. Upon this, the F.I.RE. sector (appropriate acronym for Financial industries, Insurance, and Real Estate) became so intertwined that when the mess became too difficult to handle, the entire house of cards started falling apart. Examples: F=Bear Stearns; I=AIG (everyone knows AIG now), RE=Countrywide. That’s why AIG is so “important” to save, because it is firmly in the middle.

      So, yes, there are credit default swaps, prime-rate interest loans, hedge funds, CDOs, short-selling, and all the other innovative (and destructive) financial engineered tools. But boil it down, it is all about debt and its securitization. Then bets and shorts on top of it.

      Finally, this story provided an opportunity to argue about nihari. It was amusing to most (not the point though). It made sense too. That’s a beautiful result. :)

  23. ALGEBRA

    March 18, 2009 at 7:56 PM

    Aslamu-alaikum:
    WHARTON SCHOOL OF BUSINESS…………..wow impressive………………
    salam

  24. Maverick

    March 19, 2009 at 8:36 PM

    salams

    Amad, thanks for the reply.

    Just out of curiosity, what are your thoughts on the notion that this crisis might have been deliberately engineered? Either in part or in whole?

    • Amad

      March 19, 2009 at 9:53 PM

      wasalam Maverick, I don’t believe that the crisis was engineered, but what led to the crisis was indeed engineered. In other words, I don’t think there was a conspiracy, rather there were many very smart people who got very greedy and found the most innovative (in retrospect reckless) ways to “create” money.

      When things were going good, everyone wanted in. You had to beat the next guy in loaning someone earning $30k/year money to buy a $300k house, because both you and the guy believed that the house would be worth $400k by next year– the guy would flip it, he’d get his $100k profit, and you’d have a “loan sale”. Another group of geniuses packaged all these loans up and decided that if we had enough crappy loans that were mixed all up, we’d have a “well-diversified” pool (structured finance) with less risk (forgetting the fact that many pieces of crap still only make a pile of crap, not a well-diversified investment). Then they securitized this pool, breaking it into small pieces so that you, as an investor, could have small piece of that original crap. So, many people had small pieces of crap but did not have the right to any one particular crappy loan, rather your piece was spread out through many crappy loans. Eventually, when the housing market froze up, the crap hit the ceiling; from the default/foreclosure to the bankrupt lender to you holding worthless well-diversified crap.

      If nihari didn’t help the picture, I hope crap did? :)

  25. Maverick

    March 19, 2009 at 10:28 PM

    salams

    Amad, thanks for the refresher course. I am familiar with the “crap” – securitization, CDOs, subprimes and Alt-As, and more. The nihari write-up has been making its rounds already in countless inboxes across the corporate world, albeit in the disguise of alcohol; Heidi being the proprietor of a bar in Berlin, and drinkbonds, alkbonds, pukebonds, etc. I presume that was what was being referred to in the introductory paragraph.

    My thoughts are more about how certain parts of this worldwide mess were engineered by opportunistic entities – whether due to greed or by deliberate intent. An example would be Lehman asking JP Morgan for a last-ditch lifeline, and Dimon deliberately refusing simply because he knew his refusal be the final straw that broke Lehman’s back. A newly bankrupt Lehman could then be bought for $2, or $10 – dirt cheap any way you spin it. That is a recent example – there are tons of other actions taken over the past 25 years that I could point to. The words and actions of Greenspan, the repealing of various laws and regulations designed to safeguard against such a mess, and much, much more.

    I’d call this a conspiracy – as well as the crisis three generations ago – if I had any concrete evidence that such actions were committed with malicious intent to consolidate power and money in the hands of the few. However, in the absence of such, I can amuse myself by listening to the growing chorus of voices calling for uniform, global regulation of the financial system. What a perfect storm.

    So brilliant, one could cry.

    [oh wait … never mind]

    • Amad

      March 19, 2009 at 10:42 PM

      bro Maverick, I got carried away with the crap analogy… it wasn’t really for you, I could tell from your previous comment that you were more than familiar with the financial world. I used the comment for more edumacation :) for others since I would say the average person is still unaware.

      I blame greed, because deliberate intent would require a deliberate purpose of betterment in the end. And that sort of Machiavellian advantage seems unlikely in the chaos that ensued. No doubt some will be better off with the crisis than without it. But I would call that opportunism and probably fair opportunism when assets are so cheap.

      The regulation and deregulation cycle is a vicious one. In 20 years, people will be clamoring for deregulation, just like we are crying for regulation now. They haven’t yet achieve balance, and I doubt they ever will.

      By the way, did anyone notice what the biggest push right now is in order to restart the economy? Make the banks lend again. MORE LEVERAGE. Let’s rebubble please. We beg all our citizens to borrow again and plug the holes with more cash.

      Yes, that indeed is brilliant and we should all cry!

  26. shahgul

    March 21, 2009 at 1:02 AM

    Idli, Vada & Sambar are for goats and cows; Nahari(breakfast beef) and siri(goat’s head)/pai (cow’s feet) is the real food.
    The best goat’s paya’s are strangely from Quetta. Quettans are the only pashtuns who eat hot chillies.

  27. Sister: No non-sense, Please!

    March 23, 2009 at 11:48 AM

    Idli, Vada & Sambar are for goats and cows;…

    dang, sister shahgul! That was an amusing comment! :)
    I am neither a goat nor a cow nor any other animal, however, I enjoy Idli, vada, sambar (btw u forgot to mention Dosa) once in a while just as I enjoy nehari once in a while. A little far from where I live, there are a bunch of restaurants that sell IVDS (acronym for Idli, vada, dosa and sambar), and I assure you, none of them are populated by goats or cows. I don’t know how many goats and cows will find the smell of cooked rice and daal, blended with spices, tantalizing. It’ll be interesting to find out…

  28. Muadh Khan

    March 27, 2009 at 11:38 AM

    Asslamo Allaikum,

    Masha’Allah good analysis but I would like to distract everyone with a story about Pujja, himself. :)

    Pujja died some years ago and his sons now run the place. May Allah (SWT) forgive his sins and raise his status in paradise (Ameen).

    A friend of mine from Karachi was in a Jamaat in Lahore and they desperately wanted to go and experience the cuisine at Pujja so they hatched a plan and convinced the Ameer to permit them to go and give Dawah to Pujja.

    They went to see Pujja and talked about the greatness of Allah (SWT) for a while. Pujja was an illiterate so he listened to them for a while and then said to the students, “Puttar (Son!) I am an illiterate man all I know is that Allah (SWT) is the greatest because he created the Heavens and the Earth and everything including me and you and he runs the affairs of everything…I don’t understand your fancy talk from Qur’aan and Hadeeth…Would you like some free food since you are guests and you have come here to talk to me?”

    They went “Sure”…Ate loads of free food and came back and lived to tell the story about Pujja. :)

  29. abu Rumay-s.a.

    March 31, 2009 at 2:49 PM

    Good Intro presentations/articles on Financial Markets & Institutions

    http://www.rh.edu/~stodder/MacroPrinc/FinMktSpr09.htm

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