How my IIMB Class explains the 2008 financial crisis

I have a policy of not enforcing attendance in my IIMB class. My view is that it’s better to have a small class of dedicated students rather than a large class of students who don’t want to be there. One of the upsides of this policy is that there has been no in-class sleeping. Almost. I caught one guy sleeping last week, in what was session 16 (out of 20). Considering that my classes are between 8 and 9:30 am on Mondays and Tuesdays, I like to take credit for it.

I also like to take credit for the fact that despite not enforcing attendance, attendance has been healthy. There have usually been between 40 and 50 students in each class (yes, I count, when I’ve bamboozled them with a question and the class has gone all quiet), skewed towards the latter number. Considering that there are 60 students registered for the course, this translates to a pretty healthy percentage. So perhaps I’ve been doing something right.

The interesting thing to note is that where there are about 45 people in each class, it’s never the same set of 45. I don’t think there’s a single student who’s attended all of my classes. However, people appear and disappear in a kind of random uncoordinated fashion, and the class attendance has remained in the forties, until last week that is. This had conditioned me into expecting a rather large class each time I climbed up that long flight of stairs to get into class.

While there were many causes of the 2008 financial crisis, one of the prime reasons shit hit the fan then was that CDOs (collateralised debt obligations) blew up. CDOs were an (at one point in time) innovative way of repackaging receivables (home loans or auto loans or credit card bills) so as to create a set of instruments of varying credit ratings.

To explain it in the simplest way, let’s say I’ve lent money to a 100 people and each owes me a rupee each month. So I expect to get a hundred rupees each month. Now I carve it up into tranches and let’s say I promise Alice the “first 60 rupees” I receive each month. In return she pays me a fee. Bob will get the “next 20 rupees”, again for a fee. Note that if fewer than 60 people pay me this month, Bob gets nothing. Let’s say Eve gets the next 10 rupees, so in case less than 80 people pay up, Eve gets nothing. So this is very risky, and Eve pays much less for her tranche than Bob pays for his which is in turn much less than what Alice pays for hers. The last 10 rupees is so risky that no one will buy it and so I hold it.

Let’s assume that about 85 to 90 people have been paying on their loans each month. Not the same people, but different, like in my class. Both Alice and Bob are getting paid in full each month, and the return is pretty impressive considering the high ratings of the instruments they hold (yes these tranches got rated, and the best tranche (Alice’s) would typically get AAA, or as good as government bonds). So Alice and Bob make a fortune. Until the shit hits the fan that is.

The factor that led to healthy attendance in my IIMB class and what kept Alice and Bob getting supernormal returns was the same – “correlation”. The basic assumption in CDO markets was that home loans were uncorrelated – my default had nothing to do with your default. So both of us defaulting together is unlikely. When between 10 and 15 people are defaulting each month, that 40 (or even 20) people will default together in a given month has very low probability. Which is what kept Alice and Bob happy. It was similar in my IIMB class – the reason I bunk is uncorrelated to the reason you bunk, so lack of correlation in bunking means there is a healthy attendance in my class each day.

The problem in both cases, as you might have guessed, is that correlations started moving from zero to one. On Sunday and Monday night this week, they had “club selections” on IIMB campus. Basically IIMB has this fraud concept called clubs (which do nothing), which recruiters value for reasons I don’t know, and so students take them seriously. And each year’s officebearers are appointed by the previous year’s officebearers, and thus you have interviews. And so these interviews went on till late on Monday morning. People were tired, and some decided to bunk due to that. Suddenly, there was correlation in bunking! And attendance plummeted. Yesterday there were 10 people in class. Today perhaps 12. Having got used to a class of 45, I got a bit psyched out! Not much damage was done, though.

The damage was much greater in the other case. In 2008, the Federal Reserve raised rates, thanks to which banks increased rates on home loans. The worst borrowers defaulted, because of which home prices fell, which is when shit truly hit the fan. The fall in home prices meant that many homes were now worth less than the debt outstanding on them, so it became rational for homeowners to default on their loans. This meant that defaults were now getting correlated! And so rather than 85 people paying in a month, maybe 45 people paid. Bob got wiped out. Alice lost heavily, too.

This was not all. Other people had bet on how much Alice would get paid. And when she didn’t get paid in full, these people lost a lot of money. And then they defaulted. And it set off a cascade. No one was willing to trade with anyone any more. Lehman brothers couldn’t even put a value on the so-called “toxic assets” they held. The whole system collapsed.

It is uncanny how two disparate events such as people bunking my class and the 2008 financial crisis are correlated. And there – correlation rears its ugly head once again!


Mike Denness and WTC Bombers

Professors who are insecure with respect to their ability and competence demand, rather than command respect. They institute complicated procedures which ensure that students need to suck up to them. Professors who know they are good don’t care. For example, the better professors who taught me at IIT never took attendance (everybody would be marked present), and would yet lecture to a full house most of the time. Lesser professors would get finicky about attendance. And other such trivial things. By forcing students to do things in a certain way, by “being strict”, they assumed, that students would respect them. It is a wonder that none of them thought this might be counterproductive.

In our third semester at IIT, we had this course called “Digital logic and VLSI Design Lab”. It was a decent and useful course. You would build digital circuits and test them out. No rocket science to it, but something that was useful in the long run. And because there was no rocket science to it, the faculty (one of the more insecure professors) had instituted a complicated process so that he gets some respect (or attention at least). Actually it wasn’t that complex. Before an experiment, we had to write up about the circuit and how we go about the experiment and get his signature on our write up. The lab assistant had been instructed that we should be issued components only after our report had been countersigned by the professor. Nothing too complicated, but a small step to ensure we suck up to him.

Things were mostly smooth, but one day the professor was late to arrive. Or maybe he was there and we didn’t see him – I don’t remember correctly. I don’t know how it happened but we managed to get the components from the lab assistant without our report having been countersigned by the professor. In a jiffy (after all we were three bright IIT boys) we had finished the experiment. And we called the professor to show him the results.

The experiment didn’t matter to him. He didn’t care one bit about the elegant circuit we had constructed. He only looked at our write up. His signature was missing. And he went wild. I won’t get into the details here but he went absolutely ballistic and threatened to annul our experiment, and possibly even fail the three of us in that course. “Such indiscipline is not to be tolerated”, he said.

“Sir, but this is not fair”, a teammate interjected. It only ensured that the professor went even more ballistic. “You guys must be reading the newspapers”, he thundered. “You see what is happening in South Africa? Is that fair? There is absolutely no fairness in this world, so you won’t get any brownie points by arguing that something is not fair” (the professor was a big cricket fan. The events in South Africa pertained to the one match suspension of Virender Sehwag and a suspended sentence to six other Indians, handed out by match referee Mike Denness).

“I don’t want my students to be this indisciplined”, he went on. “You never know where this will take you, if it is not nipped in the bud. One day you will do your experiment without taking my signature. When that is tolerated, you get encouraged to more indiscipline. And so it grows. And one day you will be bombing the WTC”. None of the three of us was able to react to this (this was in October 2001).

I don’t exactly remember how it ended. If I remember right, we had to dismantle our set up, take the professor’s signature on our write up, re-issue the components and re-do the experiment – but I’m not sure – maybe we were let off. But it was an important lesson for us – if indiscipline is not checked right up front, you could go on to be a terrorist it seems!

Bangalore Book Festival

So today I made my way to Gayatri Vihar in the Palace Grounds to visit the Bangalore Book Festival, on its last day. It was interesting, though a bit crowded (what would you expect on the last day of an exhibition? and that too, when it’s a Sunday?). I didn’t buy much (just picked up two books) given the massive unread pile that lies at home. However, there was much scope for pertinent observations. Like I always do when I have a large number of unrelated pertinent observations, I’ll write this in bullet point form.

  • There were some 200 stalls. Actually, there might have been more. I didn’t keep count, despite the stalls having been numbered. Yeah, you can say that I wasn’t very observant.
  • All the major bookshops in Bangalore barring the multicity ones had set up shop there. I don’t really know what they were doing there. Or were they just trying to capture the market that only buys in fairs? Or did they set up stall there just to advertise themselves?
  • It seems like a lot of shops were trying to use the fair to get rid of inventory they wanted to discard. All they had to do was to stack all of this on one table and put a common price tag (say Rs. 50) on every book in that collection, and it was enough to draw insane crowds
  • One interesting stall at the fair had been set up by an online self-publishing company. I’ll probably check them out sometime next year when I might want to publish a blook. Seems like an interesting business model they’ve got. Print on demand!
  • I also met the guys at the fair. Once again, they were there for advertising themselves. Need to check them out sometime. Given the kind of books I buy, I think online is the best place to get long tail stuff.
  • There was an incredibly large number of islamic publishing houses at the fair! And have you guys seen the “want qur an? call 98xxxxxxxx for free copy” hoardings all over the city? Wonder why the Bajrang Dal doesn’t target those
  • There was large vernacular presence at the fair. I remember reading in the papers that there was a quota for Kannada publishers, but there was reasonable presence for other languages also, like Gult, Tam, Mellu, Hindi
  • A large number of stalls were ideology driven. Publishing houses attached to cults had set up stalls, probably to further the cause of their own cult. So there was an ISKCON stall, a Ramakrishna Mutt stall, a Ramana Maharshi stall, etc.
  • Attendance at most of these niche stalls was quite thin, as people mostly crowded the stalls being run by bookstores in order to hunt for bargains. Attendance was also mostly thin at publisher-run stalls, making me wonder why most of these people had bothered to come to the fair at all.
  • I saw one awesomely funny banner at the place. It was by “Dr Partha Bagchi, the world leader in stammering for last 20 years” or some such thing. Was too lazy to pull out my phone and click pic. But it was a masterpiece of a banner
  • Another interesting ideological publisher there was “Leftword books”. Their two sales reps were in kurtas and carrying jholas (ok I made the latter part up). And they were sellling all sorts of left-wing books. Wonder who funds them! And they were also selling posters of Che for 10 bucks each
  • I wonder what impact this fair will have on bookstores in Bangalore in the next few days. Or probably it was mostly the non-regular book buyers who did business at the fair and so the regulars will be back at their favourite shops tomorrow.

I bought two books. Vedam Jaishankar’s Casting A Spell: A history of Karnataka cricket (I got it at Rs. 200, as opposed to a list price of Rs 500) and Ravi Vasudevan’s “Making Meaning in Indian Cinema”.

Facebook comments

I find most comments on facebook fraud and think they don’t add value. These are of the format of “oh how louuvely! you are looking grrreat in this pic”. I don’t know what value the commentor is trying to add. They are essentially of the “i vas here” kind of comments, and do nothing in order to further the conversation. Yes, I believe that pics on facebook are there so as to foster conversation. To bring people together. To get different viewpoints on certain momentous events. And you have people spoiling the show with motherhood statements.

Speaking of motherhood statements, a batchmate from school has recently put up pictures of her newborn daughter. And once again most comments ranged from “oh so pretty” to “congraaaaaaats” to just “awwwwww” – again none of them adding value (plis to be noting that this is all context sensitive. There are certain situations where any of the phrases I’ve mentioned here add tremendous value. Just that they’re mostly grossly misused). I wanted to write a comment there saying “stop making motherhood statements” but then held back since the new mother was also of hte “awwwwwww” “soo pretty” types.

When I write comments somewhere, be it on other blogs, or on people’s photos, or events, or statuses, I try to make sure that I’m adding some value to the discussion. If not anything else, I’ll write something that could possibly lead to further discussion, rather than just leaving comments to announce that I vas there. Perhaps the only place where I leave out of place comments is twitter, where I’m guilty of putting the odd “i’m listening” comment.

And then there are people who put up their own picsĀ  on facebook. Someone, in a valiant attempt to mark their attendance, comments saying “nice pic”. And then you have the subject of the picture (that is the one that put it up) saying “thanks”. Even though the nice pic was supposed to be of the marking attendance type, I suppose it was a comment aimed at the photographer. I don’t know why the subject is even trying to claim credit for the pics – or maybe they just assume that it was their extra photogenic faces that made the pic as nice as it was.

I remember that back in B-school, a number of courses had marks for CP (class participation). And professors would emphasize that it was not the quantity but hte quality of CP that would matter. Occasionally you would have a Teaching Assistant sitting there marking people instantly on their CP. The threat that valueless CP would draw negative marks was enough to keep the discussions interesting.

So yeah you have people telling me that some of my CP on their pics is usually arbit. Arbit it might be at times, but at least it helps foster discussion. It raises crucial questions that might have otherwise not been asked, and helps keeps the putter of photos honest. It helps draw in other intelligent and mildly arbit people to the phpoto, and sometimes results in absolutely brilliant conversation. Now tell me – how many times have you seen an “oh so louuvvely” comment leading to brilliant conversation?

So the next time you want to comment on a picture on facebook, think twice, and think if your comment adds value. Think if it will foster discussion; think if it will make people pull up their socks and ask themselves uncomfortable questions. Think if it will draw in other similar-minded intelligent people. And even after all this you can’t decide whether to put the CP, you only have Gandhiji’s talisman to help you.

PS: you don’t need to think twice before putting CP on this blog. however, useless CP will be ignored and not be replied to


I was going through a friend’s wedding album. Here are the comments on one of the photos:

  • Great pictures! You look gorgeous, _________!
  • Aaaww…You look so beautiful __________! I’m so upset I missed it all šŸ™ Hope you had tons of fun!!! šŸ˜€
  • Congrats ___________:))

The friend (i’ve blanked out the name) hasn’t replied to any of them (and all the above comments are by girls – refer to megha’s comment below).

And then on another pic, there is a valoo-adding comment – which goes something like – “is this the part where you run around trees singing songs?” That adds great value. Unfortunately, the person who got married has replied to this comment with a fairly lame comment so I don’t know how far this conversation will go.

Bangalore trip update

The recent inactivity on this blog was mainly due to my inability to log on to wordpress from my phone and write a post.Ā  I had gone home to Bangalore for an extended weekend (taking Friday and Monday off) and the only source of net access there was my phone, and for some reason I wasn’t able to log on to NED from that. During the trip I had several brilliant insights and brilliant ideas and wanted to blog them and finally such NED happened that I didn’t even twitter them. Deathmax.

The main reason I went to Bangalore was to attend Pradeep (Paddy)’s reception. I think this is an appropriate time to share the funda of his nickname with the world. Before he joined our school in 9th standard, there was this guy two years senior called Pradeep, and for some reason not known to me he was nicknamed Paddy. I vaguely knew him since I used to play basketball with him, and after he graduated there were no more Paddys in school. So when this new guy came from the Gelf, it presented a good opportunity to get back a Paddy into school. It turned out to be such a sticky nickname that not even IIT could change it.

Friday was Ugadi – yet another reason to be home in Bangalore – and was mostly spent visiting relatives. When they heard about my impending market entry, all of them brought up stories of not-so-successful marriages of people they knew well, and put fundaes to me about avoiding certain pitfalls. These fundaes were liberally peppered with stories. Mostly sad ones. Mostly of people who have chosen to continue in their marriages despite them clearly failing. It is amazing about the kind of stuff people I know have gone through, and yet they choose to not run away.

Saturday morning was rexerved for my first ever “market visit”. I was taken to this bureau in Malleswaram and asked to inspect profiles. “There are profiles of hundreds of girls there”, my uncle had told me “so let us go there before ten o’clock so that you have enough time”. The profiles were mostly homogeneous. The number of engineering seats available in Karnataka amazes me. Every single profile I checked out over there had studied a BE, and was working in some IT company. Things were so homogeneous that (I hate to admit this) the only differentiator was looks. Unfortunately I ended up shortlisting none of them.

One of the guys I met during my Bangalore trip is a sales guy who lives in a small temple town without any access to good cinema. So he forced me to accompany him to watch Slumdog (in PVR Gold Class – such an irony) and Dev D. I agree that Slumdog shows India in poor light, but filter that out and it’s a really nice movie. We need to keep in mind that it was a story and not a documentary, and even if it were the latter, I think documentaries are allowed to have narratives and need not be objective. Dev D was simply mindblowing, apart from the end which is a little bit messed up. Somehow I thought that Kashyap wanted to do a little dedic to his unreleased Paanch.

There is this meet-up at Benjarong which is likely to contribute enough material to last six arranged scissors posts. I’ll probably elaborate about the discussions in forthcoming posts but I must mention here that several arranged marriage frameworks were discussed during the dinner. The discussions and frameworks were enough to make both Monkee and I, who are in the market process, and Kodhi who will enter the market shortly to completely give up in life.

One takeaway from Paddy’s reception is that if you can help it, try not to have a “split wedding” (and try not to have a split webbing also) – where different events are held at diferent venues, on disjoint dates. In that case you won’t have people lingering around, and you will lose out on the opportunity to interact with people. Note that there is zero scope for interation during the ceremonies, and the only time you get to talk to people is before, and after, and during. And it is important that there is enough before or after or during time to allow these interactions. In split weddings guests are likely to arrive and leave in the middle of an event and so you’ll hardly get to talk to them.

One policy decision I took was to not have breakfast at home during the length of my stay. I broke this on my last day there since I wouldn’t be having any other meal at home that day, but before that visited Adigas (ashoka pillar), SN (JP nagar) and UD (3rd block). The middle one was fantastic, the first reasonably good except for bad chutney and the last not good at all. Going back from Gurgaon it was amazing that I could have a full breakfast (2 idlis-vada-masala dosa-coffee) for less than 50 bucks. Delhi sorely lacks those kind of “middle class” places – you either eat on the roadside or in fine dining here.

Regular service on this blog should resume soon. My mom has stayed back in Bangalore for the summer so I’m alone hereĀ  and so have additoinal responsibilities such as cooking and cleaning. However, I think I should be having more time so might be writing more. I can’t promise anything since blog posts are generated by spur-of-the-moment thoughts and I never know when they occur. Speaking of which I should mention that I put elaborate fundaes on studs and fighters theory in my self-appraisal review form last week.


I’m trying to understand the significance of attending another person’s wedding. It is very unlikely that you are going to add any significant value to the process, since the person who invited you is likely to be extremely busy with the process. Unless you know one of the main people involved in the wedding really well, there is a finite probability that your attendance might not be noted also (just in case the photographer is not diligent enough).

Of course, weddings give you the opportunity to network. Especially if it is a noisy south indian setting (I’ve attended one north indian wedding so far, and what put me off was the requirement to stay silent during the proceedings) or a reception. It is a good excuse for you to catch up with all those people who belonged to the same affiliation group as you and the person who invited you. It is a good opportunity to expand your social circle.

Back in the 1980s, when I was a kid, one of the great attractions of weddings was the food. Bisibelebath was a special item back then, as were the various “wedding special” sweets. Some of the more affluent folk would also offer ice cream for dessert (that has become a common thing now, especially for receptions). The food on its own was enough to make me look forward to weddings. Over time, the general quality of wedding food has dropped. And the general quality of food in restaurants has increased well at a faster rate. So you don’t need to go to a wedding for the food anymore.

Historically, I’ve been fairly social. I’ve usually attended all functions that I’ve been invited to, especially if it’s in the same city. I admit I haven’t really travelled too many times to attend weddings but done short trips (such as Bangalore-Mysore) occasionally. I’ve always calculated that the cost (time, travel, etc.) of attending a wedding is not much in terms of potential benefits in terms of networking, catching up, expanding circle, etc. Of course, I need to admit that over the last couple of years, NED has been part of the equation, and there have been a few occasions when I’ve worn a nice shirt and then backed off from going.

It is all fine when travel is local, where NED is perhaps the only thing that can tilt the balance in favour of not attending the wedding. When you live away, the whole equation changes. The cost of travelling goes up dramatically (in terms of time, money and inconvenience). The climb is especially steep if you live a flight away, rather than just a train journey away. What used to be borderline cases when the distance was small now dussenly become absolute noes. The obvious ayes become borderline cases. And in some cases obvious ayes become obvious noes. It is only when a wedding happens in your new city that what were obvious noes become obvious ayes.

Four months ago, my cousin (father’s brother’s daughter) got married in Bangalore. If I were in Bangalore, it would have been an emphatic aye. In fact, it’s likely that I’d’ve volunteered to take up a significant number of duties at that wedding. However, the way things turned out (my being in Gurgaon), it wasn’t tough to declare that as a noe. The work that I would’ve otherwise volunteered for suddenly became “work”, became a “cost”. Combined with a couple of other factors, it turned out to be a fairly obvious noe. And I don’t think anyone really minded.

It seems to be the season for friends to get married, especially juniors from IIMB. Two of them who have just got married to each other are having their reception tonight 100m away from my Bangalore house. A case that would have been an overwhelming yes, now become borderline. Remember that NED to travel varies with the travel-cost in a super-linear fashion, and I think it is that which has turned today’s case into a no. There have already been a few other weddings in the season for which I’ve convinced myself with a similar reason. And there are more.

So I ask myself once again – why should I attend someone’s wedding? I have so far been putting the obvious variables into my calculation – netwroking opportunity, goodwill, opportunity to catch up with people, side effects (a wedding in Bangalore is a good excuse for me to visit Bangalore, etc.), travel costs, chance of occurrence of NED, how much ‘work’ it will be, etc. and have been trying to base my decision on these.

Is there something I’ve missed out? Is there something else that I need to consider which might change the costs and benefits of going? Coming back to the more fundamentalĀ  question, why should I attend someone’s wedding?