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Corporate Governance,

Economy & Siri Paye

Phajjay kay Paye
• Phajja 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 Phajja's shop.
Phajja's suppliers are delighted and are very willing to sell more and more raw materials for
the meals he prepares. Phajja shows them his ledger of receivables and they extend him
• A young and dynamic customer service consultant at the local bank recognizes these
customer debts as valuable future assets and gives Phajja a credit line and then increases
Pajja's borrowing limit.
Phajjay kay Paye
• Taking advantage of his customers' freedom from immediate payment constraints, Phajja
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; Phajja
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.
Phajjay kay Paye
• 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.
Phajja refuses to serve them any more. The clients stop coming.
• Phajja 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 Phajja, 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; Phajja lays off the cook and staff. Bankruptcies soar, unemployment
Phajjay kay Paye
• 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 Phajja 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……………………
“Myth of Effective Corporate Governance”

• Here is a NY Times Op Ed by Nobel Laureate Paul Krugman on questions

about rule of law in US foreclosures crisis:

The accounting scandals at Enron and WorldCom dispelled the myth of effective corporate
governance. These days, the idea that our banks were well capitalized and supervised
sounds like a sick joke. And now the mortgage mess is making nonsense of claims that we
have effective contract enforcement — in fact, the question is whether our economy is
governed by any kind of rule of law.