The book, Absolute Power, “chronicles how unrestrained power attracts corruption, like honey attracts flies…this is a tendency, not a law. It’s a pattern that tends to repeat. This book shows us how this happened to NSE,” said Prof. Sanjay Bakshi, renowned value investor and professor of behavioural finance, who was in an online conversation with authors of Sucheta Dalal and Debashis Basu on 10th July.
“I have read the book and it’s riveting. I also bought a kindle version so I could underline stuff and convert that into notes for reference. It’s a complex book for someone like me. I am no expert in the technology of stock exchanges. I come from a very lazy school of value investing,” he said before quizzing the authors on their new book and the various learnings in their long media careers.
When questioned about the early years of the NSE and whether there was anything good to be said about the exchange, Sucheta Dalal replied, “You know, the first 10 years of the NSE, I was like a fan-girl. In fact I remember writing an article for Ecomomic and Political Weekly after the 5th Anniversary of NSE, where I wrote something to the effect that this was the ultimate model. I thought it was extraordinary the kind of people who were selected to lead the NSE. They seemed absolutely honest, dedicated and they were.”
“So, coming to the title of the book – Absolute Power, the question is, if everything was right in the beginning, why did it lead to hubris, arrogance and destruction of competition after ten years? I think that it is because of lack of supervision. Something that is known as ‘regulatory capture’”, she further explained.
Speaking about the positive influence that Dr RH Patil had over the success of the NSE in its early years, Sucheta Dalal remarked, “NSE, because of the visionary leadership of Dr RH Patil proved everybody wrong. If you had met him, you would he was a mild mannered academic, but obviously he was a huge risk-taker in how he set up the exchange. Ironically, in an interview he gave Moneylife he said, “he doesn't take risks when it came to his own money – it was in fixed deposits. But look at the risks he took in life!”
In response to Prof Bakshi’s question on the influence of Dr Patil and the subsequent fall from grace for NSE after his departure in 1999, Debashis Basu added, “You allow the same set of people to run the show for a very long time, minus the guy who really conceived and visualised it (Dr RH Patil), and who did not have that level of greed which we subsequently saw, and when you’re surrounded by a lot of mal-incentives … if you continue to remain in powerful positions for a very long time, it’s probably human nature to give in to some of those mal-incentives.”
Prof Bakshi added his remarks to the contributions of Dr Patil by saying, “Cultures can degrade over time. They need to be maintained and nurtured carefully, like in a garden. The original gardener (Dr RH Patil) will go and be replaced by others, and if they don’t share the vision and values of the original gardener, then weeds will grow.”
“If one person can destroy the culture of an eminent institution through the unrestrained exercise of absolute power, then another person who is honest, independent and fearless can successfully challenge that absolute power,” he further added. “The book shows how this was done by Prof. Ashok Jhunjhunwala in the case of NSE investigations and I loved reading that part.” Unfortunately there wasn’t time to go into his stellar role due to paucity of time.
While speaking about the co-location and how it affects retail investors and whether algo traders give liquidity to the markets, Debashis Basu said, there are essentially two markets in one. The algo traders, whose transactions happen in milliseconds trade among themselves with machine finding profit opportunities for them – the retail investors and even funds who don't do algo are not a part of this scenario. Sucheta Dalal explained with a simple metaphor, “by the time you reach the station, they have already reached the destination, because these orders are in milliseconds and microseconds, and there hundreds of crores worth of trades happening in a fraction of a second. So the retail investor has absolutely no chance.”
The book comprehensively catalogues the fierce competition in the early days between NSE and BSE. Sharing his observations on this fierce competition to dominate the market, Prof Bakshi says, “Network economics in the stock exchange business is great because it has winner-takes-all attribute along with high switching costs. But when a dominant exchange becomes arrogant, like BSE did when it was a monopoly, and refuses to change with the times, then high switching costs won’t save it from being disrupted by new upstarts who are far more adaptive and not arrogant at all, at least not in the beginning.”
When asked by Prof Bakshi how both authors kept themselves motivated, relentlessly fighting the cause of the common man, Sucheta Dalal answered saying, “It’s a difficult question. But you make certain career choices. I wanted to be a certain kind journalist, not a PR agent masquerading as a journalist. I don’t know that any journalist would writing a story with an objective of sending someone to jail. But it seems to be an unfortunate common perception in the public. There are many things that we have written for decades but until there some regulatory action, these things sometimes don’t get highlighted in the public mind.”
In his final thoughts on the book and the work that went into writing it, Prof Bakshi says “Like whistleblowing, investigative journalism is not easy. It’s very very hard and stressful and most people can’t handle it well. But we need whistleblowers and we need their investigative journalist handlers. And we need both to come together to throw sunlight on those dark dungeons of secrecy in many systematically important institutions enjoying absolute power. Sunlight, it is said, is the best disinfectant. And it’s true. This book, Absolute Power, is that disinfectant. It’s the sanitiser we need to clean up the system.”
The session saw attendance of over 270 people on Zoom and had over 1000 viewers live from Moneylife’s YouTube and Facebook channels