A week before Lehman Brothers foundered in the autumn of 2008, the US Treasury had stepped in to bail out Fannie Mae and Freddie Mac, the ultimate backstops in America’s mortgage-lending market. Initially, $100 billion was the authorized bailout package that surged to $187 billion over time. And the Treasury’s emergency intervention was based on the premise that Washington must do its bit to reconstruct a financing ecosystem underpinned by trust. Exactly ten years later, Mumbai’s policy and money-market mavens sat around oak-panelled boardrooms to decide the fate of a troubled financier that, although nowhere as large as the embattled leaders in US housing securitisation, owns and runs arterial roads, ports and warehouses across India. Hence, reviving IL&FS and shepherding its turnaround is as crucial to infrastructure - and capital-deficient India as was Washington’s challenge to reengage the mortgage securitisation market stateside ..
By way of federal intent and urgency, the similarities are evident. But that is where they appear to have ended, at least for now. Fannie Mae and Freddie Mac earned the Treasury $58 billion in profits over the next decade, on tax-dollar investments of $187 billion in bailouts. To be sure, New Delhi has not promised a bailout package or forgiven loans to the defaulting group, replacing instead the management at IL&FS with a new board. The premise here is that IL&FS owns sufficiently attractive assets that could be sold to help retire liabilities and enhance recoveries. While the first part of the argument is not in question, at least in theory, the second seems to have been rather optimistic – especially in the light of about Rs 1 lakh crore in outstanding debt.