Slow Money vs. Fast Money - Part III

The previous two posts [1] [2] which detail my analysis of slow and fast money clearly define that services which form the firmware of our society – infrastructure and utilities – those which are used as a public resource are targets for investment of slow money. Also, such investment is secure, usually subject to several controls and needs to be reliable and long term.

As a corollary such investments are also conservative in terms of the return, and hence not suitable for profit booking. As a result we often find government or quasi government agencies (such as NGO’s) investing in such services. On the other hand, individual wealth – whether in form of PE / VC funds or in form in direct equity – which is aimed at booking high profits is never invested in such fundamental services.

Hence, Banks and Insurance companies - because they form the basic fabric of public financial infrastructure - are also targets of slow money investments. It is for this very reason that Non-Banking Finance companies which usually involve themselves in riskier investments are regulated separately from Banks. Banks on the other hand represent peoples' savings and more importantly they form a part of the payment system through which debts are settled among companies and individuals [3].

However, in the mid 1990's - a lot of fast money started getting pumped into the Banking and Insurance companies worldwide. As a result, the expectations from Banks for their financial performance changed - infusion of fast money meant that Banks and Insurance companies were expected to take riskier bets in order to secure higher profit margins. This was, in my opinion, one of the reasons (apart from several others) which led to the massive debacles in the banking business in 2008-9.

This is probably not the first time that the Industry and the Government went into speculative frenzy. The first time this happened was in the Rail Mania when huge amount of public and private money was poured into Railways assuming it to be a hugely profitable enterprise - while it turned out to be a 'slow money' utility.

The next time this happened was during the much popular and recent dot-com bubble when telecos spent millions on laying wide spans of optic fibre networks.

The Government of India is also heavily trying to push infusion of fast money into infrastructure and financial services. Given the nature of these services / projects - this move may rebound badly. It is important that slow money (mostly raised from public debt) should be majorly used for fundamental sectors of the economy - especially those used to build public utility services.

.concluded