There was a sputter in the engine and the car stalled. I fiddled with the carburetor and the engine started. It was a happy ride once again till there was burning smell. I checked and found a leak of engine oil, which was dripping on the hot pipe running to the exhaust. I used the old technique of sealing the leak temporarily with a cake of soap and topped the engine oil from the small reserve I had. The journey continues but the signals are no good at all. The maintenance has been poor; the previous owners used it rough and there was the classic case "information asymmetry", in all ways. None of the owners followed the manuals for maintenance.

We have been running the car as long as it ran with oil, water and gas. Now the signals mean that there could be a breakdown anytime, anywhere unless I get it to the garage fast and get it overhauled catching up with the manual for maintenance. The "crisis" induced in the US-64 of the UTI has blown over for now. Happily, there is no "run" on the redemptions, which is a bit of an anti-climax to the heat generated. It was like the frightening noise near the chassis, which I realized, was only a stone thrown up by the front wheel as it passed over gravel. The extended coverage of the JPC (joint Parliamentary Committee) is a good solution under the circumstances even if it reflects the price of democracy in terms of time, resource and the potential nature of outcome. It is like sending the car for three estimates in search of a least cost repair. Time is a great healer of emotions but it doesn't heal the car - so I need a good robust solution.

The horn honked without prompt. Bad sign. The wiring is very important. If there is a loose contact, it could lead to a short circuit and the car could burn. It is concealed but yet critical like the invisible wiring in the financial world, which transcends ideological silos and connects apples and oranges perfectly - as the male and female jacks in the electrical junctions.

Like the sputtering in my car, the UTI problem hints at a more serious weakness historically nurtured in the financial system. We have had continued signals throughout the 90s but several institutions in the system were like the "pool car" - everyone was busy running it hoping that it would stop when someone else is behind the wheel and that he will be obliged to take it the garage. All know of the maintenance procedures but have been flouting them - as a common property, the pool car is not the driver's accountability.

It is reported that even as the Government is bailing out the IFCI and trying to manage the transition in IDBI, there are speculations about "ever-greening" of loans by a few other important financial institutions. The signals affirm the feeling that the financial system is not robust and that all these weaknesses can have a multiplier effect. The problems promise to keep company and recur.

In the context of the Asian crisis, we must learn that some times it is a short fuse that can make a few problems catch up a wild fire and bring down the economy. If the structure is weak, the gas is leaking and it is a dry and hot day, a small spark can burn the car down. The ability of the managers of the financial system should not be tested on the success gained in controlling damages and localizing the fallout temporarily. It is merely the first response to a stalling engine. Some one can say it was a proactive solution to a further delay.

But most proactive solutions are reactive ones in disguise. As Peter Senge had said, true proactiveness arises from thinking on how we contribute to our own problems! The managers of the financial system will have to address the foundations, which are shaky due to patchwork of decades of quick fixing of problems.

It is evident that today's problem have arisen from yesterday's solutions. The earlier solutions have actually been seemingly long lasting but were actually fixing the leak with the soap bar. As the Law of the Fifth Discipline says, a seemingly easy solution actually leads us back in!

Another law of the Fifth Discipline is also relevant - that of the compensating feedback (the harder we push, the harder the system pushes back), which is reflected in the implicit moral hazard. A temporary reprieve by the State to bailout the UTIs or the IFCIs will only result in further indulgence, profligacy and eventually a long queue of requests for bailouts and guarantees. The paradox of low leverage interventions, as Peter Senge mentioned, is that they seem to work in short term. Yet they bounce back after a time gap with a problem which is worse than the seeming solution.

The lasting solution is in making the financial system robust in a short time - within and without. There is reason to fear that we may have reached a volatile situation that only requires a short fuse. We need a thorough scan on the critical parameters and necessary retrofit of the system with a set of reforms in laws, structures, and systems. Any neglect in this could be disastrous in several ways. It would be like being grounded in mire halfway through an exciting journey.

Is there a better solution to address the potential crises in the financial market? The answer probably is in applying the international principles of Corporate Governance as a check for robustness. We do not need Schumacher to test-drive the car and say what is wrong. The manual will do. For the financial system it would be good to test vis-à-vis The Narasimham Committees Reports, The Report of the RBIs Advisory Group on Corporate Governance, the IMF principles regarding transparency in financial sector, OECD principles and the report of the Commonwealth Secretariat.

These tests would probably revolve around:

(a) Government ownership and independence of institutions like the UTI - including the aspects of bailouts, subsidies, directed lending/investments, transparency in reporting,

(b) Mechanisms to ensure enforcement of law, including recovery systems - this being the weakest link of all, as there is little disincentive for flouting law and commit fraud,

(c) Quality of financial disclosures, accounting and reporting standards,

(d) Quality of the structures, systems and processes at the Board level, including the process of appointments, induction of independent directors, ensuring accountability/fiduciary responsibility and

(e) Institutional and procedural arrangements for prudential and regulatory supervision.

If these tests are not carried out and repair done fast for a longer journey, there is a grim prospect of repetitions in quicker succession. That would erode the confidence of all investing public. Do we have the motivation to act well and fast? Obviously there is no prospect of a positive motivation. There is, of course, the negative motivation of a potential breakdown of the car and the financial system. Like the Asian Crisis which indeed needed a short fuse to set the fire? Hopefully, this specter of collective doom atleast will energise all concerned.

But, will the check and a quick over-haul help ward of all potential crises and keep all the investors' happy ever after? Obviously not. It is possible that after all the effort, the car is run over by a 16-wheeled cargo carrier. As the Economist magazine recently pointed out in the case of Asian Economies - after all the care to treat influenza, no one can promise that they would not catch chicken pox! But that doesn't mean that we don't get treated for influenza in the first place.