INTERNATIONAL SCHOOL OF MANAGEMENT EXCELLENCE PRESENTED BY KUMARI NEETU CHOUDHARY NIKHIL CHHABRA VINIT KUMAR DALMIYA GUIDED BY: Dr. RAMESH TAGAT Prof. NITIN GARG Prof. AVR MAHADEV GLOBAL MELTDOWN
What is Global Meltdown ?
Global Meltdown means slow down of all the economies.
Federal Reserve cut Interest Rate
Large inflows of Foreign Fund
US Govt. Motive “A House For Every American Whether Rich Or Poor”
No Down payment Required
Rapid Increase in Demand for Houses
Explosion Of Price of Houses
The Sub Prime Crisis
Subprime lending is the practice of making loans to borrowers ( who have low credit history or Risk of default is high)
They Lend Tremendously
Price of Houses will Always Go Up
Given $3.4 trillion for sub prime mortgages in US.
These Mortgages were purchased by financial institutions.
Created New Securities & kept these mortgages as Collateral Security
They rated them “Good” ,“Not so good”, “Ugly”
They kept “ugly” with themselves
They got it insured from Insurance Companies & it got rated from them as AAA, BBB.
Promise to pay Low interest(less risk) to “Good” Tittle securities, more interest to (medium risk) “Not So Good” securities.
Best Interest Rates to “Ugly”(higher risk)
They promise to pay interest first to AAA , then BBB
Now these securities were distributed among Potential Investors in the whole world.
Financial institutions influenced brokers for more mortgages just to increase the no.’s
They showed these mortgages under SPV in their Balance sheet and escaped
Atlast Bubble Bursts
-High House Prices
-High Interest Rates
Sub prime didn’t pay interests and returns houses back
Now Houses were sold at lower price(they suffered huge losses)
Actually money was Invested by institutions then further it was used as collateral security
Mostly Financial institutions Became Bankrupt
Household debt grew from $705 billion at yearend 1974, to $7.4 trillion at yearend 2000, and finally to $14.5 trillion in midyear 2008
Credit Default Swap
Did not put any collateral
Booked Artificial profit.
The world largest insurance company was about to bankrupt
Then Federal Reserve stepped in with $85 billion.(Now total is $1.1 trillion)
Without Govt. action would have caused every major bank in the world to fall.
The key of huge global credit was Credit Default Swap
Main Institutions & Banks
Collapse of Five Giant Financial Institutions
Lehman Brothers, Fannie Mae, Freddie Mac,
Merrill lynch, AIG with total revenue $322 Billion in 2007
Followed by Largest Banks
Sent shock waves to Global Financial Market
And let to Current Global Meltdown
Bankruptcy/Takeover flavor of the season
Bear Stearns was acquired in March 2008 by J.P. Morgan Chase for $1.2 billion.
Fannie Mae and Freddie Mac. was placed into onservatorship
Merrill Lynch was acquired by Bank of America in September 2008 for $50 billion.
Lehman Brothers declared bankruptcy on 15 September 2008.
The Fed provided an emergency loan of $85 billion to AIG, giving the US government a 79.9% equity stake at AIG.
Washington Mutual taken over by JPMorgan Chase.
Citi Bank, GM and Chrysler on the brink of Bankruptcy
Global Meltdown 1929 Repeated..
Originated From : USA
Interest Rates : First it Increased & Later Decreases
Sector affected most : Housing
Behavior of Stock Market : All time High & then All time Low.
Projected Loss in Stock Market : Approx 80%
Adverse Effect on Trade and Industrial Production
Increase in Oil Prices
Increase in Bankruptcy
Bail Out Packages
USA $1.1 trillion
Japan $586 bn
China $550 bn
India $ 6 bn
Singapore $13.6 bn
South Korea $10.2 bn
Taiwan $2.5 bn
Over all World Wide $ 2.4 trillion
Impact on Indian Economy 1. The industries most affected by weakening demand were : airlines, hotels, real estate, IT,BPO 2. To lift the economy out of the recession the Government announced a package of Rs 5,000 crores On December 7, 2008. The main areas benefited were: a )Housing b) Textile c) Infrastructure d) Exports e) SME’s
ARE INDIA’S POMPOUS CELEBRATIONS OVER?
Recommendations $ Actions
Establish and rectify the loopholes present Regulatory systems
and review them periodically.
Lower down the interest rates to spur housing demand and
Raise the Tax bracket for people and provide tax reliefs to
boost the purchasing power.
Public Spending and Investment
Massive infrastructure spending should be the prime objective
of the Government.
Crisis Affecting Students
Major Threats at Professional level
Cut Down Of Financial Aids
Fewer Number of seats available at foreign universities for Indian students