GLOBAL ECONOMY IN REVERSE GEAR TEAM MEMBERS:VEKU GAUDE (ROLL NO: E2010012)PREMNATH NAIK (ROLL NO: E2010033)SANDESH PAWAR (ROLL NO: E2010039)NAVESH SHIRODKAR (ROLL NO: E2010048)MANDAR SHIRSAT (ROLL NO: E2010049)VIRAJ NETRAVALKAR (ROLL NO: E2010051)PRICE SINGH ( ROLL NO: E2010052 )
The money needed by an individual to run his daily life should be less than themoney he earns daily. Similarly the money needed by the businesses, large and small,and by the professionals and traders to run their activities should be less then the moneythey generate. Likewise the money needed by the government to run the national set-upshould be less then the revenues available with them from taxation. When all the 3 abovementioned entities find that their earnings or the income is less then their expenditure orprojected expenses it develops in a situation called as “deficit”. The right thing to dowhen trapped in such situation is to indulge in cost cutting, and to avoid the temptation ofgrowth by debt. Looking at the picture of our global economy, the total production of all the finalgoods and services taking place within our global economy, the industrialized nationsincluding USA and Japan with only 15% of the global population are contributing 70% ofit. The other 30% of all the goods are and services taking place within our globaleconomy , the emerging and poor backward nations including China and India with 85%of the global population add to the global economy. There are warnings of other bigger financial crises approaching and seriouspeople are laughing. Sincere and earnest people concerned with important matters aremaking jokes of these warnings. This is because of the large number of the conflictingsignals and considerable amount of confusion as to where the global economy is headed.This is a picture of all that is wrong in the world pf business that is built on debts.Government recapitalizing banks, throwing funds into frozen money markets andreviving their economies .It has already cost them a fortune in excess of 500 billion USD.Market fears these are signs of worse coming .75% of the global economies are stillcontracting and the growth appears to ne imbalanced. A global growth is being built ondebts ticking to explode. The Central Bank of the Central Bankers “ The Bank ofInternational Settlements” has warned that the world that the path pursued by fiscalauthorities in a number of industrialized countries , is a path build on debts & staggeringunder massive deficits , their recoveries uncertain yet continuing to borrow trillions ,testing the world’s patience with their huge debts and their unsustainable paths. Seriousand reputed economist expresses happiness seeing recovery popping all around the globaleconomies failing to get their government spending under control and instead continueadding to their debts. World’s biggest economy – USA: from 2001 onwards the business is slow in US.For last more then 6 years US economy only imported. The number of jobs created by theeconomy was zero. In these years the economic gain for average American family wasvery less (less then 1%). Economic gains from the stock were zero. Its recovery now ispropped up by money received from the sales of treasury debts, Tax collection andsimply through printing of new money. From 3007 to 2009 US economy lost 80000 oddjobs and ten out of every hundred Americans were unemployed. In 2010 US found thatthe funds available with it are not enough to meet the needs of the country’sadministration. It finds it has a deficit of 1.56 trillion USD.In USA 700 out of every 1000Americans own a car. This important industry is now unable to move or work. Thousandsof cars worth millions of dollars re stocked in increasingly crowded port properties. US
auto industry is paralyzed. US are a chronic trade deficit nation and the recovery now isgoing take along time. Let’s take a look at Japan. It’s the world’s second largest economy. Japaneserecession began in the year 1990 and by numerous bailout programmes Japan hasinvested trillions into its economy. Japanese economy is dependent on overseas demand.Global economy is weak and overseas demand has fallen by 46%. Its exports havestopped and there is no pick up demand. Economic activity in Japan is reduced resultingin lower level of output and low investments. To clear its excessive inventories Japanesecompanies have reduced production. Its output have contracted by 25% . Growth hasbegun slowing further and reduction in economic activity and lower levels of output isfurther throwing its economy in confusion. The market is worried of its high level ofdebts. Japan has plowed trillions into its banking system and yet the banks are scramblingto raise cash. With debts continuing to rise, Yen might fall. Look at the picture of China. China is no longer an emerging economy. Its hasalready arrived on the international economic platform. It is the world’s third largesteconomy. China wants to increase its share of global economy and want to surpass theeconomies of US, Europe and Japan. There is enough evidence to support the view thatChina wants its economic dominance to influence and control the entire globaleconomy.it wants to break –up the present world market and build a new global marketcontrolled by China. When China wants overseas acquisition in any resource rich countryit makes attractive offers with aid packages. Its aid packages include diplomatic support,arms sales and debt forgiveness. It is a trade driven diplomacy. As part of stimulusprograms it enforced domestic consumption .It dumped goods on people who could notafford to buy the same and forced consumption. In Hubie province of China it enforcedsmoking to boost its local economy via cigarette tax. China is aware that it is sitting onmassive bubble, which could set in motion a course of action that could bring aboutChina’s economic collapse. Look at the picture of Eurozone, the world’s second largest economy. July 2010Italy, France and Germany beat world expectations, showed growth and recovery. Italyshowed 1.0% growth rise, France 1.7% and Germany 2.6%. These three economies makeup two-thirds of Euro zones output. Almost all the other remaining 13 Europeaneconomies do not show due care for the consequences of their financial actions or theirattitudes. Some are falsifying statistics and making deficits look presentable. The biggestproblem in Eurozone is that there is still no formula for governing the dangerous politicalarena of public sector finances involving management of its money matters, credits andloans. The banks are in serious trouble comparing their risk indicator to that of USinvestment bank Lehman brothers Euro zones bank trouble are six times more worse.Years 2008 – 2009 Eurozone banks received state aid to help them with their liquidityproblems. These banks now are cutting new loans, calling old loans and restricting andhindering all economic growth. Year 2010 April, Euro zones finance ministers met tofind ways to halt Govt debt crises. On 15 May 2010, Jean-Claude Trichet president ofEuropean Central Bank warned the world that Europe was facing severe tensions. Intereston sovereign bonds had soared to 20%, was continuing to increase rapidly and the debt
crises has begun Worsening. Exports of the 16 Eurozone members have fallen, Exports toU.S. has tumbled by 20%. Euro zones recovery is fragile. All signs of worse coming. Asa whole Euro zones continues to suffer a worse financial trouble than the United States.The years 2010 to 2015 the world will witness a very high unemployment and a grindingdeflation in Eurozone. On the global economy the Eurozone crises is many times moresevere than the US crises. Look at the picture of Spain. Year 2000 to 2008 there was strong and healthygrowth in Spain. Temporary contract labor was widespread. Hiring and firing employeeswas quick and easy. The rapid housing growth brought about a strong job growth andrapid prosperity. Prosperity brought about an increase in the amount of money incirculation with a progressive increase in all round prices. Prices of goods and servicesrose to 35% and soon got out of line with the rest of Europe. Spain’s exports becameuncompetitive. Next the housing bubble busted. Unemployment soared Ten out of 100Spaniards were unemployed. Business became debt strapped and pushed downgovernment income obtained from taxation. Year 2010 the government spending thatexceeded its income was very high. Soon the income government was obtaining fromtaxation was so less that it turned into a crisis. Year 2010 Spain witnessed more than10000 businesses, unable to pay their debts and their properties had to be sold to paycreditors. Now “For Sale” signs are seen all over Spain. Spain is up for sale but there isnot enough money in Spain to buy everything that is being sold. Owners of smallbusinesses, struggling to pay corporate debts are searching for investors with new insightto save their long business. Spains government is helpless. It can do nothing to makethings better. Spain’s economic recovery is doubtful for years to come. Look at the picture of Dubai. Dubai is an important global financial centre. It isa place growing strongly with great commercial activity. Dubai is praised as a highlysuccessful example of an outstanding method of organizing businesses and developing aneconomy. It has been chosen as the most desired and suitable destination for large andconsiderable business operations by 18 out of 50 companies from “Global Fortune 500”list and 100 International banks including Citi Group, Deutche Bank, Lloyds, GoldmanSachs, HSBC, Samsung, Honda, Nissans, Siemens and GE. Dubai has the world’s tallestand swankiest building “The Bhurj Khalifa” with rooms for 30,000 people. It “ArmaniHotel and Residences” has 800 apartments, 160 floors, night clubs, office andcommercial spaces on its 144th floor. It stands 818 meters tall, has the worlds 54 fastestelevators. It is an engineering surprise and wonder. Dubai has the best through breeds andthe best jockeys. Dubai world with its innumerable high rise buildings can house half ofshanghai and all of Mumbai. It is the Las Vegas of the Middle East where everything isbigger and brighter. Dubai is the most desired destination for non-stop heavy dutypartying with its tax-free life-style. Big international events and major make over plansare in place. It recently held the priciest horse racing event on the earth. It invited 500celebrities including the British Prince Andrews, Liz Hurley’s business and mediaemperors from all over the world. 60,000 spectators watched the horse race and millionsglobally watched on TV the horse races and the synchronized fireworks. T he globalcrown’s jewels are all owned by Dubai. They are Dubai’s prized assets. Year 2006“Dubai’s World’s” annual revenues were just $ 5,400,000,000. It is ruler controlled
government owned company with no worthwhile assets. Nevertheless it generatedrevenues. Another Organization “Dubai Holdings” is the personal investments vehicle ofthe Emirates ruler Sheikh Mohamed Bin Rashid Al Maktaum. It borrowed fromInternational banks. On 14 December 2009 to avoid an “Islamic Bond” default linked to“Nakheel” the builder of man made “Palm Island” Dubai again borrowed from AbuDhabi. On 25 July 2009 “Dubai World” forced these banks to restructure debts until year2016 with interest of 20%. These banks were blamed for encouraging “Dubai World”lending in a debt trap. These banks were also asked to write off 40% of their loans.“Dubai World” has ring fenced its prized assets by refusing to sell these assets to raisemoney to pay these banks. When giving loans these banks had not asked for anycollateral security and now with Dubai’s prized assets not up for grabs these banks areshell-shocked. Dubai’s regional banks “Emirates NBD” and “Mashreq Bank” the twopivotal fund givers to UAE’s economy have maintained complete silence about theirexposure to the trouble. The other 97 International Banks too are not making any publicstatements to their exposure to crisis. Dubai and the Dhabi are maintaining secrecy aboutthe extent and depth of the crisis. A Greece is a tiny Country, smallest European Union. It accounts for 2%European GDP but has effect on the economics of European, UK, US and Japan.Greece spends more than its affordable that leads to more and more borrowing withoutdue care for consequences of its spending. There was no proper accountingadministration .The govt borrowing are rising and unable to get finance under control thecitizen of Greece have also shown no interest for the consequences.Greece had huge debt, most of it towards Europe. It has defaulted in its payment towardsdebt. Greece formally requested EU Partners for a bail out. Also European FM planned toraise a fund. Income obtained by government through tax collection is less then itsrequirement to run the country. There is decline is production of goods and service eachyear by 4%-5%.and its more parts goes to payment of interest towards loan. On one handGreece GDP is declining while other hand debt owes to public are rising. Greeceeconomy is struggling and declining it recovery is difficult task. Greece arise hasimpacted the banking sector of UK Spain, Portugal, US and Japan..It has also impacted toGermany and France .Greece needs long time to recover from its crises, may have towithdraw from European Union. Review its own Currency, devalue the stimulate growthand ease fiscal burden.
Indian economy is fast growing with its Performance level among BRICCountries. Year 2005-2008 it grow at 9%, with global slowdown an next year it grow at6.7%, September 2009 IIp showed industries output had grown by 9.1%In year 2010 economy growing by 7.2% .Full blown recovery was expected by end of2010. Year 2010-2011 economy is expected to grow at 8.5% and double digit growth in2011-2012.In this economy saving role is 35% and investment role is 37%India is considered to be top gold holder is world. India has more no. of billionaire’swants large portion from middle class. Rising income easy available loan which madeIndia has largest consumer market in whole world. In spite all this Indian economy is saidand distressing, it is slowly moving and developing into an economy diminishing value.It is economy that constructs more temples then schools. It is an economy thatmanufactures more cell phones then toilets and people cannot afford the basis necessity.Open area defecation that going into fields river and lakes. People suffer from numbers ofdeadly diarrhea and other intestinal disease and leads to their death from contaminatedwater and unhealthy sanitation. There are 840,000,000 poor in India of whichcontribution to 1/3 of world poverty .This 450,000,000 are living on less then Rs. 65 perday. This people are notable to efforts 30 kg of grains each month. Every year largenumber of people gets added to this group.Year 2001 to 2010 history has been created by Indian economy in distribution of itswealth. In this decade their were300000000 people were hungry, malnourished,underweight, and unable to afford medical care education due to earning of Rs.25to Rs30per day for their family. Buying food was great struggle poverty level was graduallyrising to pathetic nutrition level. Indian government has estimated 180,000,000 household for rations 223,000,000ration cards have been issued. A corruption ridden country with badly runprogrammes.There is 40,000,000 ghost cards and still adding. 14,000,000 tones of food isissued to BPL families 8,000,000 tones never reach the poor. Only 15% reach the poor.Pre-school meals provided to children goes to fatten cows and buffaloes by upper castebeaurocrats. Before anything can tickle down to the poorest it is taken away by the rich.The divide between the rich and the poor is widening gradually to frightening numbers.The Indian economy is finding it increasingly difficult to reverse the trend. India’s growth story is MALNUTRISTION. It is a non-inclusive economicgrowth. 600, 000,000 Indian’s do not have a bank account.144, 000,000 unfortunateIndians still practice barter system. Year 2015 projections say 782,000,000 Indians willbe living on less than Rs.100 a day (W.B. IMF report 2010). Indian economy is alsoplagued by labors growing careless and irregular attendance. How much will Indianeconomy help global recover?
Look at the picture of banks. Banks are extremely effective, highly competent,very complex, frighteningly powerful and potentially strong sector of the economy.Banks lend money to companies, individuals, and to one another through well designed,complicated and difficult to understand investment products, involving high riskexchange trade, bets and losses. Through the services provided by the banks billions ofpounds flow around the world each day. More than £ 10,000,000,000,000 worth oftransaction takes place each year in Europe and America alone. Trillions upon trillions ofpounds flow around the world every year. The transactions are complex and cannot beunderstood even by financial experts. Banks are designed to mange risk, to make economies efficient and stable, tooffer services for the safe keeping and lending of money, to create financial products tomake home ownership easy and simple to mange for millions of home less peoplelonging for home of their own, to set up internal rates that govern procedures of financialbehavior, to be client centered and work for the enrichment of mankind. The picture oftoday’s banks is different. They are more preoccupied with their own concerns and lessclient centered. Today’ banks deliberately act in a way different act in a way different from whatis regarded as normal or proper. They put their banks own interest and profits ahead oftheir clients. Their new ideas and methods of business is followed by relentlessadvertising and propaganda which gives an impression that they are observing the higheststandards of correct business behavior in a cultivated and refined society and takeadvantage of those less informed.These banks home loan schemes with teaser interestrates encouraged millions of jobless, homeless people to borrow money and buy theirdream homes giving the bank an undertaking in the agreement of handing overpossession of the home to the bank in the event of the borrower’s inability to repay theloan. The interest rates of the home loan schemes was too difficult and the scheme toocomplex for average borrower to understand. This complex scheme is designed withhidden knowledge of a list of items for certain failure and collapse of the home mortgagemarket.Giving money to a homeless poor person to buy a home, a loan which last only ashort period, with knowledge that the borrower will not be able to repay, knowing alsothat the borrower has no idea of the what is happening, or what is about to happen withlist of hidden items in the agreement. Next on borrowers default at some later datedragging him to court and forcefully and suddenly seizing his home is a well planedcrime difficult to prove. It’s an intelligent and indirect financial behavior improper andunsuitable of any financial institute, as the behavior goes around the outermost edge ofcrime but avoiding involving directly in a criminal act. Next banks issue credit cards to people, without having asked for the same.Issuing unsolicited credit cards banks adopt the “NINJA POLICY”. No incomeverification, no investigation to check the truth of the job and no through inquiry in orderto discover the truth of the assets of the people given the credit card. The people arecarelessly issued credit cards and on default banks take advantage of the card holder.Lawless violent persons who resort to intimidation trouble and annoyance are employedfor debt collection. A unsuitable and improper behavior having no space in civilized
society and criminal in nature.The ultimate logical end of such investments was thesteadily rising NPA’s of banks, as those who borrowed are not able to pay. Every banksaw a sharp rise in NPA’s and it distributed many economies. With levels of bad debts rising banks have begun focusing on debit cards and areslowly winding up their exposure to credit cards.To solve the problems of rising NP’schiefs of Indian banks have approached R.B.I. for policy level intervention. It wasbecause of NPA’s that in May 2008 the world saw the worst financial crisis in livingmemory. U.S. consumers are showing continued weakness and inability to pay debts.Year 2010 Bank Of America Corporation posted a loss of $ 1,000,000,000 on account ofNPA’s. Nevertheless the banks thinking, actions and ways of business has not changed.They show no respect for risk control. With rising NPA’s they want access to cashwithout end. To get this continuous access to cash they resort to unpleasant and annoyingfinancial methods. They indulge in excessive risk taking and operate undercapitalized.From the basket of assets held by banks they take some quantity of one type of assets andchange it to a new asset. This new asset created by the banks does not have a originalsource. They are poisonous assets created by pooling risky, secondary in value NPA’s.Using dishonest accounting behavior banks give an impression of greater importance tothese toxic real-estate assets than is justified and manipulate balance sheets. They providerating agencies with false information and get better ratings for these toxic assets than theoriginal NPA’s and mislead investors. Standards & Poor, Moody’s Services & Fitchratings gave excellent and superb ratings to such securities that had turned bad.The banks have found a lop-hole and are still taking advantage of legal technicalities andcoming out with more complex products. The rate of change today is six times than thegross world product. Another method adopted by the banks to have access to cash is use of complexfinancial engineering, legal technicalities and unhealthy accounting methods to makebalance sheets appear better. Their assets port folios are mostly junk value assets. No oneis willing to accept these harmful NPA’s. The banks also hold some high quality assets inthe form of government bonds and other high graded securities. These valuable securitiesbank sell to their rivals only for a few days giving an undertaking of buying back thesame after just a few days. And thus they access to cash. It is a loan from a rival bankwith good securities as collateral which is treated as a sale without admitting the liabilityclause. A short-term reducing of assets and risk. These misleading financial statementswere certified by senior bank staff. This method helped banks avoid regulatory bodies.They changed healthy established accounting standards to such degrees that banksthemselves could not make sense of their own balance sheets. Total risk taking andoperating fully undercapitalized.
Lehman Brothers 158 years old bank, Goldman Sach, Wall street giants andclients centered for 140 years, Morgan Stanley, UBS, Citi Group, Credit Suisse, DeutscheBank, Credit Agricole and Merril Lynch all indulged in these practices. Using thismethod in months of Oct/ Nov/ Dec 2007, Lehman Brothers in a careless manner soldassets worth $ 38,600,000,000. In year 2008 without proper care it sold assets worth $49,100,000,000. And year end 2008 it disposed assets worth $ 50,380,000,000. Thismisleading and cheating came to an end when J.P.Morgan and H.S.B.C. pushed LehmanBrothers into a confined corner only to protect their own banks endangered interests. Another unpleasant and disgusting method of getting access to cash wasleveraging. In a takeover the target company clubs its assets with a bigger company,gains advantage, influences investors and raises money needed for the takeover bid.There are too any banks resorting to this method and getting access to cash. Globally thebanks leveraged are very many and their debts significantly more than their equity base.These banks have got the economies of many countries into lot of trouble. It was thesefinancial engineering methods that in May 2008 lead the world to witness the worstfinancial crisis in the living memory. It pitched global economy into a black hole fromwhich it is not able to come out even after 2 years. Millions lost their lively hood. Millions lost homes. Economics got crippled. Itbrought about the collapse and national bankruptcy of Iceland. On Oct.2008 Dutchgovernment bailed out ING Group Financial Services with € 10,000,000,000 inemergency funds and asked it to purchase the shares the shares issued as bailout by Jan2009, and to pay than balance by year and 2011. After the crises created by these banksthe World – Economic- Forum at Davos discussed new financial regulations to check theactivities of these banks. Barrack Obama announced intentions to impose a fee on morethan 20 of the countries largest banks for crisis brought to U.S. economy and to recouptax payer’s bailout money. In August 2010 a civil suit was filed by Securities and Exchange Commissioncalming Goldman Sach had created and sold mortgage investment that was devised tofail. On April 26, 2010 U.S. senate investigation committee lead by Carl Levin,democrat of Michigan, claimed Goldman Sachs had bet against its clients putting its owninterest and profits ahead of the interest of its clients. Andrew Coumo the New Yorkattorney general has led an investigation into eight banks to determine the truth. Themodel of the “Big Bank” has failed. They have to be repeatedly bailed out by tax payers.The bank methods have transformed the entire financial reforms. It has changed the entireart and science of governing finance. However these bankers are least affected by thecrisis. They had a year to figure out how to participate in the global recovery. But they donot seem to have got the message. They continue with their methods already foundoffensive to every accepted standards of decency or modesty.
These big bankers and financers are the least loved in any economy. Public angerwill support anything even up to burning these banks. These banks ignore these mostovert signs of public anger. They are not afraid of any possible civil unrest. They arefighting vigorously against all reforms designed to restrain their taking andcompensation. They are resisting every attempt to impose self regulation. They haveeliminated only 50% of their poisonous assets. They continue fighting the deregulation ofthe financial sector so much that they want full freedom to operate under capitalized andfree of controls and complete non intervention by government in commerce. They arewarning the world that too many rules and too many controls would hurt global economicgrowth. They continue to gamble and bet against their clients knowing that “Success” theywill walk away with profits and “loss” taxpayers will bail them out. Their lending isdrying up. Their economies are still struggling but they are not willing to forgo theirbonuses and profits. Year 2010 Wall Street bonus season may be one of its largest eventhough banks holding European debts are facing heavy loses.They continue asking for bailout and are seeking debt forgiveness. None of these bankersresponsible for creating the disaster have gone to prison for their financial wrongfulbehaviour. Some of them were forced to retire in shame with huge payments to ease theirpains.$ 55,000,000 was given to Ken Lewis of Bank America. £ 25,000,000 was given toFred Godwin of Godwin of Royal Bank Of Scotland. The bank employees are being hugebonuses. It is the people who are suffering the most by the economic slowdown. The 20thcentury regulatory structure has become ineffective. Every intelligent person understandsthese things but does not think it necessary to unite to force the world to reinvent financeto protect global growth.