World Economic Meltdown Let’s Understand It By: SHIVAPRASAD ABALOOR
Root in US sub prime debt market.  <ul><ul><li>Concept of prime, sub prime  </li></ul></ul><ul><ul><li>Banking & mortgage ...
How the bubble burst <ul><ul><li>Increase in property prices, inflation led to sudden rise in interest rates by more than ...
<ul><ul><li>So subsequent collapse of property prices which is a result of pure demand and supply equation. </li></ul></ul...
On the other side of US economy <ul><ul><li>“ To live means to live for today, because tomorrow never comes”. This was the...
How terrible is the US financial crisis? <ul><ul><li>The continuing size of federal deficits has ensured the national debt...
<ul><li>Thus the US may owe at least half and quite  </li></ul><ul><li>possibly over 3/4th of its debt to East Asia and We...
<ul><li>So US is facing a double whammy (default from retail borrowers and public debt) </li></ul><ul><li>What’s the possi...
How this problem spread across the world <ul><ul><li>It’s like infective virus which infects every body who ever comes in ...
<ul><ul><li>So liquidity problem is a result of high redemption pressure from investors in MBS so financial institutions s...
Now let’s look at Indian scenario, is it intimidating? <ul><ul><li>What’s the exposure of Indian banks to these so called ...
Possible worries for India, how far India is insulated. <ul><li>Inflation which was supply side and fueled by 3 Fs (food, ...
<ul><li>Let’s find Possible solutions  for India </li></ul><ul><li>It’s mostly policy makers’ decision which can change In...
At the end should we treat India as  separate continent? Contemplate friends.
Now the boll is in ur court Blow it back with d quantum of doughts, and im here 2 reply. Thank U
Upcoming SlideShare
Loading in …5
×

World Economic Meltdown Let’S Understand It

1,891 views

Published on

hi, this was an attampt to find the actual root of this so called sub-prime crisis and also to analyse its implication on oyher countries including india. its a combination and culmination of philisopy, economics and bihavioural finance collectivelly makes greatre sence of this crisis. provide ur feedback to-(shivsportive26@gmail.com)

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,891
On SlideShare
0
From Embeds
0
Number of Embeds
4
Actions
Shares
0
Downloads
32
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

World Economic Meltdown Let’S Understand It

  1. 1. World Economic Meltdown Let’s Understand It By: SHIVAPRASAD ABALOOR
  2. 2. Root in US sub prime debt market. <ul><ul><li>Concept of prime, sub prime </li></ul></ul><ul><ul><li>Banking & mortgage loan </li></ul></ul><ul><ul><li>Concept of double mortgage in US </li></ul></ul><ul><ul><li>MBS- mortgage backed security (RMBS & CMBS) </li></ul></ul><ul><ul><li>These MBS are intern classified as prime and sub prime. </li></ul></ul>
  3. 3. How the bubble burst <ul><ul><li>Increase in property prices, inflation led to sudden rise in interest rates by more than 200 bps. So interest rates went up to 5% in USA. </li></ul></ul><ul><ul><li>So is sub prime defaults and power of magnification of losing by double mortgage. </li></ul></ul><ul><ul><li>Sub-prime mortgage make up 25% of US mortgage market, (while in UK around 8% only). </li></ul></ul><ul><ul><li>Prevalence of Flouting Interest rates(80%) added to the risk </li></ul></ul>
  4. 4. <ul><ul><li>So subsequent collapse of property prices which is a result of pure demand and supply equation. </li></ul></ul><ul><ul><li>House prices may well drop in some areas by 40-50% due to a massive glut of homes on the market. </li></ul></ul><ul><ul><li>Liberal lending norms in USA added to the tedium (landing 90- 105 percent of value of asset) </li></ul></ul><ul><ul><li>So margin trading (derivative) of these MBS faced with severe selling pressure. Higher margin requirements and subsequent redemption pressure squeezed the liquidity. </li></ul></ul>
  5. 5. On the other side of US economy <ul><ul><li>“ To live means to live for today, because tomorrow never comes”. This was the philosophy that the US people have believed in. </li></ul></ul><ul><ul><li>So only US savings rate has been negative, compared to the 40% plus saving rate of china and 30% plus saving rate of India. </li></ul></ul><ul><ul><li>So it’s all about philosophy which paved way for so many things, which almost no one would have thought of. </li></ul></ul>
  6. 6. How terrible is the US financial crisis? <ul><ul><li>The continuing size of federal deficits has ensured the national debt of the US runs close to over ten trillion dollars, just count the zeros for ten trillion dollars. </li></ul></ul><ul><ul><li>Foreign investors in this debt; East Asia (China, Japan, Thiwan,others) Holds $3-5 trillion. </li></ul></ul><ul><ul><li>West Asia (Saudi Arabia and the Gulf States) holds 2-4 trillion. </li></ul></ul>
  7. 7. <ul><li>Thus the US may owe at least half and quite </li></ul><ul><li>possibly over 3/4th of its debt to East Asia and West Asia. </li></ul><ul><li>Is a US Treasury Bill not an instrument that the Government of the today will honor? </li></ul><ul><li>And if it can not do so, does the lender not have recourse to the </li></ul><ul><li>assets that back the instrument? </li></ul><ul><li>Over half of US are mortgaged to them which is highly illiquid now. </li></ul>
  8. 8. <ul><li>So US is facing a double whammy (default from retail borrowers and public debt) </li></ul><ul><li>What’s the possible repercussions on US economy? </li></ul><ul><li>Will the Bail out package of $700 billion work? how it is planned to work? </li></ul>
  9. 9. How this problem spread across the world <ul><ul><li>It’s like infective virus which infects every body who ever comes in contact. It’s sentiment driven which has caused damage to the property prices across the world. </li></ul></ul><ul><ul><li>So is the possible after shocks even in the countries like India where the existence of sub-prime mortgage lone is very less. </li></ul></ul><ul><ul><li>But the EU will be getting the blow as the financial system though not as weak as US is some what similar in nature (double mortgage) </li></ul></ul>
  10. 10. <ul><ul><li>So liquidity problem is a result of high redemption pressure from investors in MBS so financial institutions suffered for it. </li></ul></ul><ul><ul><li>For the very sake Goldman sash, Lehman brothers, Bear Stern and AIG turned bankrupt. Many others UK, Island, Japan banks are on the way to,….. </li></ul></ul>
  11. 11. Now let’s look at Indian scenario, is it intimidating? <ul><ul><li>What’s the exposure of Indian banks to these so called MBS across the world? </li></ul></ul><ul><ul><li>Real estate prices in India seem more real since they continue to be backed by accelerated economic development and better purchasing power. </li></ul></ul><ul><ul><li>Our economy by nature has been import oriented, against our neighbor China whose export make up more than 65 percent of its GDP. </li></ul></ul><ul><ul><li>Our financial regulations are very conservative and have been viewed so for as most rigid. </li></ul></ul><ul><ul><li>Basic economic equation is in tact (i.e. demand, consumption, spending, saving, investments and earnings). </li></ul></ul>
  12. 12. Possible worries for India, how far India is insulated. <ul><li>Inflation which was supply side and fueled by 3 Fs (food, fuel, financial speculation) </li></ul><ul><li>Export industry's story is pain full (IT and Textile) </li></ul><ul><li>IT intern affect Real Estate in India </li></ul><ul><li>Indian’s dependency on Foreign capital (FDI and FII) </li></ul><ul><li>Widening trade deficit ($120 b ) </li></ul><ul><li>Increasing fiscal deficit (2.85%). </li></ul>
  13. 13. <ul><li>Let’s find Possible solutions for India </li></ul><ul><li>It’s mostly policy makers’ decision which can change India's future. </li></ul><ul><li>Emphasis on infrastructure development. </li></ul><ul><li>Systematic framework for risk containment of Indian financial markets as well as for banks and NBFCs’. </li></ul><ul><li>Attracting sufficient capital to boost industries. </li></ul>
  14. 14. At the end should we treat India as separate continent? Contemplate friends.
  15. 15. Now the boll is in ur court Blow it back with d quantum of doughts, and im here 2 reply. Thank U

×