Sub-Prime, Credit Crisis, Financial Meltdown etc. etc.

Since last one year the pot was boiling with the discovery of the sub-prime. The boiling pot has now exploded. Suddenly, the big investment bankers are all on the road. The big names are vanishing one by one. The US government is proposing to inject 700 billing USD to revive the patient but who knows it may be too late by now. The G 7 leaders are scratching their head to decide how to deal with this crisis. The G 20 finance ministers (including our own P Chidambaram) are going to meet soon for the same reason. There is a panic everywhere. Some have suggested that the CEOs of the big investment banks should be punished as they were responsible for all this. Some 80,000 persons all over the world may have lost their lucrative investment banking highly paying jobs – 2500 in India alone.

You will find financial experts all over the place (news papers, TV, internet, offices, parties, roads, trains etc.) painstaking explaining the A to Z of the sub-prime to the lesser mortals like me. We don’t have any option but to keep nodding our heads as if we fully understand what is being explained. The other day I was reading an internet joke which said that even George Bush finds it difficult to understand what hit the Wall Street and how the 700 billion USD bail-out package is supposed to help the situation.

Not so long ago, many thought that the world was going to come to an end when Y2K was supposed to hit the global computer networks. On 1st January 2000, did anyone find any mention of Y2K even on the last page of the news paper? What followed shortly was the software bubble burst and hundreds if not thousands were handed over the pink slips. Many retuned back disheartened from the USA.

From 2006 onwards till recently, we have witnessed the big economic boom supposedly fuelled by the Chinese Olympic. China was driving the world economy like mad. This boom had a big impact on almost every country in the world. India too made hay when the Chinese Sun was shining. Even sick public sectors like SAIL, NMDC and MECON suddenly turned into big profit making companies. Indian Railways too rode on the bandwagon and Lalu managed to hog all the credit and publicity. If Lalu got the laurels for the turnaround in Indian Railways, why no one got similar credit for turnaround in SAIL, NMDC and MECON? Everyone’s order books were overflowing. Everyone was getting bigger and bigger. Mittals gulped Arsenal, Tatas got Corus, Birlas got Novelis. These are only the big ones. The Indian M&A list is endless. Investment bankers were in huge demand. Even Hindi films started featuring Investment Bankers as their heroes with palatial mansions and BMWs. Remember Farhan Akhtar in Rock-on?

The Bull outside Bombay Stock Exchange

The blue eyed boys of investment banking were driving everyone to dream big. Loans were no longer being offered, but literally being forced. Remember every second day you would get a call or sms on your mobile to either offer you a loan or a free credit card. There was money everywhere. Real estate and stock markets cashed in on free flowing cash. Luxury Housing schemes and Shopping Malls were being built everywhere – even in B and C grade cities. Sensex knew no bounds and was heading north in big leaps. It managed to reach where no one would have thought it would reach. It crossed 20,000 marks before anyone could understand what was happening. Although NDA had paid the price for claiming it a bit too early but no one not even the Congress Party could deny that India was indeed shining like never before.

Lehman Brothers Head Office in New York

But if anybody thought that the boom was going to last forever, he had not heard what Sir Isaac Newton had said years ago – “What goes up comes down!”

Come 2007 and the whispering had already started amongst those who knew better. That’s when we heard the word “sub-prime” for the first time. Initially everyone thought it was some problem in the US and had nothing to do with us. But we were so wrong. The sub-prime crisis started getting bigger and worse with every passing day – the Domino Effect started hitting economies beyond the US. The economists had already started talking about the “R” (recession) word. Early in 2007, most people would have rubbished the idea but today no one can take that liberty. The fall of Lehman brothers has hit the final nail on the coffin. The paradise is over!

Amongst all this, there are questions which no one is asking and no one is answering. If the Chinese Olympics was driving the world economy since 2007, what will drive China now? Why the USD was plunging against all other currencies in the past two years and just when one would have expected it to dip even faster, all of a sudden, it bounced back like – what you can call – rising from the ashes! Newton never said it but the Americans were always sure – “What goes down comes up one day!” The oil price was rising all the time with falling dollar (some may like to put it the other way round) and there was a similar turn around perfectly synchronized with the USD. There was a time not too long ago when experts were talking about oil crossing 200 $ mark and now the same experts are wondering if it could go below 30$. When the oil prices were rising, everyone would have thought that OPEC was trying to take advantage and deliberately not increasing oil production. What do we say now? OPEC has already hinted at the possibility of cutting production to check the drop in oil price.

The world leaders swung into action immediately after the big boys of the Wall Street started tumbling. US announced the 700 billion USD bail-out scheme. EU leaders are talking about similar bail out. Finance Ministers of various countries are appealing for sanity and assuring the nervous masses that the fundamentals are good and all’s well with the economy. The big bear also hit the Dalal Street and worst affected was ICICI Bank which lost 25% in one single day. There was panic everywhere. People started queuing up in all branches of the bank to withdraw their money fearing a repeat of the Lehman Brothers. ICICI started fire fighting in a big way – sending sms and emails to all their customers, initiating action against a few brokers for deliberately causing the panic and even the FM had to come to the rescue. Next day the Sensex bounced back and so did ICICI.

This is not the end of the story it might just be the beginning! Pinching the famous dialogue of SRK from OSO – “Picture abhi baaki hai mere dost!” (“The movie is not yet over, my friend!”).

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Comments

  • Stacey Derbinshire  On October 15, 2008 at 6:00 am

    Nice writing style. I look forward to reading more in the future.

  • virtualopinion  On October 15, 2008 at 6:25 am

    Thanks Stacey.

  • Richa  On October 15, 2008 at 6:33 am

    Hi,

    I am Richa from SiliconIndia. I am also an avid blogger for a while now and participating actively in Indian blogosphere. I read your blog posting and found them very interesting and informative. We would love to see a copy of your blogs posted here, whenever you are posting it on blogger.com. Here are some of the benefits of posting your blogs here:

    We have a strong community of 1 Million professionals
    Best blogs of 2008 to be published in a book “SiliconIndia bLoG PrinT”
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    We appreciate your community initiative here and in helping build a more powerful India! Also, if you have any ideas or want to volunteer to help for SiliconIndia, we would be more than excited to get your help. Pls mail me back at richa@siliconindia.com with your suggestions and feedback.

    Richa
    Blog Editor – SiliconIndia
    http://blogs.siliconindia.com/

  • Adam  On October 15, 2008 at 3:03 pm

    I agree with you that this is only the beginning and things will get worse before they get better. If you get a chance to read Plunder by Danny Schechter I highly recommend it. He provides an excellent analysis and explanation of what happened in the U.S. and its global significance.

  • RITU  On October 19, 2008 at 4:32 pm

    Inspite of all these crises I have a strong belief that I ndia will become a huge financial power for this world.Funds are started flowing towards India.The next half of the picture will be around the shining India.I like your writing style.

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