Totally surprised (floored in fact) by the overwhelming and unexpected response. Glad that the essay was useful to most of you and thanks for your comments. It is going to take me a really long time to revert to you individually. In the meantime, following is a summary of the feedback received so far:
Concerns:
* What is going to happen to Rohit? Shall I try and get him a job?
* Recent apartments built in Bangalore have only 30% - 40% occupancy levels
* When will things start looking up again?
* Financial Services firms have become too aggressive, shortsighted and only concerned about competitors
* Credit cards are being used to pay off housing loans in the U.S.
* The real estate scene in India seems ominously similar to what happened in the U.S.
* Could a similar crisis happen in India - with real estate prices having rapidly increased from 2003 to 2007?
* How safe is the Indian banking system?
* Indian banks have lately been pushing home loans aggressively, beyond people's needs – what are the repercussions?
* Indian banks have also operated in the sub prime space esp. personal loans? What will happen to them?
* Many shady real estate projects have cropped up and are being peddled as investments with assured returns
* With home loan interest rates increasing to 13% in India, people who took variable interest rate loans at 8% just a few yrs back are now facing significant EMI increase or tenure expansion; many Indian families are already struggling to meet their home loan EMI payments
Questions:
* Is it worth going to the US to pursue an MBA? Will the job market improve in next 2 yrs?
* Why did the interest rates rise between 2004-2006?
* What is meant by bailout?
* What is meant by sub-prime?
* How do credit rating agencies fit into all this?
* Why did the investment banks not give out home loans themselves instead of buying from banks?
* How are hedge funds involved?
* Is this the right time to invest in the equity markets in India?
* What is the reason for India's inflation in double digit? And what way American economy or Iran's Crude oil price is responsible?
Glimmer of Hope:
* Sub prime loans do play an essential link in the system; it only shows that there are participants who are willing to finance risky assets
* What has happened is nothing more than a temporary crash due to panic
* Financial engineering will go on and the financial system will get cleansed on its own
* Financial innovation has also brought in convenience (credit/debit card) and made loans (credit) easily available to people; Unfortunately it is the regulation that is slow to catch up with innovation and hence the chaos
Other Comments:
*"Perasai Perum Nashtam"
* All that glitters is not gold!
* Intentions matter the most in any business
* Indian stock market fall is not only because of FII's pulling out their money, but also due to global economic slowdown
* ‘High Leveraging’ (taking loans up to the neck without enough breathing space) and ‘Derivatives’ (complex instruments such as CDO’s) are the root cause for all evil
* Hubris and Hedonism are the underlying drivers
* Conservatism is the best guardian against such crisis
* Indian markets are no longer insulated from the world
* I can finally explain to my wife about the crisis
* I could explain it to my daughter in 10th standard
* You should write a book
* I felt as if I were watching a movie, when I was reading your article
* The article read like a mystery novel
* Even layman could understand
* The article was simple and succinct
Tuesday, October 7, 2008
Summary of your comments to ‘When the Bubble Burst’/ ‘The cost of financial ingenuity’
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9 comments:
You can also add
"it looked like it was happening in front of my eyes"
One more concern
"Can the same thing happen in India also , Even in your Country home loans are given very aggresively now a days , if not like US "
If same thing happens in India and banking companies go bankrupt , how does it affect some one
1. Who has no investments in Banks
2. Has no investment in Stock Markets
3. Has not taken Home Loan .
Manish
http://finance-and-investing.blogspot.com/
hi shyam, really nice of you to publish the epitome of the complete set of comments.
good job
is this right time to investment in real estate commercial spaces ?
Your explanation was brilliant . This comic strip is also very good
http://www.businesspundit.com/sub-prime/
hi shyam
that article was real good, and put in a way which was easy to understand. Was perplexed at the way things work in the market
There are so many strange things in our own market, now sure how the manage to work this but I know what is there in the market.
A friend of mine involved in the fabric business in Surat told me a a strange way of money transaction. If you need to take a payment the borrower will give you a draft or cheque of that value or similar value, which is not at all in your name. You can carry tha cheque in your pocket as cash and make paymet with that cheque again the name on the cheque is not of the person who is taking the payment. If you need cash against the cheque, you can go to any cashing agent ion the market and he will give you cash against that cheque. It's his responsibility to encash that from bank. There is a strong possibility of banks involvement in this. And the whole market is doing transactions in this fashion. One cheque on the name of a person anywhere in India can change 10 hands before someone encashes it. How they manage it I am not sure, but this is the way they do business, thats sure
Fantastic
Sub-prime need to be made into a HOLLYWOOD Blockbuster, and author be the script writer(?), sorry script documentor as it had already been written....
Article was simple, easy to understand, helped me gain an insight into the matter.
Hats of to the author.
Thanks
CA Atul Gupta
It was a great article.. but could you please try answer the questions raised in the comments? I would be interested to read them.
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