Tuesday, October 14, 2008

Anatomy of Crisis from TOI.

Over the past several weeks, TOI has sought to bring you a sense of the tectonic changes in the global financial order, and their impact on economies and people. In our 'Learning With The Times' series, we have traced the origins of the meltdown—in the US sub-prime loan crisis—as well as the reasons for the spread of fear to stock and credit markets around the world. As the situation assumes grave proportions, even in India, investors and to an extent depositors are hitting the panic button. Many don't follow business closely and are spooked by economic jargon. That doesn't mean they don't want to know what's happening to their money. We therefore invited economist Abheek Barua to explain as lucidly as possible the unfolding crisis, and what it means for all of us.

If your palms start to sweat whenever you see the business headlines or flip to a business channel, you might draw solace from the fact you share these symptoms with millions. Investors across the world are in a state of absolute panic. As they dump risky assets like shares and rush to safe havens like gold and government bonds, stock-markets and currencies across the world keep falling.

The origins of today's crisis can be traced back to mid-2007 when three things became clear. One, low income or sub-prime US households that had borrowed heavily from banks and finance companies to buy homes were defaulting heavily on their debt obligations. Two, the size of this sub-prime housing loan market was huge at about $1.4 trillion. Three, Wall Street's financial engineers had packaged these loans into really complicated financial instruments called CDOs (collateralized debt obligations). American and European banks had invested heavily in these products.

However, no amount of financial engineering could protect investors from one simple and irrefutable principle—if these housing loans turned 'bad', the instruments that were based on these loans would lose value. CDO prices started plummeting as defaults on US home loans rose. Falling prices dented banks' investment portfolios and these losses destroyed banks' capital. The complexity of these instruments meant that no one was too sure either about how big these losses were or which banks had been hit the hardest.

Banks usually never hold the exact amount of cash that they need to disburse as credit. The 'inter-bank' market performs this critical role of bringing cash-surplus and cash-deficit banks together and lubricates the process of credit delivery to companies (for working capital and capacity creation) and consumers (for buying cars, white goods etc). As the housing loan crisis intensified, banks grew increasingly suspicious about each other's solvency and ability to honour commitments. The inter-bank market shrank as a result and this began to hurt the flow of funds to the 'real' economy.

To cut a long story short, today's financial crisis is the culmination of these problems in the global banking system. Inter-bank markets across the world have frozen over. Indian banks are in the middle of a severe cash crunch. Wall Street blue-chips like Bear Stearns and Merrill Lynch have been acquired by other more 'solvent' banks at bargain-basement prices. Lehman Brothers, which had survived every major upheaval for the past 158 years, went bust. Panic begets panic and as the loan market went into a tailspin, it sucked other markets into its centrifuge. The meltdown in stock markets across the world is a victim of this contagion.

Some questions need answers at this stage. Why are the sensex and the rupee getting hurt so badly by the woes of the American and European banks? Their presence in India is minuscule compared to the nationalized banks or the bigger private banks. A glance at Indian banks' balance sheets would show that their exposure to complex instruments like CDOs is almost nil.

A word, 'globalization', and a phrase, 'risk aversion', should explain why India has not been spared the contagion of the US and European banking crisis. Global investors are seriously concerned about the prospect of a great upheaval, if not a complete collapse in the banking system in the developed world. This, they fear, would affect all financial transactions in the near term. Going forward, this disruption could trigger a global recession (that is about 3% growth in 2009 for all economies put together). Agencies like the International Monetary Fund have endorsed this view.

The upshot is that the global investment community has become extremely risk-averse. They are pulling out of assets that are even remotely considered risky and buying things traditionally considered safe—gold, government bonds and bank deposits (in banks that are still considered solvent). Emerging markets like India have over the last few years offered spectacular returns but have always been considered 'risky'. It is not surprising that they have got the short shrift in the flight to safe haven.

Does India deserve to be treated differently? Are we the victim of irrational 'herd' behaviour where differences across economies are getting blurred in this mad rush to safety? Yes and no. It is true that our economy depends more on domestic rather than external drivers, a fact that we keep touting endlessly. However, it is also true that we have embraced 'globalization' fairly enthusiastically over the past decade-and-a-half.

This, from an economic perspective, means two things. For one, we depend more on external markets to sell our goods and services. In 1995-96, for instance, we sold 9.1% of our goods abroad. In 2007-08, we sold 13.5% of our goods to foreign buyers. It also means that we depend more on external funds to support our growth.

In the last fiscal year alone, we borrowed $29 billion from foreign lenders and got $34 billion of foreign direct investment. A global recession would hurt external demand. 'Risk-aversion' among international lenders could limit access to international capital. Both India's financial markets and the real economy will be hurt in the process. Suddenly, the 9% growth target does not seem that 'doable' any more; we should be happy to clock 7% this fiscal year and the next.

The sell-off in the stock markets is not entirely the effect of global contagion. To a degree, it reflects anxieties about our prospects of future growth. The blood-letting in the financial markets is unlikely to stop soon. Governments and central banks (the RBI's counterparts) are trying every trick in the book to stabilize the markets. They have pumped hundreds of billions of dollars into their money markets to try and unfreeze their inter-bank and credit markets. Large financial entities have been nationalized. The US government has set aside $700 billion to buy the 'toxic' assets like CDOs that sparked off the crisis. Central banks have got together to co-ordinate cuts in interest rates. None of this has stabilized the global markets. Thus, it is impossible to predict when the haemorrhage will stop and what will stem it.

That said, history tells us that financial crises end as suddenly as they start. I would not be surprised if by early next year, the worst of the mayhem is over. The wounds that it leaves behind could, however, take much longer to heal.

Wednesday, July 30, 2008

Know your past!

Any tourist spot will have a rich history to cherish.
The people who are enthusiasts to seek for adventure or travel around will definitely want to get more information about the places they visit.

I guess this novel idea has stuck upon the creators of storytrail. They have worked upon to get as much intricate details to know about in and around places of Chennai.

Also for the enthusiasts who dont want to spend much bucks but to know the new places or myths behind them the blog site will be of some help. Blog

Wednesday, July 09, 2008

Teach India!

Riding on their successful campaign of launching - Lead India to create social awareness among the people, the times of India has come up with yet another brilliant initiative Teach India to make India shine even better. I guess this initiative comes due to a survey conducted recently by their TOI team, wherein they have found a reality that the student to teacher ratio in India is less than compared to other countries including china (though they are far more populous than us). With the advertisement of Lead India initiative bagging several awards in the recently concluded Cannes Festival, and the huge response to Teach India, we can even more firmly say that India is shining brightly.

Monday, June 16, 2008

Just for you!

Was searching for perfect lines for the art I tried my hands long time back. I felt nothing else can go together with the picture, so thought of posting my artistry immediately!

Just for this morning, I am going to smile when I see your face and laugh when I feel like crying.

Just for this morning, I will let you choose what you want to wear, and smile and say how perfect it is.

Just for this morning, I am going to step over the laundry and pick you up and take you to the park to play.

Just for this morning, I will leave the dishes in the sink, and let you teach me how to put that puzzle of yours together.

Just for this afternoon, I will unplug the telephone and keep the computer off, and sit with you in the backyard and blow bubbles.

Just for this afternoon, I will not yell once, not even a tiny grumble when you scream and whine for the ice cream truck, and I will buy you one if he comes by.

Just for this afternoon, I won't worry about what you are going to be when you grow up, or second guess every decision I have made where you are concerned.

Just for this afternoon, I will let you help me bake cookies, and I won't stand over you trying to fix them.

Just for this afternoon, I will take us to McDonald's and buy us both a Happy Meal so you can have both toys.

Just for this evening, I will hold you in my arms and tell you a story about how you were born and how much I love you.

Just for this evening, I will let you splash in the tub and not get angry.

Just for this evening, I will let you stay up late while we sit on the porch and count all the stars.

Just for this evening, I will snuggle beside you for hours, and miss my favourite TV shows.

Just for this evening when I run my finger through your hair as you pray, I will simply be grateful that God has given me the greatest gift ever given.

I will think about the mothers and fathers who are searching for their missing children, the mothers and fathers who are visiting their children's graves instead of their bedrooms. The mothers and fathers who are in hospital rooms watching their children suffer senselessly and screaming inside that little body

And when I kiss you goodnight I will hold you a little tighter, a little longer. It is then, that I will thank God for you, and ask him for
nothing, except one more day..............

Wednesday, June 11, 2008

Now you can find me in google too!

I came across this interesting piece of article which is really thought provoking. In an era where ecommerce holds a strategy for B2B or C2B businesses. It is really tough for the customers remember your website if it is lengthy or tough to remember. Here comes a rescue for that. Go through this interesting article for more info.
Google Search replaces Ads

Henceforth my business card is

Sunday, June 08, 2008

Ticketless Travel :)

You thought software guys have big bucks and ticketless travel is a far cry for them right ? I am one who proved you wrong :)

I happened to have a quick snack one evening at Ascendas, an expensive ice cream, cheesy steamed corn and concluded with an iced milk shake. Just an hour of chit chat with friends over the snacks and whoof goes about 500 bucks! But then who cares hmmm ??!

My plan was to get back to office (my bike was there and I had got to Ascendas with my friend on his bike) and get back home. Office being just two stops away from Ascendas, Tidel park to be precise; I decided to take the train to reach the office. Accompanied by my colleague, I reached the station and thankfully a train pulled off almost immediately. In the panic to not board the ladies compartment, I almost forgot that there is one thing called a TICKET to travel by the train! But then, my colleague was keeping her cool, being a regular traveller herself, and pointed fingers towards the ticket counter. The queue before the ticket counter was a small (!! where the hell is everyone going at that late hour huh!) one with 20 people in the line!

So now the situation is get the ticket and miss the train...hmmm...I quickly weighed the pros and cons and decided to opt to travel without the ticket and boarded the train ! Just two stops, just two minutes but it looked like two decades and I was already waiting near foot board to jump out of the train immediately it reaches the station. Finally, the train reached my stop and there I was, quickly getting out of the training and running to catch the lift as if the flight will take off any moment...

Once I reached the outside of the station, I sighed a big relief and my panting became normal. I was standing in a new world (only the same old area but I visualized differently).

Finally, I managed to get away with a ticketless travel and avoid the embarassment of getting caught, fined and who knows there would have even been a news on the next day...all tamil dailies flashing the interesting story about a software team lead's ticketless travel !!

Wednesday, May 28, 2008

How 911 affected me!!

This incident happened when I was bound to fly from Chicago to New Jersey in the year'07. The flight was scheduled at 6:45am and I was already late to the airport thanks to the traffic. My cousin barely succeeded in getting me to the airport on the scheduled boarding time.

When I reached the airport, I was visibly able to watch a big queue standing as in our railway reservation counters. (Only difference is, this is for security check to board a flight). Seeing this, my hope to catch the flight died off. Still I kick started my spirit and asked for a boarding pass. The clerk clearly told me I won’t be able to catch this flight and it is better to opt for the next flight. I had to get to my office and just could not afford to take half a day leave. But I was left with no other option than to catch the next flight which was scheduled at 8:45am. So I had to make up excuses to my boss on the inability of coming to office for half a day. After collecting the ticket, I joined the big queue.

When I was about to be allowed for security check the Lady Security officer looked me head to toe as if looking at an alien and asked me to give my passport. Going through my passport and me for a couple of times and asking a question of which part of India, she wrote "SSSS" on the boarding pass and punched a star in that. I was wondering what is happening and but I kept my cool thinking it would be a normal procedure. After that I entered the normal security check line but she stopped me abruptly and asked me to wait in a separate area. I was getting tensed wondering what the heck is happening?

After that an officer came and asked me to meet a officer and told me " What have you done sir to get caught today? I was completely perplexed with this question and told him the only word "Nothing". After looking at my worried face (which I wanted to keep coz I dont know what lies ahead) he told me that this is a kinda routine to catch few people in random and pass through this rigorous test after the 911 incident. Today you have just become the scape goat.

Ok, then made up my mind to do whatever they asked me to do. First they asked me to remove all the accessories am wearing. Thank god they didn’t asked me to undress! After that I was asked to stand in a room surrounded my glass walls. I guess it is scanning the entire body for finding anything susceptible in the body. After I came out they asked me to open the baggage I had. They didn’t even touched my bag as if am carryin ammunition. I had a bottle of water which they asked me to throw it off. Just minutes before I had bought that but I couldn’t explain anything.

Then they saw the lappy in my bag and asked me intriguing questions as if it was stolen. They scanned the laptop too. I don’t know how it senses the contents inside. Finally they relieved me saying “Sorry for making you go through this check”

I thought for a moment, "For bookin your timesheets, why do you guys unnerve innocent people!!”

After the final check, I was relieved and had to gulp down a heavy load of water to get myself feel relaxed.