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.

Inflation!

If you open any newspaper or tv channels these days, the one news which is very much talked is about Inflation. "Inflation percentage is getting higher and higher every day", "Commodity Price Index is getting increased", "Bush blames on China & India for inflation" so on.

Finance minister says that lot of measures have been taken in regard to this.
Next few days you will notice following headlines.

"Reserve Bank of India has increased the CRR (Cash reserve ratio). "
"The export of steel, cement has been controlled."
"Housing Loan rate has been increased."

If you are not sure on how this controls inflation. Check the site published by RBI with the intention of teaching the children, the very basic concepts about money. But this is really helpful to understand the very basics.

Inflation

Microsoft World Telescope.

When Google released the realistic 3D view of our earth in the name of product called Google Earth , guess the guys in Microsoft conducted a brainstorming session and thought why we can't release a product in the similar lines. The result is Worldwide Telescope

Check the article in Newyork times NYTimes

How good your handwriting will be!

Handwriting, Is it really appreciated in electronic era? I guess not, compared to how it was earlier. After the important exams became computerized this problem wont be a nightmare for many who don't have good handwriting. But it is still a problem in board exams coz the examiners weighs based on PAPER WEIGHT and HANDWRITING. After all they don't have time to go through all the answers of our students even they very well know there will be some cooked up story in the middle if the subject is dry and is full of theory.

In school you will be given italic handwriting book and asked you to write on that everyday each page or couple of pages. This happened till my 9th grade I guess. God only knows that it is not possible to change your destiny with the handwriting at that age. But the teachers are giving a hard try to make it atleast look not very bad. So normally this assignment will be done by your brothers/ sisters/ friends/ family coz you are very busy studying ( It is basically based on how much you have created a show) and you don't have time to do all these silly stuffs. After all eventhough your writing will be something like scribbling (KOZHI KIRUKKALS).

check your handwriting: handwritinganalysis

Be Right Back!!!.

Everyone would have used or would have come across with an acronym in your life.

Hey BTW where are you put up now???

Etho Americalaye piranthu valanthavannu manasula ninappu.. J. Valanthathu ennamo madasamy nagar , korukkupettai..

Sometimes you would have stuck without knowing what the person really intends to tell you by using these words. Anyway if the other guy is not known to you much you will simply keep that as a secret (chidambara rakasiyam) and wont reveal to him that you didn’t understand what he says. But sometimes it so happens that you need to reveal to him that you didn’t understand and you will be in a difficult situation if the other guys looks at you or tells like ( Enna itha kooda theriyalaya ayyo waste waste – unmai ennanna ithu mathiri blood niraya enakku nadanthu irukku). Do you want that kinda bizarre situation to happen in your life.

Herecomes the rescuer. http://www.acronymfinder.com

This website tells you all the acronyms that you would have come across in your life. Search this site and get yourself equipped to handle these kind of situations with ease.

Note: I can’t explain what is the meaning for acronym. Better you can buy Wren and Martin or 6th Std English Grammar he he heJ

PS: For those who is not able to catch what am trying to tell. Here are some of the examples of acronyms..
BRB, LOL, VOIP, PS……

How to remember a list in order...

The Number/Rhyme technique is a very simple way of remembering lists in order.
It is an example of a peg system using - a system where information is 'pegged' to a known sequence (here the numbers one to ten) to create pegwords. By doing this you ensure that you do not forget any facts, as gaps in information are immediately obvious. It also makes remembering images easier as you always know part of the mnemonic images.
At a simple level you can use it to remember things such as a list of English Kings or American Presidents in their precise order. At a more advanced level it can be used, for example, to code lists of experiments to be recalled in a science exam. The technique works by helping you to build up pictures in your mind, in which you represent numbers by things that rhyme with the number. You can then link these pictures to images of the things to be remembered.
The usual rhyming scheme is:
Bun
Shoe
Tree
Paw
Hive
Bricks
Heaven
Gate
Line
Hen
If you find that these images do not attract you or stick in your mind, then change them for something more meaningful. Link these images to ones representing the things to be remembered. Often, the sillier the compound image, the more effectively you will remember it Continued in comments....