AN INSIGHT INTO THE FINANCIAL CRISIS

What goes up has to come down is a well known saying amongst the scientific fraternity but little did we know that it also applies to 'Sensex'! Amchi Mumbai saw the
sensitive index which was on a constant rise since 2006, crossed the 20k mark for the first time and reached 21k in Jan 2008. Mumbai also saw its droopy phase
when US faced a rough weather in housing,credit and mortgage related sectors early this year which inturn affected the parasitic markets of the third world.As recently as Sep 17th the investment banking sector got a nasty blow when 'Lehman Brothers' filed for Bankruptcy.The fall of this 158 year old investment banking major which was unshakeable even during the 1931 'Great Depression' left wall street and the entire financial world gaping with awe.Shutter bugs didn't stop flashing as major biz wiz's of LB stormed out 745 seventh avenue in New York which also included our desi IIM grads.News channels were abuzz with the twitterings of their collapse and were running haywire to get hold of financial analysts who could give away the latest market story.

It began getting critical when markets projected a gloomy atmosphere early this year when the housing/real estate,credit and mortgage sector burned a huge hole in investor's pocket.Investors especially Lehman Brothers were a bit late in realizing that they were trying to fill a pot with a hole underneath until they posted a loss of $3.9 billion in the third quarter.Poor chaps! little did they know that this was the beginning of their collapse.Lehman Brothers Holdings Inc. Chairman and CEO Richard Fuld Jr. who was no rookie to the drastically changing financial conditions failed to judge the intensity of this financial turmoil.Finally world saw the day when LB filed for a chapter 11 protection.Their repeated pleas to the federal officials for emergency fund release so that they could bring about some liquidity in the market turned deaf ear.Inside sources say they also plotted a last minute survival act to isolate their rotten real estate assets from the rest of their divisions so that they could save a part of the company but lady luck frantically sped away from them.People say lightning does not strike at the same place twice but before we could bury the collapse of LB under the history of great downfalls world saw another insurance major AIG (American International group) reaching the brink of bankruptcy.They amazed the financial world with their blunders by plunging deeply into the mortgage sector and coming up with $13.2 billion in losses in the first 6 months if this year.This time federal bulls came to their rescue with a whopping $85 billion bail-out which literally means US goverment would henceforth own 80 percent stake in the company.Adding to this pain the bail-out plan was sanctioned for 11.5% interest rate over a span of 2 years.The spotlight was moved to the Bush administration which sanctioned the loan not looping whitehouse in the deal...hehehe looks like Bush steered another covert operation just like the ones he masterminded in Iraq and Afghanistan but this time in his homeland.Laymen in US saw a betrayer in Bush when they came to know that $85 billion used for the AIG bail out was their hard earned money shelled out as tax.This means the tax levied in the aftermath of the financial crunch would be higher in US and would be rising at least for the next couple of years.This led to a lot of hiccups in the post loan debate wherein the whitehouse crucified Bush and administrative council for this move.Lehman Brother's operations in Europe are now handled by Barclays and APA and middle east operations by Japanese financial giant Nomura.There are other companys which faced a similar downfall like Freddie Mac, Fannie Mae,Meryll Lynch,Wa Mu (Washington Mutual) and latest is predicted to be Wachovia.The story doesn't end here as the aftermaths of this depression is yet to be accounted and would take atleast 2 years to over come.Its tremors were felt even in India as people were quick enough to judge that a global meltdown is on its way.Banks like ICICI faced a massive loss of 375 crore as its UK subsidary had invested 57 million euros in Lehman Brothers.Next day papers carried news of ICICI account holders gathering around all its ATMs waiting to withdraw their money fearing a shutdown.The situation was then soothed by our FM Mr.P Chidambaram holding a press conference assuring the people of India that it wont repeat another US holocaust.Small time Investors now finicky about investing are turning their eyes to other investment options like gold,FD's etc which could reap some profits atleast for a couple of years.This is right time for major investors like Warren Buffet who like a vulture waiting to feed on dead companies as part of his 'value investing' could reap benefits.No points in guessing that this Oracle of Omaha became the worlds richest man by spreading his wings at the right time and at the right place.Analysts suggest that the financial world needs a lot of liquid fundings to ease the situation and bring the market back to track. Taking this into consideration US federal reserve is planning another major bail-out of $700
billion.This again is facing a lot opposition from most of the democratic and the republican party members.Looks like Obama and McCain have a good topic ponder on for their forthcoming electoral debate.India too has reduced its CRR (cash reserve ration) by 0.5% which could bring about Rs.20000 crore worth of liquid fundings which they think would loosen the bottleneck situation in India.

There are also other things which would take a hit because of this recession.Many jobs
might be at stake if the situation worsens especially in the IT/BPO sector.Few set of Analysts say that this might bring in a lot of jobs to India as outsourcing work to countries like India,Phillipines and China might help countries like US save some bucks.Recently many companies like HP (its EDS unit),TCS,Wipro announced their lay off plans to the media which might turn job hunters literally into nomads.Apart from these real estate sector is going to take a hit as the property prices might come down or may be there wont be enough buyers or traders of land as compared to 2006 or early 2007.Contemplating on these now seems to be a complex task as all these seems so interconnected .....sometimes I feel like the world is getting smaller and the 'Butterfly Effect' seems so pragmatic.Until then we as mere
spectators can sit back and watch.

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Abhicination