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The financial market crisis: India's economy has dominated

Powerful financial institutions are falling one after another in the world's most powerful and economically strong "The country of United States of America." How did this happen? "To all and without warning? May Sometimes institutions Financial India one day? What effect will the current financial crisis in India? These are some questions that must be met by the Common Man.

This crisis began with the so-called "sub-prime mortgage crisis. This occurs when high-risk borrowers who are borrowers with a history of bad credit left default. The sub-borrowers have a poor record of loan repayment. In many cases, are poor and youth who are the sub-borrowers. There was a boom in real estate

United States since 1997. This has encouraged banks to lend almost everyone, the high-risk borrowers and sub-contractors. Also the government has encouraged banks to lend to the

poor people and young people to help you. Due to the boom in house prices have more than doubled during

this period. It is why banks are also safe to lend to these houses (mortgages). The rise subsequently led to an increase the massive housing supply which led to a decline in property prices. This led to the failure of subprime borrowers, who were not willing to pay for the houses began to decline in value. Since the default risk of mortgages to high risk is high interest rates on loans proportion was about two points above the interest on high loans. The rising interest rates also means EMIS significantly higher than borrowers Firstly, a further increase in default risk.

The two reasons above, the decrease in home value and interest rates higher costs led to a massive failure of borrowers.

Offenses and foreclosure activity increased dramatically, as easy initial terms expired, home prices have not increased as

expected and ARM (adjustable rate mortgages) interest rates reset higher. Foreclosures accelerated in the United States in late 2006 and triggered a financial crisis worldwide in 2007 and 2008. In 2007, nearly 1.3 million of U.S. housing units were subject to foreclosure activity, up from 79% in 2006. The mortgage lenders that retained credit

(risk the risk of default) were the first to be affected, as borrowers are unable or unwilling to payments. Large banks and financial institutions worldwide have reported losses of about U.S. $ 435 billion U.S. July 17, 2008.

The Banks and brokerages have had to cancel the overall estimated $ 512 billion in subprime losses so far, with larger samples taken by Citigroup ($ 55.1 million) and Merrill Lynch ($ 52.2 million). Just over half of these losses, or 260 million, the companies have suffered U.S. $ 227 billion for European businesses and 24 million euros for the relatively small Asia.

This crisis was the major U.S. financial institutions in the red. Some of them are bankrupt or were bought by other institutions. Here are some of the shocks that have attended:

Bear Sterns, one of the largest investment banks and trading companies Securities was acquired by JP Morgan Chase with the help of Federal Paper. The crisis has also seen Lehman Brothers – the fourth investment bank U.S. – File

bankruptcy. Merrill Lynch was bought by Bank of America. Freddie Mac and Fannie Mae have effectively been nationalized to keep them from sinking. Some reports suggest that major insurers AIG (American Insurance Group) is also under high pressure and asked to borrow 40 billion dollar bridge to overcome the crisis. If AIG also collapses, that will really test all the financial sector.

The ripple effects in India

The crisis may affect availability of credit the ordinary man who made loans more expensive, some suggest that we might even regard the mark of 16%.

Those looking to raise capital in the stock market will be difficult following the withdrawal of FII capital will be more expensive. Also be difficult for domestic firms to raise funds abroad in adequate amounts.

This is a decline in the labor market. Many companies and financial institutions and reduction of cost reduction.

Area banks Lehman invested in bonds of private security For example, ICICI Bank has invested $ 80 million, $ 55 mn SBI, PNB $ 5mn few. These banks will feel the impact and effectiveness will be a success.

Effect can also be seen in real estate and infrastructure projects. Meryill Lynch and Lehman Brothers have invested through FDI in several such projects in India. So the projects that received payments for this year are safe, but have still not received the pledged amount has hung their future.

The positive side

Some professionals from India may lose jobs but this was short lived as the talent to go where it is rare.

The global recession may not affect the business of outsourcing in India as foreign clients are looking for cheaper alternatives.

In conclusion:

India is a country with a population of over one billion so 1-2 is driven by consumer staples, which leads to high domestic consumption never let die demand. Also now lakh central government employees have a surplus of cash in respect of arrears that are due to the recommendations of the Committee pay sixth. They are seeking investment opportunities for tax savings. To see an increasing demand for real estate and other investment areas including securities markets. With a GDP of about 7-8% is a golden opportunity for India show the world that our economy is strong and we have the potential and sustained, despite the hiccups.

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Ph.D from IIT Kanpur in Innovation and Technology Management,Heads Sampling Research Pvt.Ltd,providing end to end Market,Business,Industry & Financial Research,Database management,field operations & Outsourcing solutions.

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