Jojo’s World

We all know about the Global financial crisis that exists & still getting worse! Have you ever thought How this will affect our life?

Before going into this, let me say in a few words whats this crisis!

The Subprime crisis

“subprime” thats the name of the beauty! Unlike the dotcom bubble (which was unexpected) this one is a fully predicted type. We all were knowing that such a crisis is gonna happen!

Actually whats this?

A simple observation will bring you the knowledge that the core affected one is US Banks & Investment sector banks in united states. “so banks are the villain!?” hehe! Nope! The real villain is the attitude of “PROFIT….AGIAN PROFIT….AGAIN & AGAIN PROFIT”

What happened is, the US banks let people to take loans against their property to build homes, buy flats, buy apartments. Is that the big fish? Noo.. I will explain.

Suppose you have taken loan from a bank 5 months before (thats on June) to build a home. You have borrowed 30 Lakhs agianst your 10 cents of land & building. What happens in normal case is, you get a loan of 30 lakhs, you build your home & you have to repay this 30 lakhs+Interest by some 5 or 10 years.

Instead what happend in the US?

You got a loan in June..rite? A sum of 30 lakhs! This 30 Lakhs is actually the market value of your property in June! Now after 5 months in October its obvious that the market value of your property will be 35 Lakhs (it will increase..no doubt!) The US banks called people who took loan & said “Hello Mr.X , You can get a sum of Rs.5 Lakhs too against your property loan sanctioned on June” Mr.X will not think twice! He will rush to the bank & collect that money too. If you are aware of American life style then you will be knowing that their savings percentage is NEGETIVE (Thank God! we Indians have +30%…) So Mr.X & his family will spend this money in posh life style & later they struggle to repay the loan. After several months Mr.X will realise that hes trapped & in no way he can repay this huge amount! Now what happens if thousand & thousands or Mr.X exists! This is the way how american banks went into a huge amount of cash out flaw & later into such a worse stage that they were forced to file BANKRUPTCY! (Leeman & Merryl linch are examples)

Worse situation!

Such stage arised when the banks tried to sell out the properties (which was surrendered against loan). By that time the property market fell down & banks were forced to sell properties for half or even less prices. Eg: Mr.X got a loan for Rs.35 Lakhs, but property market fell down & now when banks try to dispose this they have to sell it for Rs.15 Lakhs or less… FULL LOSE!

The Derivative Market

Now to get rid of such a huge amount of cash drop banks did another trick. They brought up a derivative model in the stock markets. By this model, they tried to raise the value by projecting out the properties in stock market! This is the key activity that increased the pace of this unavoidable crisis.

So these are the core reasons that created the beautiful “SUBPRIME” crisis in the real estate markets of USA!

Why should I bother?

Haha! In a single look everyone will feel like that! Why should I bother if some banks fall out in the US?! Lets have an analysis!

Now many banks have fallen & the “SUBPRIME” that exists created a bottleneck in real estate market & so TRADE IS NILL. Suppose the market share of real estate sector is 500billion dollars, that much amount is gonna cut off in one shot! You might have seen in newspapers that US Federal reserve is pumping money (huge amount of dollars) into market to save these banks & to exit from crisis. They are doing this to keep the trade LIVE. Trading will not happen unless MONEY is live. Now this huge pumping of money will create another problem of LIQUIDITY (Liquid cash). There will arise a problem of “CASH AVAILABILTY”

Such a finacial crisis will create fear among people & they will STOP spending too much, they will stop spending on luxury etc. Most people will limit their shopping to “just their needs” This will heavily affect the LUXURY & PRESTIGE businesses & they will wipe out! Similarly this will spread into other areas.

How we Indians are ?

We all know that IT & ITeS sector is the fastest growing of Indian economy & its cent percent sure that this crisis will create a bottleneck to its growth. This crisis will affect the complete outsourcing sector for some time. similarly EXPORT & IMPORT business will be affected. Export trade will diminish because of crisis & Import will be costly as the value of Indian rupee is diminshing (1$ = 49 rupees now). This Export & Import plays a major share in Indian market & so you can guess whats coming?!!

Crisis in the IT sector will force companies to revise their payments. At present IT people are getting a hefty pay & this will be cut down. Many employees might loose jobs too. This cut down in salaries will force the computer geniuses to “limit” their lifestyle.

They will STOP going to Pizzas, Coffe days, PVR MUX, will stope hanging out & spending in malls. So such business will be affected.

Cut down in salaries will force people to limit spending on “not very necessary” needs like CARS,BIKES etc. This will affect the entire automobile Industry!! So the need & demand of TYRES goes down now! Now what if TYRES are demandles?? OBVIOUS…the price of RUBBER will go down drastically! It has started already! 1 month before price of rubber was above Rs.100 per kilo & now its Rs.93

So my generalisation is the “SUBPRIME CRISIS” that exists in UNITED STATES will affect even a SINGLE RUBBER TAPPING employee in this gods own country Kerala (whichs a bottom line of the world)! This will affect every individual You, Me, Our friends, each & every one. NO ONE IS EXEMPTED!

So is this worlds end???!!

Hahaha! Hope not! Just look into the fundamentals of economy. No one will stop trading on necessary goodies…rite? You have to eat, You have to drink, dress etc etc for your survival! So everyone will continue trading on the fundamental goods & products! So theres no doubt that market will reach a steady stable state…but it will take time! I dunno how long? some days…some months…some years! Its purely unpredictable. I only know if FUNDAMENTALS are STRONG you can regain from any fall backs!

So this financial crisis is not the worlds end! Dont worry on that! It will teach the world to SAVE money & it will uproot peoples thirst for LUXURY! Sure this crisis will create a hindrance in worlds progress but it will not KILL! It will find another path on its way to destiny…thats PROGRESS of all HUMANS!

WISH YOU ALL A HAPPY SUBPRIME LIFE!