• India signs N-deal with France
    • Ending 34 years of nuclear isolation and formally bringing the country into the nuclear mainstream, India signed its first agreement on civilian nuclear cooperation with France for supply of reactors and nuclear fuel. France become the first Nuclear Suppliers Group (NSG) country to sign an agreement to cooperate on nuclear technology with India even as the Indo-US nuclear deal is still awaiting US Congressional approval.
  • Over 150 killed in Chamunda Devi temple stampede
    • About 150 devotees, mostly men, were crushed to death and 55 others injured in a stampede early Tuesday morning caused by a rush of devotees in the Chamunda Devi temple at Mehrangarh Fort, Jodhpur on the first day of the Navaratri festival.
    • In a virtual repeat of the Naina Devi temple stampede in Himachal Pradesh on August 3, in which 162 people were killed, 150 devotees died when they were trampled upon by other pilgrims as doors of the temple opened for worship at dawn.
    • Different versions have cropped up over the reason for the stampede with one saying that there was a scramble on the narrow 2-km path for gaining entry to the hillock shrine run by the family of erstwhile ruler Gaj Singh. Director general of police KS Bains said there was a power failure and some people slipped on the ramp leading to the shrine which caused the trampling.
    • In a similar tragedy three years ago, 340 devotees were trampled to death during an annual pilgrimage at the Mandradevi temple in Maharashtra.
    • Take a look at this graphic which gives a list of the temple tragedies that occurred in India. With this kind of queue management, do we need terrorists to kill us?
  • How is the liquidity crunch going to impact Indian corporates?
    • Overnight dollar rate in the overseas inter-bank market shot up to 6.88% from 2.57%, as banks abroad hoarded cash and refused to lend to each other.
    • A higher rate will hit corporates with dollar borrowings, while a dollar crunch will make it impossible for banks to extend trade finance to Indian corporates.
  • Why is the passage of the bail out package important for emerging markets?
    • The Wall Street investment banks are heavily invested in emerging markets on their proprietary account. If the US legislators do not clear the package soon, deleveraging (selling of assets) by the US investment banks could happen in a more precipitous manner. Such a hard landing may not be good for emerging markets as prices could crash across different asset classes. The idea is to soft-land the process of deleveraging, which is possible only if the $700-billion bail-out gets off the ground.
    • Take a look at the major developments that made up the crisis in the previous one month.
  • If you are asked to state the factors that were behind the present financial crisis, will your answer look like this?
    • There were four main factors behind this crisis. One, the US had long and continuous economic expansion with low inflation over the last 15 years, making financial markets and regulators complacent. They forgot that there is a “business cycle”. Only 18 months ago, regulators, particularly the US Federal Reserve, were focused on dealing with the so-called ‘liquidity glut’. In the process, they missed noticing the emerging risk due to asset price inflation, particularly in real estate.
    • Two, during these good times financial institutions (FIs), particularly investment banks, grew very large. They took big risks and made huge profits. In recent years, FIs contributed nearly 40%, as against the normal 10%, of total US corporate profits. They paid huge salaries to recruit the best and the brightest from top business schools, who, in turn, helped create and sell complex financial products, credit derivatives and other securities whose risks were not understood by either investors or the top managements of investment banks.
    • Three: The good times encouraged banks to take higher risks. Highly leveraged transactions with “life covenants” became the norm. Investment banks themselves, became highly leveraged: 32:1 for Lehman Brothers before it failed, as against 8:1 for a conservative bank. Investment banks did not have sufficient capital to support the risks on their balance sheets.
    • Four, there was major failure of leadership at most FIs. Dealmakers took charge and risk managers were completely sidelined. Credit was mispriced so much that there was only small difference in the yield between junk bonds and US treasuries.
  • A look at our fiscal and current account deficits
    • THE deficit in the current account of the country’s balance of payments has widened further as oil import bill has grown faster than income from software services exports and remittances from the Indian diaspora. The overall balance of payments has ended in a surplus largely on account of higher net foreign direct investment (FDI) inflows. The latest figures released by the Reserve Bank of India indicates the current account deficit amounted to $10.72 billion during the quarter ended June ’08 compared to a deficit of $6.3 billion in the quarter a year ago. The current account in the balance of payments measures the net position of a country’s exports and imports of goods and services.
    • The country's fiscal deficit was Rs 1,16,890 crore ($25 billion), or 87.7% of the full-year target of Rs 1,33,287 crore, in the first five months of 2008-09 as revenue growth slowed. Total expenditure in April-August 2008 was Rs 2,79,604 crore while receipts were Rs 1,62,714 crore, the government said on Tuesday. Tax collections slowed as rising interest rates and a global slowdown weighed on industrial production.
  • An analysis of India's domestic savings
    • This is a very good piece that appeared in today's ET. Must read. Do so here.
    • The analysis says among other things that properties form a major chunk of savings in India.

1 Comment:

Anonymous said...

Sir, I think the first point given for the financial crisis can be made more specific.

In particular, Alan Greenspan, the the Fed Chairman during the dot com bubble, lowered interest rates to historic levels. The increase in money supply or increased availability of cheap money was his way of avoiding the recession resulting from the impact of dot com crash and 9/11 crisis. A direct impact of his liberal monetary policies was US's ever increasing current account deficit and ever increasing asset valuations, as cheap money sloshing around inevitably found a route to asset markets and escalated prices to an exorbitant level.
The housing price bubble, continued availability of cheap funds and competition among FI's to lend to almost anybody in order to swell their balance sheets, resulted in sub prime loans being distributed at an unprecedented level.