Sub-Prime Mortgage is no more a unknown word. People have started discussing it over coffee and it has suddenly become a buzz word. In the past 2 weeks I have notices at least 5 headline articles having this keyword in newspapers. So, its natural that everyone is eager to know more about the crisis which brought about the downfall of a 150 year old company. Here, I try to explain this crisis in simple "human-readable" terms.
Before dwelling into this hot issue, let me describe the current state of affairs (majorly in U.S market). We have seen that Lehman Brothers have filed for bankruptcy under Chapter 11. AIG has been taken over in a multi-billion dollar deal, to keep it afloat for god knows how long. Merryl Lynch was taken over (the deal was more like a give away price). Goldman Sachs and Morgan Stanley are no more just investment banks. Freddi Mac was brought by the US govt. And looks like many more are going under the hammer. So why is this chaos in the market. Well, to explain this I will have to start with the happenings as back as in 2001.
The US real estate industry witnessed a boom between 2001 and 2005, with property prices soaring to historic highs due to low property loans, interest rates and other factors. Some of the weaker borrowers, who were either on the verge of defaulting on their financial commitments or had already done so, owned house properties whose values had risen dramatically on paper. So lenders looking at increasing their margins were quick to spot an opportunity and lent money to such borrowers on the basis of this increase in the paper value of their homes and these loans were either used to repay the old loans or for other expenses. All was fine till the housing party crashed.
The US property bubble collapsed, and interest rates began to rise. The rising rates led to a spate of defaults by borrowers, as a result of which several US sub-prime mortgage companies had to declare bankruptcy.
The result was that the shares of lenders dealing in sub-prime mortgages took a tumble. That's not all. The effect spread to the entire financial markets because these lenders had raised monies on the basis of such loans and were now not able to pay them back. And the ripple turned into a wave, affecting a wide section of the markets, and then spread overseas.
Exact definition of sub-prime mortgage:
A sub-prime mortgage is a loan offered by a lender to a borrower with a poor credit history (meaning he has defaulted on his financial commitments in the past) against the security of his house property. Such borrowers are called sub-prime borrowers. Since the risk of default is high, these loans are offered at relatively higher interest rates compared to loans offered to people with an impeccable repayment track record. However these sub-prime mortgage loans are relatively much cheaper than completely unsecured loans to the same profile of borrowers.
How does this affect Indian market and does this slow down the Indian Growth Wagon?
The US sub-prime crisis has had a short-term impact on the Indian stock market and on credit instruments with overseas investments. Collateral damage in India was extremely limited, as Indian entities do not own structured finance instruments. In effect, all it has managed to achieve is to create panic among investors. But soon those who were too quick to shed off their shares will repent their hasty decision. Our market is strong (or as strong as before the Wall Street crash), and it is highly unlikely that a sub-prime mortgage crisis will ever happen in India, since most of the Indian population which has bad credit rates are Non-prime users. Borrowers falling in this category may have never defaulted, but have low incomes or may not have proof of such incomes. These people may have borrowed earlier, but from local moneylenders and not banks or formal institutions. This is the case even with the ridiculously high interest rates the local money lenders charge. There is a reason for this. Since lower income group people do not find the need for large capital investments, they only need to borrow to sustain their daily needs. So they would prefer small amount, short duration, no surety loans, which no banks offer. Because of this, I think there is extremely less chance that the Indian markets will fall as it did in the US for this reason. But I do think that it is time the property bubble collapsed in India too.
Tuesday, September 23, 2008
Thursday, September 4, 2008
Adaptability at Workplace
Recently me and my team performed a skit on Adaptability at Workplace. An interesting idea on its own, we had to perform on this topic as it is one of the Foundational Competencies of our company. Excited by this new opportunity to show our creativity, Darshan, Padmashree and myself assembled in a small Discussion Room to script and enact this skit. The most important decision to make was the fact that we got to know about the skit just 2 DAYS in advance. We had several doubts if the time was sufficient to come up with a script, and also the dialouges. We also had doubts of our ability to come up with an innovative idea for the script. But two things probably cleared the dilemmas. We found out that this was a competition, so there was that extra motivation to participate ;). But more importantly we came across the book "WHO MOVED MY CHEESE?" by Dr. Spencer. This was the "inspiration" for our script. Let me take some time in describing this amazing book.
This is a simple book, with a huge moral. This is that kindof book we generally have in middle school as Moral Science text books. It is a simple parable book that reveals profound truths about change. It is an amusing and enlightening story of four characters who live in a 'Maze' and look for 'Cheese' to nourish them and make them happy. Two are mice named Sniff and Scurry. And two are little people' - beings the size of mice who look and act a lot like people. Their names are Hem and Haw. 'Cheese' is a metaphor for what you want to have in life - whether it's a good job, a loving relationship, money, a possession, good health, or spiritual peace of mind. And 'The Maze' is where you look for what you want - the organization you work in, or the family or community you live in. In the story, the characters are faced with unexpected change. Eventually, one of them deals with it successfully, and writes what he has learned from his experience on the maze walls. Written for all ages, this story takes less than an hour to read, but its unique insights can last for a lifetime.
We just took the basic idea from this book. We had 3 charecters in our skit
1. A person who anticipates change, keeps himself ready by being upto date in current technologies, and basically plays the role of Sniff and Scurry. This was played by Darshan.
2. A person who is dejected by change, is at first reclutant to accept the change, but later realizes it is better to overcome the fear of new and unknown, rather than rot in a place where there is no future. This person adapts to change, allbeit a little late. But finds the journey to be fruitful.
This was played by Padma and she depicted the role of Hem.
3. A person who is angry that there has been a change. Who is adamant that his environment has to change with him, and not the other way around. Is constantly brooding over the changes that have taken place, and will never come to terms with it. This was played by me, and I tried my best to depict the charecter of Haw(I always play the bad guy role ;) ).
The 'Cheese' was depicted as AWESOME PROJECTS (which everyone desires for). And the change was depicted as the project getting shelved.
The skit started with all the 3 of us playing new hires in our dream company. We go through the rigours of training, and after 2 months of hard work, we get rewarded by getting the AWESOME PROJECT. In the beginning we are all enthusiastic about it. But 5 months down the line, when we are comfortable with the project, and can handle all the situations with ease, Padma and Me start to relax. But Darshan keeps himself upto date with the current growing and 'happening' technologies. 1 year into the project, we get a disastorous news that the project has been shelved. Although all of us are disappointed over it, only Darshan decides not to brood over this, and makes some calls and gets into another project since he was upto date in the new technologies that he had voluntarily learnt. Padma is dejected, and I',m angry. We feel that we have been cheated. This is the part where we try to potray that some one has moved our cheese. But after sometime Padma realizes that its not worth waiting for the project to come up again and decides to search for new ones. But it has been a long time since she has learnt anything new, and finds it difficult in the beginning. But she decides to enjoy the learning phase, and finally lands into another great project.
The final moral that we tried to portray was "Change Happens, Anticipate Change and Adapt to change as quickly as possible. Change is inevitable, So Enjoy the change as it will happen again and again."
And needless to say, with this script and an incredible performance(sorry for being modest :D) we won the first place!
This is a simple book, with a huge moral. This is that kindof book we generally have in middle school as Moral Science text books. It is a simple parable book that reveals profound truths about change. It is an amusing and enlightening story of four characters who live in a 'Maze' and look for 'Cheese' to nourish them and make them happy. Two are mice named Sniff and Scurry. And two are little people' - beings the size of mice who look and act a lot like people. Their names are Hem and Haw. 'Cheese' is a metaphor for what you want to have in life - whether it's a good job, a loving relationship, money, a possession, good health, or spiritual peace of mind. And 'The Maze' is where you look for what you want - the organization you work in, or the family or community you live in. In the story, the characters are faced with unexpected change. Eventually, one of them deals with it successfully, and writes what he has learned from his experience on the maze walls. Written for all ages, this story takes less than an hour to read, but its unique insights can last for a lifetime.
We just took the basic idea from this book. We had 3 charecters in our skit
1. A person who anticipates change, keeps himself ready by being upto date in current technologies, and basically plays the role of Sniff and Scurry. This was played by Darshan.
2. A person who is dejected by change, is at first reclutant to accept the change, but later realizes it is better to overcome the fear of new and unknown, rather than rot in a place where there is no future. This person adapts to change, allbeit a little late. But finds the journey to be fruitful.
This was played by Padma and she depicted the role of Hem.
3. A person who is angry that there has been a change. Who is adamant that his environment has to change with him, and not the other way around. Is constantly brooding over the changes that have taken place, and will never come to terms with it. This was played by me, and I tried my best to depict the charecter of Haw(I always play the bad guy role ;) ).
The 'Cheese' was depicted as AWESOME PROJECTS (which everyone desires for). And the change was depicted as the project getting shelved.
The skit started with all the 3 of us playing new hires in our dream company. We go through the rigours of training, and after 2 months of hard work, we get rewarded by getting the AWESOME PROJECT. In the beginning we are all enthusiastic about it. But 5 months down the line, when we are comfortable with the project, and can handle all the situations with ease, Padma and Me start to relax. But Darshan keeps himself upto date with the current growing and 'happening' technologies. 1 year into the project, we get a disastorous news that the project has been shelved. Although all of us are disappointed over it, only Darshan decides not to brood over this, and makes some calls and gets into another project since he was upto date in the new technologies that he had voluntarily learnt. Padma is dejected, and I',m angry. We feel that we have been cheated. This is the part where we try to potray that some one has moved our cheese. But after sometime Padma realizes that its not worth waiting for the project to come up again and decides to search for new ones. But it has been a long time since she has learnt anything new, and finds it difficult in the beginning. But she decides to enjoy the learning phase, and finally lands into another great project.
The final moral that we tried to portray was "Change Happens, Anticipate Change and Adapt to change as quickly as possible. Change is inevitable, So Enjoy the change as it will happen again and again."
And needless to say, with this script and an incredible performance(sorry for being modest :D) we won the first place!
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