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Mayur Pathak
Mayur Pathak • Sep 16, 2008

Is the world heading for a recession?

Bear Sterns collapsed
Lehman Brothers files for Bankruptcy
Merrill Lynch sold
Bank of China reduces interest rates
Citi, HSBC, Barclays bank all posting losses in billions
World's largest insurance company begging for bridge loan on $20billlon
Stock markets all over the world plummeting to record lows
Reserve Bank of India fighting to curb inflation
Companies laying off employees all over the place
Fluctuating oil prices

Whats happening to the world? Experts say the doomsday is very near. Are we headed for the greatest recession?
Kaustubh Katdare
Kaustubh Katdare • Sep 16, 2008
Voting for the obvious.
Mayur Pathak
Mayur Pathak • Sep 16, 2008
Yeah but its really sad. Why would a couple of bankrupt financial institutions in US dominate the world economy? See what the over dependence on one American economy has done to us.

😡
Well it shows balance of power is shifting,most of american companies are concentrating on emerging markets,those who didnt suffred losses
devesh
devesh • Sep 16, 2008
As far as the IT Industry is concerned,i believe the companies should go for European projects rather than US projects(and most of them are banking & Finance based).This could really help in emerging out of this tough time IT Industry is going through.
TCS & Wipro shared a fair loss due to merrill lynch sold out and lehman brothers bankruptcy.
Most of the companies have projects of the clients concentrated over North America and that too of the banking & finance sectors,So its pretty obvious that this issue will soon get more heated up and leave the ashes on the indian IT industry.Siren is ON already as Satyam is planning to fire around 4500 employees.So get ready for the blasts;-)..............
mayurpathak
Bank of China reduces interest rates
Reserve Bank of India fighting to curb inflation
This is interesting.. one fighting to encourage growth, the other fighting to keep it in control. Its a battle on two fronts!
Mayur Pathak
Mayur Pathak • Sep 16, 2008
AIG came to me as a shocker.

Interestingly, none of the European financial giants are as badly affected. All are American.

PS: They are saying worldwide humongous jobs are going to be laid off. In India itself the figure is touted to be over 20000. TCS and Satyam alone have about 2500 employees dedicated to Merrill Lynch alone. Add to this the Wipro and HCL ODCs of Lehman Brothers which is around 1000 combined. Deals with a combined worth of $200million are at stake. ICICI too have already written off $28million put on Lehman plus around another $180million it has invested in UK.

Boy! Picture is very scary.
Mayur Pathak
Mayur Pathak • Sep 16, 2008
ash
This is interesting.. one fighting to encourage growth, the other fighting to keep it in control. Its a battle on two fronts!
Yes because every body is worried. Too much stress on growth and the economy will by vulnerable looking at the global scenario.
Mayur Pathak
Mayur Pathak • Sep 18, 2008
Straight from Wharton Business School. Professor Olivia Mitchell and Kent Smetters's views on recent Wall Street debacle, AIG bailout and ways to prevent a multi billion dollar company from collapsing.

Abstract taken from Knowledge@Wharton: After refusing to bail out Lehman Brothers, the government agreed to an $85 billion loan to insurance giant AIG, effectively taking over the company. Knowledge@Wharton talked to Wharton insurance professors Olivia Mitchell and Kent Smetters to find out how the world's largest insurer got into this situation and how it can be prevented from happening again.
Download and listen audio here: https://knowledge.wharton.upenn.edu/audio/KW_AIG.mp3
Is the world headed for mega-depression????well these things happen and are temporary nothing much to worry about!!!!remember the IT slowdown few years ago!!!
Mayur Pathak
Mayur Pathak • Sep 19, 2008
Is it not? May be the world is not yet crumbling. But America has. Another giant Morgan Stanley is gasping for breath. HSBC has already rejected the chance of buying. Not its gone to China Investment Corporation and is literally begging for a take over. Its also initiative talks with Wachovia Securities for a possible merger.

Check morgan stanley news - Google News

The crunch has flown to UK as well. Last year Northern Rock, one of the mortgage giant failed. Now Lloyds has taken over HBOS, UK's leading mortgage company and its already shaken. Check Fears over risks of HBOS takeover trigger fall in value of Lloyds shares | Business | The Guardian

Do you think its still temporary my brother?
xheavenlyx
xheavenlyx • Sep 21, 2008
Hey, Mayur is it possible for you to write a small, non-formal article on this?? Please, it would be really helpful, as I still do not understand how this works!?

How can big companies "fall", or be bankrupt, when its the people who are paying them for their services. Is it that the stocks they have invested on have fallen and hence their investments have dissolved? and people stop taking their services, because the prices have increased and hence, they have no money for Insurance, credit and to put in banks etc, and no money to buy more, so the companies can invest more and so on...like a cycle??
gohm
gohm • Sep 21, 2008
Only if you believe it is. Since in a free market type economy it is all based on belief acting upon a securities market.
Mayur Pathak
Mayur Pathak • Sep 22, 2008
xheavenlyx
Hey, Mayur is it possible for you to write a small, non-formal article on this?? Please, it would be really helpful, as I still do not understand how this works!?

How can big companies "fall", or be bankrupt, when its the people who are paying them for their services. Is it that the stocks they have invested on have fallen and hence their investments have dissolved? and people stop taking their services, because the prices have increased and hence, they have no money for Insurance, credit and to put in banks etc, and no money to buy more, so the companies can invest more and so on...like a cycle??
Well actually all of it. All these were investment banks. They take your money and invest it some where or in some company. And they thrive on the return of investment. If the investment goes bad, the company loses humongous money. Check Investment banking - Wikipedia, the free encyclopedia to know how they work.

The current turbulence in US is all because of the sub prime crisis. Subprime lending is the practice of making loans to borrowers who do not qualify for market interest rates owing to various risk factors, such as income level, size of the down payment made, credit history, and employment status. In simple words, banks and investment companies give out loans at rates much lesser than market rates. The banks in US did just that and were hoping the property rates to climb at a phenomenal level. It didn't happen and they lost billions.

Check more here. subprime crisis - Google Search

Regarding the document, I will try to come up with a research paper as soon as I can.
Van Helsing
Van Helsing • Sep 22, 2008
Uhm... it appears to be an open war... fighters are unknown or at least well concealed.
raj87verma88
raj87verma88 • Sep 22, 2008
I think this is just temporary. Like a bump on the road. We will cross it.
@Van: Whats up man? You have posted after a long time.
well watever is happening i m loving it,it is good for our nation!!!!!!
Mayur Pathak
Mayur Pathak • Sep 24, 2008
sauravgoswami
well watever is happening i m loving it,it is good for our nation!!!!!!
Not quite sure about it buddy. What makes you say that?
xheavenlyx
xheavenlyx • Sep 26, 2008
Mayur, thanks for the brief explanation 😀

Got it now, ill read more about it.
I'm a little curious, are government agencies affected by this as well? Maybe they have some insulation against the financial crisis compared to private companies?
Yes it is indeed and it's a big shot!

Indeed the world economy is going into a recession. But let me correct myself. I feel its the overly globally dominated economy i.e. the American Economy that is sinking in Recession. The other countries just because they are linked to the biggie is been pulled in the mishap. This was bound to happen... I remember a story that shall best depict the whole drama.
A Single Spoilt Apple in a basket of Good Apples,spoils the other apples too!
The Subprime crises has had a major hand in this collapse. The biggest of the investment banks floated the derivatives which had the securitised mortage loans as the under lying asset. But now that there are no takers for these, the investment banks have ran out of cash. There is a crunch of liquidity.And alot of FIIs started unwinding themselves. And hence the stock markets crashed globally.
Numerous steps have been taken to overcome the financial disaster.Mainly pumping in cash was the first aid. So the FED and the world foreign banks have started revising the governing policies. The richest man in the world Mr. Warren buffet is investing a 5 billion dollar in the New York based investment bank Goldman. The fall of Lehman and the buyout of AIG has triggered a fear in the market. Alot of Lay offs are charted.
But not to forget that India is a growing economy and we still believe that. Because though the inflation has rised to about 11%, GDP has slowed down, the other day I read the agriculture produce has declined due to low rainfall. Also not to forget that we have started wisely revising the PE Norms, ECBs guidelines and I didn't tell you that compared to the last year agri produce which was a record high there is a decline this year but still we are the first on the charts of agri produce in the world this year. And the Rabi crops will make a better future so what if the Kharif couldn't! And don't forget Rupee is growing strong. Rightly said earlier in the thread Indian IT companies should diversify their projects and divert to European markets. Lot prudent steps need to be taken which I am sure will be taken.
Feeling better? So did I when I analysed the situation. Relaxing in my chair with a cup of coffee I felt... India has already gone through the darkest nights she will now only see the rising sun. Because thats what she deserves!
Good analysis, integratdbrains 😀
Mayur Pathak
Mayur Pathak • Sep 29, 2008
I see there are two votes saying recession is not around the corner yet. Cool, I like the optimism and I pray its true.
Mayur Pathak
Mayur Pathak • Sep 29, 2008
Ah! Worst fears might be coming true, not a savings bank goes down. Its time for Washington Mutual to get sold off. Check here Washington Mutual, a big regional lender, goes under | From Whoo hoo to boo hoo | The Economist

Wonder what all is in store for the American Economy now.
I wonder if the $700 billion rescue plan will work?
Mayur Pathak
Mayur Pathak • Sep 29, 2008
ash
I wonder if the $700 billion rescue plan will work?
I don't think so. WaMu alone has assets worth $300 billion.
MyInvestors
MyInvestors • Oct 14, 2008
I think the economy has slowed about as much as it is going to, but won't be picking back up for at least a year. Let's call that a baby recession.
Mayur Pathak
Mayur Pathak • Oct 14, 2008
Alright, so you say. Might be a baby recession. 😀

PS: Mods can you remove the link?
durga ch
durga ch • Oct 14, 2008
Australian government had a buffer of 22 bns $.today its announced they would be providing chirstmas expenses to pensioners 😀 and carers.and assuring stable bank funding for next 3 yrs
they are trying paint the town with smiles,,, but people are aware of economic crunch though government out is trying to mitigate the efforts as possible..

As far as UK is concerned,, the 5 major banks have already asked government for assurance and gov had obliged thus today there is a slight increase in the value of European marketvalue.except iceland whose market plunged 76% after reopening after 1 week
durga ch
durga ch • Oct 15, 2008
Came across this interesting analysis:

source unknown

IT all began with the sub-prime crisis.




If you lost your money in the market crash of January 2008, here's the route to your loss, in chronological order.


2001-2005: House prices in the US begin to rise rapidly. Banks lend aggressively and create a subprime industry.

Sub-prime lending refers to lending (at slightly higher interest rates) to people who may not be eligible for a loan under normal circumstances. Maybe they don't have a regular job or income, or have defaulted in the past.

Banks traditionally did not lend to such people due to high risk of default. But since these loans were mortgaged against property and property prices were rising continuously, banks started doing so. If customers defaulted, they good sell the mortgaged property.

2005: The booming housing market halted abruptly in many parts of the US.

2006: Prices are flat, home sales fall.

February 2007: Sub-prime industry collapses in the US; more than 25 sub-prime lenders declare bankruptcy, announce significant losses, or put themselves up for sale.

While they were lending, banks did not factor in the possibility of a fall in property prices. When the Federal Bank (the US equivalent of RBI) started increasing interest rates, the sub-prime borrowers started defaulting and banks started selling off the mortgaged properties. As more and more properties came into the market for selling, the property prices fell.

August 2007: Many leading mortgage lenders in the US filed for bankruptcy

March 2008: Bear Sterns falls.

September 2008: Lehman Brothers file for bankruptcy. Merrill Lynch sells off to Bank of America.

Between 2001 and 2006, the US financial markets had developed a new product - a bond securitised against the mortgages.

In simple terms it means that the mortgage banks borrowed money against the mortgages on the condition that they would repay to lenders as soon as they recovered their mortgages. The lenders in this case were financial institutions (like Bear Sterns, Lehman and Merrill Lynch) who in turn sold retail bonds to individuals.

Sadly, the repayment never happened. And institutions like Bear Sterns, Lehman, Merrill Lynch and AIG were the casualties. Since the mortgages were not honoured, the banks could not repay these financial institutions who in turn could not repay retail investors.
Kaustubh Katdare
Kaustubh Katdare • Oct 16, 2008
How long do you all think the world will take to come out of the economic mess?
Mayur Pathak
Mayur Pathak • Oct 16, 2008
The_Big_K
How long do you all think the world will take to come out of the economic mess?
My guess is about 6-9 months.

PS: Nice information Durga
durga ch
durga ch • Oct 16, 2008
Thanks Mayur!!!!😀


Its the market value which decide... If the investors start trusting the government and banks... recession might not last for long...
but the question is on what basics does this trust lie on??

Obviously the Big Brother has lost its stand ,thus pulling all other developing countires and dependent countries into the whirlpool...

best is to wait and see... no one could notice this recssion niether predict the same even thoough the streaks f it showed up back in 2001!!!
Update

It’s really sad that a lot of people are told to pack off… Actually if a company from the start maintains a good human resource account it helps in tested times. But many skip this step in a hurry to catch up with the profits. However I have returned to post some very important steps that our regulatory authorities have been taking since the collapse of the Lehman.
The Sensex has been falling and on Friday 17th October fell below 10,000 the SEBI (Securities Board of Exchange of India) has planned and made a lot of arrangements to curb the fall. Plan to ban the short selling. Often when there is a bear run the brokers start short selling which a term used for selling of shares that the brokers don’t own. They predict that the markets will fall and sale the shares that they don’t actually own with an obligation to buy it the next day before the market close. Thus they can buy the shares at a lower price than at what they sold. Thus the difference between the two is the profits they make. Due to this the markets loose out as the indices continue to fall. The SEBI had come out with stringent guidelines for overseas investments in the stock market. This was taken in the wake of the abnormally rising stock market index mainly the SENSEX. The step was to identify the route and avoid any sudden major collapse which would collapse the country’s economic back bone. But now it is thought of relaxing those norms to a certain extent though not totally.
It is very important to maintain the country as an investment destination for the foreign investors. Also the GDP has slowed down but in order to encourage the entrepreneurs and the producers within the country the interest rates are cut The ECB(External Commercial Borrowings ) cap has been raised to USD $500Mn to a previous of $ 100Mn. ECB is essentially an overseas loan that can be given by our country). In line with this we have cut the interest rates to lure the investors. The FDI Caps have been planned to be increased to 49% from the current 26% in the insurance and defense sectors.
The Banks stands as liquidity infusion and suction entity in the system. The RBI has cut the CRR to 6.5% (CRR is the cash back up to be kept with RBI by various private and public sector banks). It’s amazing to note that RBI had a few months back had increased the CRR to unusual heights of 9% but today perhaps that has helped to curb the liquidity crisis. The short term repo rates are cut today by one percent. The banks work on majorly on virtual cash. However the inter day operations are carried out by lending and borrowing from other banks if need be. This essentially helps the circulation of the money in the system. Due to the recent mishap, there was a loss of trust between the banks.(correctly mentioned in this thread earlier) The repo rate cut is to lure and also tempt banks to lend each other. An attempt is thus made to increase the trust quotient by financial incentive over the emotion quotient.
I like the way Honorable Mr.Chidambaran convinces the investors by saying ‘There is nothing to worry!’ Indeed with so many measures one feels so.
😁
We are all at the mercy of investors' confidence level! 😔
ash
We are all at the mercy of investors' confidence level! 😔
and economist says that 'worst is yet to come'

OMG, I can not imagine what would be the worst.😒😒
gomes
gomes • Jan 28, 2009
Its true that the world is heading to recession since due to the economic crisis in the world.Not only the government sectors but also the private concerns are affected by the crisis.
----------------------------
gomez

Red Hawk
Red Hawk • Feb 15, 2009
mayurpathak
Bear Sterns collapsed
Lehman Brothers files for Bankruptcy
Merrill Lynch sold
Bank of China reduces interest rates
Citi, HSBC, Barclays bank all posting losses in billions
World's largest insurance company begging for bridge loan on $20billlon
Stock markets all over the world plummeting to record lows
Reserve Bank of India fighting to curb inflation
Companies laying off employees all over the place
Fluctuating oil prices

Whats happening to the world? Experts say the doomsday is very near. Are we headed for the greatest recession?
This is actually a temporary recession.. IT industry has always been followed by crisis like these.. But it will emerge from this soon.. A proof for this is the coming back from the latest meltdown 2 years back.. There is also another thing to throw light on. this recession is not only for IT industry but for all industries.. TATA Motors, BMW, Honda and other MNCs are also affected greatly.. General Motors have planned to dismiss 10000 employees by this years end.. Everyone is affected in a direct or indirect way..

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