Friday, October 31, 2008

Economic Rumblings

There are certain things that calls for a greater understanding.How can one explain the plummeting economies world wide? Were
we sitting on an economic time bomb, waiting to explode?The views expressed here are personal and not related to any
organization or individual.
The world economy is in tatters owing to one country's extravagance!US the behemoth of the world always believed that its
economic juggernaut is too huge to be pertrubed by anything.Ha! the age old idiom stands vindicated! Pride hath a fall! and
only this time the fall pulled the entire global economy into an abyss. The over indulgence of the banks and financial
instituions to provide money to all sections of people in US has caused mayhem world over.The Banking Acts of US, which aimed
to help the underprivileged to step up to the altars of banks is the culprit. A law "Equal Credit Opportunity Act" and the right
to put a bank in the docks for refusing money made the banks overlook their poor credit history and the inability to repay
the loans availed. The irony is that the KYC or "Know your customer" programs designed to check the credit history of a
person will have no meaning in this situation!
No. I am not against providing loans to the underprivileged. Its just that a person staying in a caravan cannot be loaned an
amount to buy a house. This is way beyond commonsense. Look at how Grameen Bank has done business. It never said No to these
people. Instead, provided them money to grow a business.The money involved in this type of transaction is very little and
hence the associated risk can also be played down. If a guy prospers with his business, then sure, you can loan him for a
house!Not otherwise!
I really find it stupefying to see that great nations discuss all this risks and issues, come out with Basel I, Basel II
compliance for Banks and NBFIs but never check how to recover money from NPAs(Non Performing Assets).
This statement that my brother said some years back, comes back to my mind now "Dei, in US, credit card speaks for you. If u
want to urinate u need a credit card" Alright, a little crass but drives home the point. Plastic money on a circulation is a
big gamble. You loan to repay a loan and very soon, you are in a vicious circle. This statement was made 6-7 years back when
the economy was opening up. A study by a Japanese professor proves that the basic US understanding of Spending and not saving
is the major blunder the US economists could have come up with.
Thankfully, albeit a touch cautiously,I can say with pride that Indians have a better system in place. We too started
following the US pattern in everything. But our laziness in updating the banking rules or rather sticking to the old one and
only modifying where ever required has put us on a relatively safer side.
We do banking like any other business, as a business and not charity. If we had had laws similar to the US for loaning money
to the underprivileged, then we wouldnt have had an economy to talk about. As the FM says, our fundamentals are strong but
the building is a little weak. Not everything the US does is always correct.For that fact, everything is right until it goes
The liquidity crisis may also be caused by the fact that US has more plastic money than money in banks.I am no expert in the
US economy policies, but then the way they value a thing is totally different. Leasing is a primary business in US and major
financial institutions are a part of them. But when you dont have an attachment to the asset, then in the long run we tend to
lose respect for the same. In case of India, ownership is pride! We would crib until we pay off a housing loan or a vehicle
loan. And we want to do it fast,because it belongs to the bank and not us,until we get the original papers back. This
sentiment has brought in us a great quality of repaying the loan and may be this has also helped us in having a stronger
For a nation of our size, this global bloodbath would have hurt us more, if we had taken the US example of splurging and not
saving.Many a person says that the new generation in IT splurge the most. But how many of them know that IT people are the
most prudent when it comes to saving? They have invested in shares/land/gold or just about anything. But the amount spent by
an average IT guy is far less than his US/Europe counterpart. Infact, these splurging by the ITians have helped in creating
the booming economy India has.
Most of us will now be aware with the terms global economic crisis and fed rate cuts and bailout packages.And with the inborn
nature, we will be more prudent to come to terms with the crisis looming large.
Its time world took notice of how India and its people have saved up our earnings for such a rainy day.I pray that we make use of this opportunity to tighten our monetory policies, particularly the FIIs and their pull-outs,and
for an economy that can be self dependent and be insulated from the global impacts. A strong regulation of the FIIs and FDI
(Foreign Institutional Investers and Foreign Direct Investments) will help us in a long run!
And most importantly, a young employee of a company should never ever think of an insecure job!
So next time a person calls you a nut for saving and not spending hard, smile to yourself and keep going.After all,season changes and not all days are sunny!!

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