Sunday, May 15, 2016

755 (Part 5/100 of Indian Economic Enigmas) Is there no chance of a Lehman Moment for India ? क्या भारत को लेहमान् संदर्भ मिलने के अवकाश नहीं है ? భారత్ కు లేహ్ మాన్ తరహా పరిస్థితిని ఎదుర్కునే పరిస్థితి రాక పోవచ్చా.



This is in continuation of our blogpost No. 749 dated 11th May 2016 . Click here if you wish to study 749 (Part 4/100 of Indian Economic Enigmas) . EconomicTimes.IndiaTimes.com dated 13th May 2016, has reported that Mr. Raghuram Rajan, Governor, Reserve Bank of India, has evinced interest in a second term, indicating that there is a lot more to do. He is also reported to have said that there is ABSOLUTELY NO CHANCE OF A LEHMAN MOMENT. It is good that all three top leaders of the Indian Economic System i.e. the Prime Minister, the Finance Minister, and the RBI Governor, have so much confidence and conviction, in the soundness and stability of their economic system. Let us hope that their hopes will not be belied.

SOME LOUD THINKING


When compared to writing on caste, religious and socio-political issues, it will be less cumbersome to write on purely economic issues, because we need not worry about somebody's sentiments or beliefs getting hurt. When we write on caste, religious, socio-political issues, we may unintentionally or inadvertantly tread on somebody's feet or trod on somebody's convictions, and in the process disturb a nest of honey bees, and be stung by the bees. Yet, I cannot go back from one of my two primary goals (Atheism, Marxism-True-Socialism). God and Religion continue to be the narcotics of downtrodden, in this world. They are worse than narcotics.

Weaning people away form God and Religion can be a thousand year job, which cannot be done by one individual. Individuals participating in the movements of Atheism and Marxism, will be like lamps lighting one another. Movements do not die, because participants die. New participants will come.

There can also be problems with writing without bias, and with candidness about the cold wars which take place between Governments and Courts, when they try to usurp the authority of one another, or both of them over-react in self-defence. These problems may vary from country to country. For example, in United States, Executive and Legislature, seem to have their say in appointment of Judges of lower and Federal Courts. In India, Supreme Court Collegium seems to want to have a monopoly in the appointment of Supreme Court and High Court Judges. This, will obviously irk the rulers of India, who wish to induct their own party persons into judiciary and extract favourable decisions.

As far as writers in India are concerned, there is always an apprehension of hurting either the Government or the Judiciary, while commenting on Judicial matters. There is a proverb in Telugu language "karavamanTE kappaku kOpam, viDavamanTE pAmuku kOpam". English gist: A serpant (snake) was biting a frog. A passerby tried to intervene. Both the snake and frog wanted the passerby to speak on its behalf. If the passerby says "bite", frog will be hurt. If the passerby says "leave it", the serpant will be infuriated.

BACK TO LEHMAN MOMENT



We shall, now, try to examine some of the issues involved, with regard to India going the way of Lehman moment.

Question: What is Lehman Moment? Explain briefly, for the benefit of those who are not conversant with this Lehman Moment.



"Lehman" refers to the American Investment Giant or Monster "Lehman Brothers". It is the largest bankruptcy filing in U.S. History (probably even World Economic History). This happened in 2008. Collapse of Lehman Brothers has close connection to sub-prime lendings made by American Depositary Banks.

Question: What is sub-prime lending? What are sub-prime mortgages?



Ans: The prefix "Prime" primarily may refer to "something of top-class, and the most important of the bunch". The "Prime" quality of mortgages obtained by banks from their borrowers depend on their medium term and long term lendings. Sub-Prime Mortages are mortgages which are backed by poor quality of borrower's creditworthiness, or the poor marketability of the mortgaged assets, or both. Sub-Prime Lendings refer to poor quality lendings of Banks.

Question : How can you say that the lendings made by American Banks are sub-prime? How can you say that the mortgages obtained by American Banks are of poor quality?


The foremost proof of good quality of a lending, or a mortgage is honoring payment of instalments of principal and interest on due dates. This is also called amortisation. Payment of one or two instalments in the initial years can, sometimes, give a misleading impression that everything is cherry and rosy cheeked with the mortgage / debt. Short term liquidity and solvency may be rosy. Medium term and Long term Liquidity and Solvency may be hanky-panky.

Fall in the repayment capacity of borrowers owing to changes in environment beyond their control, is understandable. Some times, there may be industry level collapses. Sometimes, there may be country or Nation level collapses. All these may be understandable.

Yet, the poor quality of the lendings and mortages of the American Banks both Depository Banks and the Investments Banks, cannot be attributed only to environmental changes, though they might have had their share of some contribution.

Subject to corrections and deletions. A lot more is to be added. To continue. सशेष. ఇంకా ఉంది.

No comments:

Post a Comment

ఘోరమైన విమర్శలకు కూడ స్వాగతం, జవాబులు ఇవ్వబడతాయి.