Sub-Prime Crisis and India


Well, the Sub-Prime Crisis has now taken the sweat and blood of every economy with USA leading the list; indicating one of the worst recession in the last 30 years. Before I put my opinions, let me start with a small introduction to what is this crisis is all about. I have kept it as simple so as to be followed by any reader.

In the last 5-7 years, the reality prices soar like a bubble and as expected, it inflated so much that it got busted. The reality prices rose to the sky-high with not a single country being left affected, including India. Now, banks started with the loan system of availing the homes with almost no hassle and low interest rates riding high on the strong economic growth. In fact, later part, the banks gave loan without any scrutiny and with the options of no down payment and customers availing all the amount through loan. Customers were happy and so does the banks, The banks, then, started giving the bunch of these loan in the form of funds
to other investment firms as that of Bears. So, when everybody was happy, where did it go wrong?

The problem came when the reality sector got busted and prices fell. The customers backed out and so the firms like Bears got busted and banks, including the largest bank of the world-CitiBank recording huge losses; pulling down the US markets and the economy and many other problems.

Now, what makes India not getting affected so much with this crisis; holding strong when all the economies of the world have fumbled. The answer is CORRUPTION. Strange; right. Lets take a scenario in India to understand it better. When a house is brought, it gets registered at a considerable low price; thus, paying the remaining balance amount in BLACK money. Now, suppose, a person who buys an apartment for 80 lakhs shows 40-50 lakhs as registration in order to save tax and making out the rest from his BLACK income. Now, even though the price of the flat fall, the margin is such it has to fall considerably to make out this difference.

So, if we feel we are not affected, let us think twice in true terms. We are affected but is not visible in the short term but the long-term implications could be devastating. US economy may be struggling now but its fundamentals are so strong that it will definitely bounce back. But what about India, where major part of the country is controlled by few people, corruption and dirty politics. Not to forget, here government controls the RBI and various factors like inflation. What if they supress it for their benefits as elections are knocking at the door. Don’t forget how BJP suppressed the inflation figure during last time General Elections to put forward false “India Shining” campaign.

I support US economy here because the visibility is more and clear as they are privately owned bodies and privately owned bodies can’t take the losses onto them.

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