It's the Time to be Greedy


By

S. Muthu Nagai
A. Femina Nasrin
II-MBA
R.L. Institute of Management Studies
Madurai
 


INTRODUCTION:

The bullets of the U.S hosing market, has destroyed the economy all over the world. The greed and fear of wall street investment bankers suddenly changed the lives, lifestyles across the social  spectrum and careers of millions investors.

The financial crisis in the .S market diffused into global economy that has caused 'flu' across the financial markets in the world. This financial flu caused unemployment with shrinkage in lifestyle of many people.

TRACING THE BACKGROUND:

"ROME IS NOT BUILD OVERNIGHT"

Likewise, the financial crisis does not arise overnight. It went through several stages,

STAGE 1:

The U.S banks issued loans for housing purpose which clicked very well in the market. These loans were bought by Lehman brothers (U.S investment bankers) and converted into CDO's (Collateral Debt Obligation).

STAGE 2:

The CDO's are converted into multiple funds based on the return, vale, tenure of the loans. These packages were sold in the market as like shares, which was 'hot cake in the market'.

Generally, home loans go on for 20- 30 years and it would take long time for the bank to recover its money.

STAGE 3:

Bank expected defaulters to be 2-3% and convinced AIG  (American Insurance Groups) to invests in CDO's as a safety measure. Even, if some one fails to pay EMI , the homes can be ceased and sold for higher price.

STAGE 4:

The market expanded for traders and investors buying and selling their shares happily forgetting the underlying risk.

STAGE 5:

More people defaulted, more houses came on the market and prices went even down with no buyers. The "Financial Flu" started distributing the economy of US.

STAGE 6:

Wall Street firms stopped buying home loans from the local banks. This had a divesting effect on the small banks and finance companies which had borrowed money from large banks to issue more home loans.

STAGE 7:

The interest rate for home loans started raising from 2004-2006. People started selling homes in order to get back the minimum investment.

INVASION OF "FINANCIAL FLU" INTO WORLD ECONOMY

The global financial cob web built around mortgages on the brink of collapse. The financial bubble busted and shattered the dreams of millions of customers.

CONCLUSION

"Be fearful when others are greedy
Be greedy when others are fearful
"

The market is facing a very big downfall, investors are messed up and getting away from the market. But, the global experts view is that, "It is the right time to invest and it's the time to be greedy", as the major companies will be setting new profit records 5, 10 years from now.
 


S. Muthu Nagai
A. Femina Nasrin
II-MBA
R.L. Institute of Management Studies
Madurai
 

Source: E-mail November 25, 2008

 

         

 

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