Hot topic in the debate over the last few months, the U.S. recession. Debt market with subprime mortgage crisis collapsed the U.S. market, where its warmth spreads worldwide. Lost billions of dollars of investor wealth has crippled banking system, and plugged million jobs. To view the turmoil, the U.S. government bailedout 700 billion U.S. dollars.
Slip on a way to make I-BANKS TURN DOWN:
The same kind of financial crisis in the United States came in 1929. Until 1929 commercial banks put money intoStock market by SLR. Then, after government has some rules and not informed the commercial banks to trade shares or include investments in equity market and the activity was stopped. After 1930, investment banks (I-Bank) will be familiar with the public. They traded, investors wealth in the market, some Commission. I-banks benefit from ever more worthy of the Commission.
At the sight of the fertile profit in stock market I-bank owners started trading (Investingtheir own money in the stock market) I-banks earned huge profits in owner-commerce. After 1990, Federal Reserve relaxed some standards for I-banks. Earlier the borrowing limit was only 12 times the asset value what I have bank ceiled. But later the blanket was removed. With this loan benefit in the hands of I-banks to limit their amounts. Lehman Brothers lent 30 times their asset value of outsiders.
After 1999 there was in subprime loan market. This is given to the loanby the commercial banks have no income with no work and ASSET (Ninja) group. These loans were issued to customers through special purpose vehicle. Lehman Brothers borrowed home loans already issued to customers and cut words into collateralized debt obligations (CDOs), home loans into smaller pieces, packaging the pieces based on yield sets, value, tenure and sell them to investors around the world after a converted beautiful name "High Grade Structured Credit Enhanced LeverageFund ".
In the United States government bonds as collateral and secured loans, but Federal Reserve Bank reduced the interest rate to 1 percent into account. Investors have begun to seek alternative investments. At this point, CDO investments have been regarded as assured, as Lehman Brothers are backed by the CDO insurance with the insurer AIG default if satisfy everyone. It was hoped that their money will not be ruined off to. So they started investing in these CDOs. As more and more CDO's wanted byInvestors, the firm has pressure on banks to issue more home loans. This made the banks to issue more loans to NINJA groups.
Investment banks much invested their money in these CDO's. Then there is the problem. Began to tighten the economic situation in the U.S., which increased the rate of view. Most of the borrowers, the loans were ninja category they were not able to repay the loans with high interest rates. Many buyers defaulted loans and more houses came on sale on the market. Demandfor the houses also drastically reduced and the chain of the mechanism, with a commercial bank, investment bank blocked, investors and insurance company (AIG). Companies around the world who invested in Lehman Brothers suffered too much. Thus, most of the stock of companies are down again and reaches annual low.
Who is responsible?
With this scenario in hand, we should be blamed? If the commercial banks offering home loans released to customers whose creditworthiness is questionable? If theI-banks, funds from the attractive housing loan? If the investor invests in CDOs, the foolish, without any value analysis? If the insurance companies, which are backed up onto I-banks?
If we analyze, it is clear that all of the above persons contributed their part, even for this financial crisis. This mechanism looks more like "pull system". Investors demanded more, the I-banks to issue more CDO's, which the commercial banks to increase lending to public matter.
Butsome value investors such as Warren Buffet does not invest in CDOs, where these people into account small number. This clearly shows that the market is greedy and full of emotion and not rational. All investors can not rationally thinking people. At the same time, the market should have some relation between rational and emotional. If any of these percentage increases across a plain issue is a peep
FUTURE U.S. market:
The dilemma in the U.S. market is only temporary. The correction in the marketwill come, but it take some time to have it. Basically, companies are) (and other industries are still strong and its business is booming. When people are greedy and fearless, it is not time to invest. If people are afraid to invest the time to win. Now it is time to invest in the stock market by our risk under direct vision.
CONCLUSION:
Dawn to Dusk is a continuous process. Currently, U.S. and other international markets may at dusk but soonThey grow and add value for investors. Until then, investors should wait patiently and look ahead optimistically to the future.
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