In one of my earlier posts, I wrote about the causes of global recession. This post become quite popular and hundreds of people thanked me for the simple explanation of this phenomenon. This is article is in continuation of what I wrote in that post.

Sub-prime mess which was the main theme of that post and the prime reason that eventually sparked a world wide recession is at best an immediate cause of the recession. In this post, I will throw some light on the reason behind the very emergence of a sub-prime situation and why despite pumping of billions of dollars into the world economy, it is still not showing any sign of recovery.

In my first post on recession, I told you about how availability of an easy credit situation prompted the US lending institution to lend money to sub-prime borrowers and how these risky deals turned into a nightmare for big financial institution. In this post, we will be discussing three main issues :

(1) How American economy became so full of cash that made availability of loans for almost everything so easy?
(2) Why American banks could not foresee the risk involved in sub-prime loans?
(3)  Why the situation is not improving as fast as expected despite stimulus package of billons of dollars?

From where the Cash came in US ?

In order to understand how US economy got flooded with dollars, we need to go back in time by a decade. In 1997-98, the tiger economies of Asia (a term used to refer the countries of South East Asia like Thailand, Malaysia, Indonesia etc) suffered a major economic crisis. Though it is not necessary to know the details of this crisis, a brief overview of that crisis will help us understand the current mess in world as it is all linked.

During those years, several countries of South East Asia had developed worrying financial weaknesses which were the results of heavy investment in highly speculative real estate ventures, financed by borrowing either from poorly informed foreign sources or by credit from under regulated domestic financial institutions.

The crisis began with wrong banking practices.  In those countries crony capitalism (where borrower had the connections with government) became too dominant.  The minister’s nephew or the president’s son could open a bank and raise money both from the domestic populace and from foreign lenders, with everyone believing that their money was safe because official connections stood behind the institution. Government guarantees on bank deposits are standard practice throughout the world, but normally these guarantees come with strings attached. The owners of banks have to meet capital requirements (that is, put a lot of their own money at risk), restrict themselves to prudent investments, and so on. In Asian countries, however, too many people were granted privilege without responsibility, allowing them to play a game of “heads I win, tails somebody else loses.” And the loans financed highly speculative real estate ventures and wildly overambitious corporate expansions.

This bubble was inflated still further by credulous foreign investors, who were all too eager to put money into faraway countries about which they knew nothing (except that they were thriving). It was also, for a while, self-sustaining: All those irresponsible loans created a boom in real estate and stock markets, which made the balance sheets of banks and their clients look much healthier than they were.

However, this bubble had to burst sooner or later. At some point it was going to become clear that the high values Asian markets had placed on their assets weren’t realistic. Speculative bubbles are vulnerable to self-fulfilling pessimism: As soon as a significant number of investors begin to wonder whether the bubble would burst, it did.

So Asia went into a downward spiral. As nervous investors began to pull their money out of banks, asset prices plunged. As asset prices fell, it became increasingly doubtful whether governments would really stand behind the deposits and loans that remained, and investors fled all the faster. Foreign investors stampeded for the exits, forcing currency devaluations, which worsened the crisis still more as banks and companies found themselves with assets in devalued baht or rupiah, but with liabilities in lamentably solid dollars.

In 1996 capital was flowing into emerging Asia at the rate of about $100 billion a year; by the second half of 1997 it was flowing out at about the same rate. Inevitably, with that kind of reversal, Asia’s asset markets plunged, its economies went into recession, and it only got worse from there.

Eventually International Monetary Fund (IMF) had to step in to save these economies. How these economies later recovered and at what cost is a different story.  However, this crisis brought with it some major lessons for the Asian economies. One of the most important lessons for them was to create a solid Foreign Exchange Reserve so as to withstand the most volatile exit of the money from their markets. High reserves promise safety in a storm. Therefore, most major economies of Asia (including the big China and India) adopted a strategy of maintaining high forex reserve so as to ensure safety from any such crisis in future.  This shift in priorities created a very interesting situation.

In the mid-1990s, the emerging economies of Asia had been major importers of capital, borrowing abroad to finance their development. But after the Asian financial crisis of 1997-98 these countries began protecting themselves by amassing huge war chests of foreign assets, in effect exporting capital to the rest of the world.

To say in other words, the Asian economy came in to a Saving mode. In order to maintain huge foreign reserve, they also started buying US securities. This resulted in a huge inflow of dollars into the US economy. As more and more dollars kept coming into the US economy from world over, the American investors started devising very sophisticated and innovative methods to convert the flood of money from Asia into a borrowing and spending spree for American consumers.

Now instead of writing as to how and why this saving tendency of Asian Economies has resulted into the current global mess, I would like to point you towards two excellent articles on this issues written by two of my favorites economists. These articles are very well written in a layman’s language and they will clarify all your doubts about the role Asian economies in current global recession.

The first article is : High forex reserves can worsen recession

Written by Swaminathan S. Anklesaria Aiyar who is Consulting Editor, Economic Times, the popular financial newspaper of India. He is my favorite columnist.

Second article is :  Revenge of the Glut

Written by noted economist, the Nobel winner Paul Krugman. In this article he has concluded that the world is suffering from a global paradox of thrift.

The above two articles provide useful information on how a global saving glut is worsening the recession. I did not feel the need to write on these topics as these two excellent articles are sufficient in explaining the role of Asian economies in the present global recession.

So let us again reconsider the three issues we started with:

(1) How American economy became so full of cash that made availability of loans for almost any thing so easy?

It was all because of the insistence of Asian economy to generate a huge Foreign Exchange Reserve that ultimately created an imbalance of global money flow. If you read the above two articles, you will understand this clearly.

(2) Why American banks could not foresee the risk involved in sub-prime loans?

As Paul Krugman has pointed in his article, it is because of the depth and sophistication of the country’s financial markets. In his own words, “American bankers, empowered by a quarter-century of deregulatory zeal, led the world in finding sophisticated ways to enrich themselves by hiding risk and fooling investors.”

In America which has such a long history of free capital markets, financial institutions have mastered the art of hiding risk and fooling investors. When a huge inflow of money is coming your way, a sense of wealth and greed becomes dominant in our mind. After all capitalism is all about profit and maximizing your return. Isn’t it?

(3) Why the situation is not improving as fast as expected despite stimulus package of billions of dollars?

One of the top global economist of the world (I don’t know his name)  has declared that the present crisis is a structural one , reflecting a serious global misallocation of money in recent years, which had created many bubbles that had now burst. Pumping in more money could not resolve the problem, since it amounted to an attempt to reflate the old bubbles. Instead painful structural change are the need of the hour, he said, and this could take years.

What we are seeing the world today is a global saving phenomenon.  American who were the front runners of global borrowing and spending spree have started savings seriously.  The national savings rate of America has bumped up to 5% in January from 3.9% in December. A year ago, it was at 0.1%.

Saving is not a bad idea. But if everybody on earth starts saving and no one choose to spend, the saving will lose all its meaning. It is a well documented theory in economics known as the Paradox of Thrift.  Suppose people decide to become more thrifty, that is, they decide to save more at each level of income, one might expect that this would increase the total amount of savings. But the simple Keynesian multiplier model predicts a paradox of thrift that total savings will remain the same and income will decline.

So when the situation will improve?

I believe in the spiritual mantra of “This too will pass”. This is not the first recession the world has ever seen and certainly this is not going to be the last. I think the need of the hour for individuals is to not loose hope and prepare themselves for future. Keep learning new things, improve your skills and above all don’t loose heart. The best brains in the world are at work to find solution to this recession. Eventually, we’ll find a cure. And even if nothing works, the greatest healer of all – the time – will subside this recession one day.

For every problem under the Sun,
there is a solution or is none
if there is one, try to find it,
If there is none, never mind it.

We all have a limited time span on this earth. A Recession, not matter how lengthy or worse it appears now, is a momentary phenomenon when compared on the global scale of our entire life time. Don’t allow this momentary phenomenon to overshadow the wonderful days of happiness and wealth which will definitely come in your life in the days to come.

Today as I wrote this I feel ashamed to call my self Indian. I feel really disappointed, helpless and above all hopeless to think as to why my desitiny decides to give me a birth in India.

We have just witnessed the biggest terrorist attack in the history of India. More than 125 people have killed for the past 24 hours and nobody knows when this ordeal will end and how much more lives it will take.

Do you know what is more tragic than the brutal killings of innocents on the streets of Mumbai? More tragic  than the death of some of our finest police officers? More tragic than the devastation of our premium hotels? More tragic than the fear on the face of a common Indian?

The most tragic thing than all the above is the fact that all of us will forget about this just after a few weeks. Period.

You can see for yourself as I write this. Just after a few weeks this tragic and the most devastating terrorist attack on the soil of India will be conveniently forgotten by our media, our politicians and our people. The life will go on as usual.

We Indians have become the biggest idiots in the world. A matter of joke for the entire world. We have developed an uncanny habit of not learning from our mistakes. We are so happy with our stupid TV serials, our senseless movies, our mindless reality shows that we have even forgotten what ‘SELF RESPECT’ means. We are the biggest nincompoop people in the world.

Those who don’t take a lesson from history are condemned to repeat it.

India has not learned any lesson from history. Let us admit it now. We are a nation of most selfish people on earth. We are senseless, emotionless and the least patriotic people on earth. Just about anybody can come here and humiliate us. Anybody can kill our loved ones and can destroy our properties. But we are so short of any self respect that we will not even raise an objection. We will discuss about this, we will write about this (just as I, an idiot myself, is doing right now), but we shall never take any action against those who challenge our sovereignty.

With all the talk about our so called great democratic system, let us admit that Indian democracy is world’s biggest hypocrisy. Our constitution has all the safeguard to protect the basic right of common man. Yet, here the only person who suffers  at every point of his life is the common man. He is humiliated by police, harassed by corrupt officials, forced to wait in queue, killed in bomb blasts and forced to live a life of uncertainty.

Our politicians always think in terms of vote banks. There every statement is a calculated one with only one aim – to appease one community or other. Our corrupt, selfish and impotent politicians have no concern for the image of India in world’s eyes. They are more concern about their vote banks than to do something meaningful and decisive to fight terrorism.

In a recent news discussion, one of our news channel asked an Israeli expert about  what can be done to fight terrorism in  India. The expert’s answer was simple and straightforward – “Nobody will come to rescue India. It has to fight it’s own battle.”

However, the biggest irony is that though India is capable of fighting its own battle, the politicians of India will never allow that to happen. We are condemned to be lead by a bunch of idiot jokers who don’t give a damn about their country. For them the entire issue is to secure, maintain and enhance their votebanks so as to ensure the control of power in their hand. Nobody is concerned about giving a final blow to the terrorist.

Dr. Manmohan Singh is one the most intelligent economists of the world. However, he is not a person we can look forward to in such time of distress. He is too soft to become Prime Minister of India. He is a very good academic but has turned out to be a very bad Prime Minister. Nobody takes him seriously. His presence does not instill any confidence in us.

In a recent interview, International terrorism expert Rohan Gunaratna said about India’s terrorism problem :

“The only way to prevent that, the only way to reduce the threat is to develop high-quality, high-grade intelligence on these groups, on the individuals, and to detect and disrupt those organisations – either to incarcerate or kill those individual leaders.

“Unless that is done, the threat of terrorism will grow in India. So India must rethink, must totally revise its counter terrorism policy and strategy as a result of this attack.”

But let me tell you in advance, don’t expect any rethink on India’s strategy to fight terrorism. Unfortunately, we Indians are not made up of that stuff. We are the most selfish people in the world. For us our castes, our communities, our religion and our voters comes first. There is no nationalism left in us. It has died long ago. The kind of people you see in today’s India are not the ones who used to be here once. Now you’ll only find stupid people who can blame each other, who can give money to terrorist so that they can fight a legal battle, who will blame Hindu sages for  terrorism, who will shamelessly support the minorities and reject every finger that points towards them, who will very conveniently forget all attacks on mother India.

I am really ashamed to be a citizen under this coward leadership who have lost all sense of purpose.

My dear India, you are great….

but my heart weeps as…..

your leaders have failed you.

Images Courtesy: Reuters

These days the most talked about news is the current financial crisis that has engulfed the world economy. Every day the main headline of all newspapers is about our falling share markets, decreasing industrial growth and the overall negative mood of the economy.  For many people an economic depression has already arrived whereas for some it is just round the corner. In my opinion the depression has already arrived and it has started showing its effect on India.

So what has caused this major economic upheaval in the world? What is the cause of falling share markets the world over and bankruptcy of major banks? In this article, I shall try to explain the reasons for recent economic depression for all those who find it difficult to understand the complex economics lingo and are looking for a simple explanation.

It all started in US…

In order to understand what is now happening in the world economy, we need to go a little back in past and understand what was happening in the housing sector of America for past many years. In US, a boom in the housing sector was driving the economy to a new level.  A combination of low interest rates and large inflows of foreign funds helped to create easy credit conditions where it became quite easy for people to take home loans. As more and more people took home loans, the demands for property increased and fueled the home prices further. As there was enough money to lend to potential borrowers, the loan agencies started to widen their loan disbursement reach and relaxed the loan conditions.

The loan agents were asked to find more potential home buyers in lieu of huge bonus and incentives. Since it was a good time and property prices were soaring, the only aim of most lending institutions and mortgage firms was to give loans to as many potential customers as possible. Since almost everybody was driving by the greed factor during that housing boom period, the common sense practice of checking the customer’s repaying capacity was also ignored in many cases. As a result, many people with low income & bad credit history or those who come under the NINJA (No Income, No Job, No Assets) category were given housing loans in disregard to all principles of financial prudence. These types of loans were known as sub-prime loans as those were are not part of prime loan market (as the repaying capacity of the borrowers was doubtful).

Since the demands for homes were at an all time high, many homeowners used the increased property value to refinance their homes with lower interest rates and take out second mortgages against the added value (of home) to use the funds for consumer spending. The lending companies also lured the borrowers with attractive loan conditions where for an initial period the interest rates were low (known as adjustable rate mortgage (ARM). However, despite knowing that the interest rates would increase after an initial period, many sub-prime borrowers opted for them in the hope that as a result of soaring housing prices they would be able to quickly refinance at more favorable terms.

Bubble that burst…

However, as the saying goes, “No boom lasts forever”, the housing bubble was to burst eventually. Overbuilding of houses during the boom period finally led to a surplus inventory of homes, causing home prices to decline beginning from the summer of 2006. Once housing prices started depreciating in many parts of the U.S., refinancing became more difficult. Home owners, who were expecting to get a refinance on the basis of increased home prices, found themselves unable to re-finance and began to default on loans as their loans reset to higher interest rates and payment amounts.

In the US, an estimated 8.8 million homeowners – nearly 10.8% of total homeowners – had zero or negative equity as of March 2008, meaning their homes are worth less than their mortgage. This provided an incentive to “walk away” from the home than to pay the mortgage.

Foreclosures ( i.e. the legal proceedings initiated by a creditor to repossess the property for loan that is in default ) accelerated in the United States in late 2006. During 2007, nearly 1.3 million U.S. housing properties were subject to foreclosure activity.  Increasing foreclosure rates and unwillingness of many homeowners to sell their homes at reduced market prices significantly increased the supply of housing inventory available. Sales volume (units) of new homes dropped by 26.4% in 2007 as compare to 2006. Further, a record nearly four million unsold existing homes were for sale including nearly 2.9 million that were vacant. This excess supply of home inventory placed significant downward pressure on prices. As prices declined, more homeowners were at risk of default and foreclosure.

Now you must be wondering how this housing boom and its subsequent decline is related to current economic depression? After all it appears to be a local problem of America.

What complicated the matter?…

Unfortunately, this problem was not as straightforward as it appears.  Had it remained a matter between the lenders (who disbursed risky loans) and unreliable borrowers (who took loans and then got defaulted) then probably it would remain a local problem of America. However, this was not the case.  Let us understand what complicated the problem.

For original lenders these subprime loans were very lucrative part of their investment portfolio as they were expected to yield a very high return in view of the increasing home prices. Since, the interest rate charged on subprime loans was about 2% higher than the interest on prime loans (owing to their risky nature); lenders were confidant that they would get a handsome return on their investment. In case a sub-prime borrower continued to pay his loans installment, the lender would get higher interest on the loans. And in case a sub-prime borrower could not pay his loan and defaulted, the lender would have the option to sell his home (on a high market price) and recovered his loan amount. In both the situations the Sub-prime loans were excellent investment options as long as the housing market was booming. Just at this point, the things started complicating.

With stock markets booming and the system flush with liquidity, many big fund investors like hedge funds and mutual funds saw subprime loan portfolios as attractive investment opportunities. Hence, they bought such portfolios from the original lenders. This in turn meant the lenders had fresh funds to lend. The subprime loan market thus became a fast growing segment.  Major (American and European) investment banks and institutions heavily bought these loans (known as Mortgage Backed Securities, MBS) to diversify their investment portfolios. Most of these loans were brought as parts of CDOs (Collateralized Debt Obligations). CDOs are just like mutual funds with two significant differences. First unlike mutual funds, in CDOs all investors do not assume the risk equally and each participatory group has different risk profiles. Secondly, in contrast to mutual funds which normally buy shares and bonds, CDOs usually buy securities that are backed by loans (just like the MBS of subprime loans.)

Owing to heavy buying of Mortgage Backed Securities (MBS) of subprime loans by major American and European Banks, the problem, which was to remain within the confines of US propagated into the word’s financial markets. Ideally, the MBS were a very attractive option as long as home prices were soaring in US. However, when the home prices started declining, the attractive investments in Subprime loans become risky and unprofitable.

As the home prices started declining in the US, sub-prime borrowers found themselves in a messy situation. Their house prices were decreasing and the loan interest on these houses was soaring. As they could not manage a second mortgage on their home, it became very difficult for them to pay the higher interest rate. As a result many of them opted to default on their home loans and vacated the house. However, as the home prices were falling rapidly, the lending companies, which were hoping to sell them and recover the loan amount, found them in a situation where loan amount exceeded the total cost of the house. Eventually, there remained no option but to write off losses on these loans.

The problem got worsened as the Mortgage Backed Securities (MBS), which by that time had become parts of CDOs of giant investments banks of US & Europe, lost their value. Falling prices of CDOs dented banks’ investment portfolios and these losses destroyed banks’ capital. The complexity of these instruments and their wide spread to major International banks created a situation where no one was too sure either about how big these losses were or which banks had been hit the hardest.

Mayhem in the banks….

The effects of these losses were huge. Global banks and brokerages have had to write off an estimated $512 billion in subprime losses so far, with the largest hits taken by Citigroup ($55.1 billion) and Merrill Lynch ($52.2 billion). A little over half of these losses, or $260 billion, have been suffered by US-based firms, $227 billion by European firms and a relatively modest $24 billion by Asian ones.

Despite efforts by the US Federal Reserve to offer some financial assistance to the beleaguered financial sector, it has led to the collapse of Bear Sterns, one of the world’s largest investment banks and securities trading firm. Bear Sterns was bought out by JP Morgan Chase with some help from the US Federal Bank (The central Bank of America just like RBI in India)

The crisis has also seen Lehman Brothers – the fourth largest investment bank in the US and the one which had survived every major upheaval for the past 158 years – file for bankruptcy. Merrill Lynch has been bought out by Bank of America. Freddie Mac and Fannie Mae, two giant mortgage companies of US, have effectively been nationalized to prevent them from going under. Reports suggest that insurance major AIG (American Insurance Group) is also under severe pressure and has so far taken over $82.9 billion so far to tide over the crisis.

From this point, a chain reaction of panic started. Since banks and other financial institutes are like backbone for other major industries and provide them with investment capital and loans, a loss in the net capital of  banks meant a serious detriment in their capacity to disburse loans for various businesses and industries.  This presented a serious cash crunch situation for companies who needed cash for performing their business activities. Now it became extremely difficult for them to raise money from banks.

What is worse is the fact that the losses suffered by banks in the subprime mess have directly affected their money market the world over.

Now what is a money market?

Money Market is actually an inter-bank market where banks borrow and lend money among themselves to meet short-term need for funds. Banks usually never hold the exact amount of cash that they need to disburse as credit. The ‘inter-bank’ market performs this critical role of bringing cash-surplus and cash-deficit banks together and lubricates the process of credit delivery to companies (for working capital and capacity creation) and consumers (for buying cars, white goods etc). As the housing loan crisis intensified, banks grew increasingly suspicious about each other’s solvency and ability to honour commitments. The inter-bank market shrank as a result and this began to hurt the flow of funds to the ‘real’ economy. Panic begets panic and as the loan market went into a tailspin, it sucked other markets into its centrifuge.

The liquidity crunch in the banks has resulted in a tight situation where it has become extremely difficult even for top companies to take loans for their needs. A sense of disbelief and extreme precaution is prevailing in the banking sectors. The global investment community has become extremely risk-averse. They are pulling out of assets that are even remotely considered risky and buying things traditionally considered safe-gold, government bonds and bank deposits (in banks that are still considered solvent).

As such this financial crisis is the culmination of the above mentioned problems in the global banking system. Inter-bank markets across the world have frozen over. The meltdown in stock markets across the world is a victim of this contagion.

Governments and central banks (like Fed in US) are trying every trick in the book to stabilize the markets. They have pumped hundreds of billions of dollars into their money markets to try and unfreeze their inter-bank and credit markets. Large financial entities have been nationalized. The US government has set aside $700 billion to buy the ‘toxic’ assets like CDOs that sparked off the crisis. Central banks have got together to co-ordinate cuts in interest rates. None of this has stabilized the global markets so far. However, it is hoped that proper monitoring and controlling of the money market will eventually control the situation.

How it has affected India?

In the age of globalization, no country can remains isolated from the fluctuations of world economy. Heavy losses suffered by major International Banks is going to affect all countries of the world as these financial institutes have their investment interest in almost all countries.

As of now India is facing heat on three grounds: (1) Our Share Markets are falling everyday, (2) Rupee is weakening against dollars and (3) Our banks are facing severe crash crunch resulting in shortage of liquidity in the market.

Actually all the above three problems are interconnected and have their roots in the above-mentioned global crisis.

For the last two years, our stock market was touching new heights thanks to heavy investments by Foreign Institutional Investors (FIIs). However, when the parent companies of these investors (based mainly in US and Europe) found themselves in a severe credit crunch as a result of sub-prime mess, the only option left with these investors was to withdraw their money from Indian Stock Markets to meet liabilities at home. FIIs were the main buyers of Indian Stocks and their exit from the market is certain to wreak havoc in the market.   FIIs who were on a buying spree last year, are now in the mood of selling their stocks in India. As a result our Share Markets are touching new lows everyday.

Since, the money, which FIIs get after selling their stocks, needs to be converted into dollars before they can sent it home, the demands for dollars has suddenly increased. As more and more FIIs are buying dollars, the rupee is loosing its strength against dollar. As long as demands for dollars remain high, the rupee will keep loosing its strength against dollar.

The current financial crisis has also started directly affecting Indian Industries. For the past few years, the two most preferred method of raising money by the companies were Stock Markets and external borrowings on low interest rates. Stock Markets are bleeding everyday and it is not possible to raise money there. Regarding external borrowing from world markets, this option has also become difficult.

In the last fiscal year alone, India borrowed $29 billion from foreign lenders and got $34 billion of foreign direct investment. A global recession has hurt external demand. International lenders who have become extremely risk aversive can limit access to international capital. If that happens, both India’s financial markets and the real economy will be hurt in the process. Suddenly, the 9% growth target does not seem that ‘doable’ any more; we should be happy to clock 7% this fiscal year and the next.

However, one positive point in favor of India is the fact that Indian Banks are more or less secured from the ill-effects of sub-prime mess. A glance at Indian banks’ balance sheets would show that their exposure to complex instruments like CDOs is almost nil. In India, still the major banking operations are in the hands of Public Sector Banks who exercise extreme cautions in disbursing loans to needy people/companies. As a result, we are not likely to see a repeat of sub-prime crisis in India. Though there have been a presence of big US/European Banks in India and even some Indian banks (like ICICI) have some foreign subsidiary with stake in the sub-prime losses, there presence is miniscule as compare to the overall size of Indian banking industry. So at least on this major front we need not worry much.

However, a global depression is likely to result in a fall in demand of all types of consumer goods. In 2007-08, India sold 13.5% of its goods to foreign buyers. A fall in demand is likely to affect the growth rate this year. Our export may get affected badly.

A negative atmosphere, shortage of cash, fall in demands, reducing growth rate and uncertainties in the market are some of the most visible aspects of an economic depression. What started as a small matter of sub-prime loan defaulters has now become a subject of global discussion and has engulfed the global economy scenario.

Greed of some…woes of billions

If you think about this with a cool mind, you will find that the underlying cause of this depression is the greed of those who failed to anticipate the consequence of their actions. On a more ideological front, it is high time to have a rethink on the very idea of free markets and capitalism. I think the time has come to evolve a capitalism where everything works under a broad regulatory framework and we do not see a repeat of this condition where greed of some people can affect the lives of billions.

So here concludes my attempt to explain the current economic crisis which has started to affect the lives of all of us. The above explanation is very simple and by no means it presents an accurate picture (i.e the one that includes all the micro/macro factors)  of the crisis. However, I hope that it must have given you a broad idea of the reasons behind current economic depression. Feel free to post your comments on this issue.

Update : Owing to the overhelming questions/suggestions of the readers, I have written a second article in this series : Reasons for Global Recession – Part Two. This article tries to explain the reason for easy credit situation in US that leads to the emergence of sub-prime mess. It also offers comments on why curbing the recession is taking longer than expected. Read it here.

The nuclear issue in India is becoming hotter and hotter day by day. As the Government proceeds towards completing its 5 years in power, the pressure is mounting on it to sign the nuclear deal with the US and ensures a secure energy future for India. However, still now the government is undecided what it should do given the relentless opposition of this deal by the Left Front. In fact the congress led government is making a huge blunder by not going with the deal and delaying it for the pressure tactics of left front. India and its foreign policy is certain to be hugely embarrassed because of this. As the US Government is also completing its tenure, it is unlikely that the next president (probably Obama) will show the same enthusiasm towards this deal.

I strongly recommend all Indians out there to read this thought provoking article on nuclear issue by Mr. K Subrahmanyam who is the top strategic affairs analyst of India. This article has been published in the today’s ‘Times of India’ and it will open your eyes towards what actually is the hidden agenda of communists in India. These communists are becoming more and more unpopular in India owing to their policy of every economic reform in India. 

Read this article here : Sleeping With The Enemy

On 13th of May Jaipur, the pink city of India, bathed in blood. In a short span of 12 minutes, 8 Bomb blasts rocked some of the busiest areas of the cities. It was the auspicious day of Tuesday when devotees offered prasad to Lord Hanuman. One of the bombs exploded near a temple thus creating communal tension in the area. On the last count, the blast killed 80 people and injured more than 150. Most of them were Hindus.

It was a clear repetition of previous blasts in Varanasi and Hyderabad.

In midst of this bloodshed and chaos, I am witnessing a very disturbing trend in India. Going by the way people, media and politician at large reacted to this incident; it appears that Terrorism has become a very normal thing for we Indians. Nobody seems to care about how serious this problem has become. In past, at least the whole nation remains in a state of shock after such blasts. However, now it seems to be business as usual and nobody seems to be concerned.

All fingers of the blasts point to foreign hands (Read Islamic fundamentalists groups in India’s neighboring countries). A few times ago, the only suspect was used to be Pakistan. However, now the network of Islamic terrorist has spread to Nepal, Bhutan and Bangladesh also and all these countries are being used for planning attacks on India.

I once read somewhere that the strategic policy of these terrorist groups is to bleed India by giving it thousands of wounds. Instead of fighting a conventional war with India, killing innocent people through bomb blasts is the preferred strategy of these terrorists. Since there are many traitors in India who work in collusion with these terrorists, it is extremely difficult to trace them in advance and prevent the attacks.

Living in such a situation where nobody knows when and how he can be killed in a terrorist attack, there is nothing an ordinary Indian can do except lamenting the fact that our Government does not have the strong will to tackle this problem. Ministers come, visit the wounded and express their sympathy. Politicians issue criticisms of the terrorist incidents like a ritual and some kind of compensation is issued to the victims. But nobody take the death of innocents as an attack on their country, as a hurt on India’s pride. Nobody take it seriously. Death of innocent on street has become a common thing in India. It is business as usual. During the past 25 years, India has seen Government of many Parties. Almost all political parties of the present have ruled India in one way or other. However, none of them took any interest in eradicating this problem in a significant way.

No wonder if we see more such attacks in the days to come.

Only if we could learn something from Israel…

In the comfort of our urban homes, we feel quite secure and immune from various ills that pervades our villages. However, media coverage of what is happening in the deep hinterland of Indian villages is enough to send a chill down your spine. I witnessed one such incident today.

Suspecting a woman of practising black magic, a villager mercilessly beat up the woman faith healer and tonsured her head in Bihar. He then tonsured her head and smeared her face with limestone.

45-year-old Lalpari Devi of a village near Patna had on Thursday gone to Adalchak village for treating one Manorama Rai, who was suffering from a mental ailment. As Manorama’s condition deteriorated during treatment, her husband Ramayodhya Rai got angry with Lalpari and tied her to a tree with the support of his neighbours and mercilessly beat her up. He did this in front of full media coverage.

The saving grace is that the Police soon reached the scene and rescued the woman. She was admitted to a hospital and later discharged today. Police lodged an FIR and have arrested Ramayodhya Rai.

Instead of my telling you how shocking this incident was, just watch this video:

A majority of Indians in villages still believe in superstitions. They prefer a magical cure to a proper medical one. The end result in most cases is suffering. We need to do immense work on education front to bring awareness among masses about these quack cures and their ill effects. Further, we also need to do something to ensure that women are not mistreated like this in India. I hope that the state Government of Bihar will do something tangible on this issue. Bihar has become a notorious state for such incidents of mass justice. People are routinely taking laws in their hand here. It is not a good omen for the Indian society as it not only reflects the backwardness of our society, it is also an indication of their growing mistrust on our judicial system. The society will crumble if people start taking law in their hand for settling their scores.

Are the human beings loosing their innocence ? I was hoping that at least our children are living in a age of innocence and they are the last lot of carefree people on earth. However, today I read a shocking (at least for me it’s really shocking) question being asked by a 12 year old girl who was inquiring about having safe sex with her 12 year old boyfriend ! They already had sex earlier (though not very successfully) and are planning to have it again on the boy’s birthday. The girl want to know about appropriate condom size for the brat.

My goodness ! What is happening to this world ? Where are the parents ?

Read this question here : Yahoo Answers

The only respite is the people who answered this question. They admonished the girl and told her about the risks involved in having sex in such younger age.

I hope such things do not become trends and at least our children remain innocent for some more time.

Delhi, the city I live in, is in the grip of a cold wave these days. It’s the third week of December and it’s really very cold here. The other day, I happened to talk with two guys who work as Parking Assistants in Delhi Metro. Their job is to manage the parking of vehicles (mostly two wheelers and cars) in the parking zone of Delhi Metro. It is not an easy job. I casually asked them about their timings and remuneration. They told me that they were not permanent worker there. They work under a contractor on just Rs. 100 a day. There are no holidays and taking an off from work means loss of a day’s income. Their work starts from 9 AM in the morning and finished after 12 hours at 9 PM. For this entire duration of 12 hours they remain in the parking area where there are no shade and no arrangement for any heater/ warmer.

In this chilling weather of Delhi, these people are doing such a tough job for a small sum of Rs.100 a day. If they work for 26 days ( excluding Sundays) their monthly income comes out to be just Rs. 2600. Seeing it from a dollar perspective, they are earning just $2.5 a day or $ 65 a month ! Most of them are sole bread earner of their family. With no social safety like insurance with them, it is just a battle of survival for them. Surviving on daily basis. Fighting everyday, doing all they can to earn $2.5 a day and support their families.

This is the situation of Delhi, the capital city of India. And I know this is not an isolated case. Their are thousands and thousands of people in Delhi who are earning a paltry sum of $2.5 a day (or even lesser). This is a stark reality of India. The picture is even worse in villages. You can yourself make a guess given the fact that still more than 70% of India lives in village.

On the other hand, I also see Indians who are earning $1000 a day from the Internet right from the comfort of their home. However, I feel that these people are among very lucky fews in India. As per this report, only 3.7% of the entire population of India use Internet.

When I see such a huge difference in the income of my fellow countrymen, the talks of an Indian(Mukesh Ambani to be precise) soon becoming the richest person in the world loose it’s relevance. We as citizens, as Government and as a nation have to go a very very long way before we can truly call ourselves a developed country.

I am thinking to start a simple tutorial series to educate people about income opportunities on Internet. Your valuable suggestions on this are welcome.

On the 60th independence day of India, the newspapers were filled with the success stories of India. There were talks of how it’s image has changed in the eyes of Western World, how globalization has brought happiness on the million of faces, how our economic reforms have changed our life style totally…and many things like that.

‘The Guardian’, a leading newspaper of England, published a special theme on India and gave this headline about India :

“This is the best place in the world to be born right now. “

After reading all these things, I had to think whether we have really developed so much to deserve such attention for the world over. I did some reality check and found that though, to a great extent India has changed, there are many areas where we are far behind than others. The economic reforms which started in the 1990s have brought some very positive developments like a boom in service sector especially in IT industry, a resurgent share market, the buying spree of Indian companies the world over, a very high growth rate and a very healthy foreign exchange reserves. However, still there are many areas which need our urgent attention. Here is a reality check for the `superpower of future:

Health

Health care Budget of India is just 0.9% of Gross Domestic Product (GDP)

Average amount a person spends on health care in India – $82

45% of Indian Children under five are malnourished.

Yet it has become a Hub for Medical Tourism : An angioplasty that takes $50,000 in US costs just $11,000 in India. Heart Surgey costs $6000 (as against 30,000 in US) & Bone marrow transplant costs $26,000 (as against $2,50,000 in US).

Politics :

25% Members of Parliament (MPs) have criminal records.

99% MPs were elected despite getting less than 50% vote !

We have one of the lowest voter turn out at 58%.

There are 173 registered political parties in India.

Economy

40 richest Indians are worth $170 Billion

26% of population still lives below official poverty line.

To nearly 70% of country, financial service means nothing more than a saving account !

Before nationalization (which happened in 1969), there were a total of 8,262 Bank branches in India. Now upto March, 06 there were 71,177 Branches

Per Capita Income is Rs. 29,382, it was just Rs. 255 at the time of independence:

A nation comprising many nation :

In village area of Orissa (an Indian State). Poverty rate is 43%.

In village area of Bihar (an Indian State). Poverty rate is 41%.

These rates are below Malavi and Ghana : one of the poorest countries in the world.

Whereas in

Village area of Haryana (an Indian State). Poverty rate is 5.7 %.

Village area of Punjab (an Indian State). Poverty rate is 2.4 %.

These rates are better than Costarica one of the most developed countries of South America.

Some more hard facts about economy

100 millions Indians are unemployed.

We have 50-million child labour.

Our manufacturing sector 1/5th of China and contributes only 17% to GDP.

60% of country is still employed in Agriculture which contribute only 22% to GDP.

Education :

33% of all illiterates of world live in India. In china this figure is just 11%.

There are 200 millions children in India and 50 millions don’t go to School.

80,000 Schools are without Blackboard.

1,44,000 Schools have just one teacher.

Literacy rate is 67% which was just 14% in 1947 (at the time of independence)

Housing :

100 million people live in slums.

30 millions house are required for lower and middle class.

In Human Development Report of 177 nations, India is at 127th place. (China is at 85th and Sri Lanka at 93rd)

Law & order

We have 13 judges per million of population.

There are 3 Crore (30 million) pending cases in our courts – 25.5 millions in District & Sub-district court , 3.36 lakhs in High Court & 39,000 in Supreme Court.

We have one of the lowest conviction rate just 42.4% (in 2005). Japan & Russia have 99% conviction rate.

Pollution

CO2 emission per tonne per capita :

India – 0.9, US- 19.5, China – 2.7 and Russia – 10.7

This is a positive fact. Our contribution to air pollution & global warming is minuscule compare to our population of more than 1 billion.

Yet India generated 29,129 million litres per day (MLD) of sewage out of which only 6190 MLD could be treated. The rest 22,939 MLD was being dumped into rivers etc each day. (Data up to 2005)

Over 50% of Urban India has no access to sanitation.

Telecom:

Over 6 million people are getting connected every months.

Total usage have topped 100 million more than entire population of Germany, thus making India 5th largest cellular market behind China, US, Japan & Russia.

At the time of independence, there are 1.1. Million telephones. Now this number has reached 218 millions.

Power :

A whooping 33% of electricity that is generated is lost or stolen during transmission and distribution. This theft rate is among highest in the world.

The total power production is 12% short of demand.

Only 44% rural household has access to power. The national average is 56%.

Rural household did not have power for 13-17 hours a day.

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Indeed India is a land of contradiction. A reality check is sometimes necessary to keep us firmly on the ground. There are many challenges ahead us which we need to face. Let these immortal lines inspire us all :

“Wood are lovely, dark and deep. But I have promises to keep.

Miles to go before I sleep…Miles to go before I sleep…” – Robert Frost

The inflation has come down to below 5 % yet nobody seems to feel it in reality. For a common man in India, the prices are as high as they were a few months ago. Just how and why inflation has come down when nobody can experience it ?

Just a small and very significant reason for it.

The rise in prices of services is not included in calculating the Inflation !

Cost of using phone, electricity, the cost of visiting a doctor, the school fee of tuition – they all are part of services and consist a big part of monthly expenditure of a common man in India. Yet they are not included while calculating the inflation rate.

There is no yardstick with the Government to measure the rise in price of services. Only the wholesale prices of commodity items (such as pulses, rice, oil, Vegetable, Petrol etc are taken into account while calculating the inflation rate. That’s why our inflation rate appears so unreal.

And nobody seems to care because if they include the services, the real rate of inflation will emerge and it will be very uncomfortable for many.