My Views on Economy

US Mortgage Market and the Crisis - Welcome to year 2009

2008-12-29T02:47:00.000-08:00

The year that was 2008 - the Housing meltdown
The biggest thing that happened in the year 2008 was the housing market meltdown and that caused a hell lot of issues for everyone and it had and impact on the economy as well the outcome of the US elections (well that is debatable :-)

The foundation of the crisis
When the going was good then every one at that time starting lending to every Tom Dick and harry and hence gave some absolute good money away to folks who do not have the ability to pay.

Small business companies mushroomed overnight who were ready to intermediate and get housing loans for an endless stream of buyers. Now whether these were worthy or not is the question.

On the other side good and smart investment bankers started packing these loan receivables into the what they call as CDO where the underlying receivables of the loans was the main security for the firm who bought these CDO's .

Update 2009 : If you need to know more about Short refinance then here is the excellent resource for HAFA Streamline Short Sale Program

Everyone Got greedy and that was the nemesis.
Everyone got greedy and nobody wanted to be a whistle blower even though there were firms who absolutely never wanted to get into this business but seeing how much money other firms they went right ahead.

Even the rating agencies got ahead and never checked if this all thing had the basis and in fact gave AAA ratings to all the spurious looking bonds.

hell Broke loose
Then one day all hell broke loose as there were no way for a lot of people to repay their loans as they had taken home loans to buy property for investments and there were no buyers for the property.

the real estate market went bonkers and in turn all CDO's turned into worthless sheet of paper.
There was no one who knew how much they lost.

Look at AIG they thought wanted a bailout to the tune of $20 billion but then they were bailed out at $75 and then they finally settled they wanted another $75 billion and even now that final is not final.

The year 2009 is appearing to be not rosy picture from president Barack Obama being put into the presidential chair. What him and his team will do is not known at this time.
here's hoping Obama and Summers and several others bring some light and cheer into the houses where jobs have been lost.
Tip: For some humour during these tough times enjoy some recession humor

Cheers and welcome to year 2009. Welcome year 2009 from Ritiesh and here is hoping for a very good economy.

Will Barack Obama be able to jump start the economy ?

2008-12-29T02:20:00.000-08:00

Barack Obama and his Economy team
Barack Obama has already announced his team of advisers and named to various important posts and these posts are
Lawrence Summers - head of White House National Economic Council
Timothy Giethner - Treasury Secretary currently New York Federal Reserve President
Christina Romer - Director of Council of Economic Advisors
Melody Barnes - Director Domestic Policy Council

Source : http://money.cnn.com/2008/11/24/news/economy/obama_economic_team/

Barack Obama and his Plan
Barack Obama will need about 675 billion dollars to 775 billion dollars to jump start the economy. He intends to use these for long term infrastructure projects as well as several job creation projects.

Job creation projects will include rebuilding kids classrooms as well making sure that the public libraries are up to the mark plus the focus will shift away from the short term spending of consumers which as the main focus of George W. bushes economic plan.
Update Mar 2010 - if you need to know more about business and economy then this place is the best read.

He gave tax cuts which will result in money in the hands of the people and then they will spend that in turn helping retailers and manufacturers and hence increase the growth rate of the economy .

The down side is that once that money dried up there was no way you can then make sure that economy will survive or go down.Obama is backing the long term view and in this is recessionary world people are willing to listen as there is nothing to much form here. Everything anyway has been lost.

Come January 20th I am going to wait and watch what is in store for us as well as for the all the Indian Americans specifically the Indian IT workers who depend on the US for their jobs.
The positive side is that enterpreneurs come out with stylish innovations like Obama merchandising as well as Obama Commemorative coin

Caveat : These are my own views expressed here and it is not the opinion of my employer as this is my personal blog.

Recession brings the best in entrepreneurs

2008-12-29T01:54:00.000-08:00

Entrepreneurs Definition
Entrepreneurs are by nature the persons who are willing to take extreme risk and run business with a focus to win.
It is this zeal and risk taking ability which makes them shun the jobs and be there on their own.
If you do not have this in you then of course you are not the person who can make a good bsuinessman.

Here is the story of my uncle who started a business and failed twice before making it good.
For the sake of anonymity let us call him Uncle Roy

Uncle Roy gave up his job has the export manager of a large textile firm and started his own business manufacturing Denim and supplying all over the world. Business Flourished for the tiem being but come 9/11 tragedy and the demand got worst . he shut down his plant and decalred bankruptcy.

Rise Again
He again started a business with the eye on the most of the lucrative market of the world that is the US and this time he started with supplying specialized bakery intermediated for the growing demand of the bakery products in the US. But now he has learnt his lessons well and did not spend away the money in a throwaway manner as he did in the earlier business.

"Boot strap the Business and start a Business in recesssion times " he said.
Why because that way you always start with a disadvantage of less predictable future and lack of cash and funds.
In the growth phase all the venture capital funds as well as the angel investors will vie to give funds to you but not in recession so you learn the ropes and conserve the cash the hard way and that is how he was able to insure financial discipline.

An exmaple of boot strapping the business, rather than having a good phone system for his company which would have cost thousands of dollars he used one cellphone for himself and then hired a live answering service which his relative was offering.

For all other communications he used free messenger services and well as Email services services offered by MSN or Google.

That is one heck of a finacial discipline.

A more famous example is Paul Allen and Bill Gates when they started the business they were not even worried about recession and that was 1975 which was all about recession and slowdown in economy and look at where Microsoft is now.

Advantges of having a business in recession
You learn financial discipline

Rents and other property prices are lower and in fact you can easily negotiate with property owners for good terms as they are also feeling the heat

Negotiate with suppliers for good rates as well as lock in the rates for longer number of years
That said your best bet is to start an online business and hopefully that will not have an impact from recesssion and the reason is simple. Looking at Google's profits it does not look like that Profits will die down soon in the internet world.
Famous Last words
If you have a vison and an idea then just make sure that you get down to business instead of looking at the economy otherwise you will keep on waiting for a long time.
It is the vision that drives you rather than the economy.

The Recession In US and its Effect on me

2008-12-28T10:03:00.000-08:00

As I begin to write this very first blog of mine I am kind of tired and sick of the endless news stream flowing from US to India and for that matter everywhere in the world about what a mess those bunch of investment bankers and loan companies have got us into.

The difference between US Economy and Indian Economy

The US economy is far more free and transparent(Now I have my doubts ) than we have it in India.
The banks and bankers and the of course the Fed thinks that the companies by way of the market forces are forced into competition and hence these have a good mount of self regulation.
But the big question now is whether that was enough as you can see that the big companies were merely blind in search of profits and the booming housing market and that meant that since all the firms were doing that it was OK.

Now it seems the government will be playing a larger role than ever with companies like AIG and what not have the government stake in it as well as a lot of taxpayers money with it.
Please take care of it Mr Obama and best of luck

The Indian Economy

The Indian economy in that sense is much much regulated and that means that these firms are not allowed a lot of leeway the way the US companies are allowed to do so and that in turn means that you have a sort of less than absolute free economy.

In today's world that has turned out to be very good as that has meant that banks as well as other investment firms have not played away unabashedly with the stock market, the housing market as well as the derivatives market or the new set of havoc wreaking instruments like the CDO's . Thank Goodness for that ! The stock market news has been bad for a year now with no end in sight.

We Depend on the US economy

But the story does not end here as we as in most of the companies especially those in the IT sector or the export oriented units for textiles as well big refineries like Reliance Petroleum do have US as the main market .
So if our main customer is not spending then what we as service providers do but rather be out of job.

The Vicious Cycle Of Economic Recession and Downturn

A lot of people in the US have been laid off or as they call it let go which means that they will not spend which in tun means that lot of US companies in retail and manufacturing do not have customers and hence they stop the major IT development projects and that way more people get laid off in software firms as well as a lot of outsourcing firms in India get impacted.

Since consumers are not buying that means that means that a lot of export oriented units in India and China and other countries like Vietnam get impacted and hence the workers employed in these firms also get impacted .

So now there are less consumers everywhere and then there is economic recession is everywhere.

Note 2009 : For people who want to understand more about economics and trading and then make sure that you subscribe to global macro newsletter

Government Spending.. The Big Push

Who has the money now and of course it is the big brother or the Government and they can stimulate the economy by pouring money onto infrastructure projects as well as other projects to break the hold of the vicious cycle. The best way is to start a web business and get away from the effect of recession

wishing you a very happy new year so that we go in a less severe recession from where the Economy recovers fast.