A DOCTOR friend recently told me something interesting. The doctors' lounge in the Mumbai hospital where he works has a television that was usually tuned to one of the business news channels during the bull market that took Indian shares to record heights by January 2008. Cardiologists and urinary tract specialists spent time between operations listening to the latest recommendations from analysts and exchanging stories of profitable trades.That television is now on mute.These doctors now scan the tickers that silently flow across the screen, carrying grim news of portfolio losses. They are not alone. Across the country, investor wealth has reduced by Rs 37 trillion because of the sharp fall in share prices from their January peak, despite the splendid recovery on Monday.Most investors find it hard to understand why share prices are tumbling in an economy that is nowhere near recession.That's because problems that started in the US and Europe last year have jumped across oceans like a virus.The first snine was heard in the summer of 2007, in what is known in America as the subprime mortgage market. But the story starts a few years earlier. The dotcom bubble burst in 2001. As the US slipped into recession, the US Federal Reserve cut interest rates by flooding the economy with extra money That made it easier for people to borrow to buy cars, washing machines and houses.America went on a home buying spree.Real estate prices were rising rapidly The boom in housing prices made both banks and homebuyers believe that the price of a Florida condominium and a New York apartment would keep going up. Housing finance seemed a very safe bet. Banks went out of their way to lend to subprime families, or those who had a history of not paying back their loans on time. One innovation was the Ninja loan, an acronym for loans to families that had no income and no assets. Ninja loans were one road to financial hara-kiri.MORE WWW.DSTREETDIRECT.COM
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Tuesday, October 14, 2008
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