21 Dec :The Seminar on “Global Financial Crises-Imperatives and Implications” was conducted by Mr. J.S.Subbarao, faculty member from PDD, ICFAI at Chandigarh on 19th December 2008. The seminars were attended by CFAs, MBA students apart from teachers and others from different industries/businesses.
The speaker traced the origin of globalization and how counties in East Asia benefited as well as suffered due to the inter connectivity of global markets. The world has gone from crisis to crisis starting with the collapse American savings and loan bank in 1987, followed by the Asian economic crisis, the dotcom burst, the 9/11 attack, and the present finanancial crisis following the collapse of few American investment banks.
For many years prior to 2003 the lending standards were diluted in America. Many individuals contracted housing loans far beyond their repaying capacity. Since housing prices were moving north for many years most of the banks and individuals got into a belief that the prices will not come down. With rise in unemployment, interest rates and fall in housing prices the boom was burst and many borrowers defaulted resulting in large scale foreclousers.As a result the banking system suffered nearly $ 500 billion losses by August 08.Due to very high leverages the investment banks could not sustain the losses and in the absence any refinance the collapse started with the fall of Lehman Brothers. The US government has taken over AIG, The world’s biggest insurance company) Fannie and Freddie (the mortgage Banks).Merrill lynch, Wachovia bank were taken over by Bank of America and Wells Fargo respectively.. Gold Man sacs and Morgan became commercial banks.
US government responded by coming out with a rescue package of $ 700 billion.Differnent governments in Europe came out with various rescue packages ranging from recapitalization of banks to guaranteeing the depositor’s money. The contagion has spread across continents resulting in the crash of capital markets across the globe destroying more than $ 10 trillion investor’s wealth.
It is widely feared that that the Indian IT sector with good share of their revenues from the financial services sectors of US and Europe is likely to get a hit. Sectors like tourism, hospitality.real estate, and medical tourism are likely to suffer in the short term. With crash of commodity markets metals prices have plummeted. The impact is being felt in China/Australia already.
The GDP growth of the world may get subdued to around 3%.The US and Europe may go into long bouts of recession
The Indian and Chinese growth of GDP may be around 7.5% and 9% respectively. Strong fundamental of our economy may save the day for us and the country may escape the storm with few bruises