global meltdown
DESCRIPTION
It describes where it all started and how it effected the world.. recommendations...TRANSCRIPT
INTERNATIONAL SCHOOL OF MANAGEMENT EXCELLENCE
PRESENTED BY NIKHIL CHHABRA
GUIDED BY:Dr. RAMESH TAGATProf. NITIN GARGProf. AVR MAHADEV
GLOBAL MELTDOWN
What is Global Meltdown ?
• Global Meltdown means slow down of all the economies.
HOUSING BUBBLE
• Federal Reserve cut Interest Rate• Large inflows of Foreign Fund• US Govt. Motive “A House For Every American
Whether Rich Or Poor”• No Down payment Required• Rapid Increase in Demand for Houses• Explosion Of Price of Houses
The Sub Prime Crisis
•Subprime lending is the practice of making loans to borrowers ( who have low credit history or Risk of default is high)
They Lend Tremendously ASSUMPTION :
Price of Houses will Always Go Up
Given $3.4 trillion for sub prime mortgages in US.These Mortgages were purchased by financial institutions.Created New Securities & kept these mortgages as Collateral SecurityThey rated them “Good” ,“Not so good”, “Ugly”They kept “ugly” with themselves
Continued…..• They got it insured from Insurance Companies & it got rated from
them as AAA, BBB.• Promise to pay Low interest(less risk) to “Good” Tittle securities,
more interest to (medium risk) “Not So Good” securities.• Best Interest Rates to “Ugly”(higher risk)• They promise to pay interest first to AAA , then BBB• Now these securities were distributed among Potential Investors in
the whole world.• Financial institutions influenced brokers for more mortgages just to
increase the no.’s• They showed these mortgages under SPV in their Balance sheet and
escaped
• Atlast Bubble Bursts• -High House Prices -High Interest Rates• Sub prime didn’t pay interests and returns houses back• Now Houses were sold at lower price(they suffered huge losses)• Actually money was Invested by institutions then further it was
used as collateral security• Credit Crunch• Mostly Financial institutions Became Bankrupt • Household debt grew from $705 billion at yearend 1974, to $7.4
trillion at yearend 2000, and finally to $14.5 trillion in midyear 2008
Continued…..
AIG Impact
• Credit Default Swap• Did not put any collateral• Booked Artificial profit.• The world largest insurance company was about to
bankrupt• Then Federal Reserve stepped in with $85 billion.(Now
total is $1.1 trillion)• Without Govt. action would have caused every major
bank in the world to fall.• The key of huge global credit was Credit Default Swap
Main Institutions & BanksCollapse of Five Giant Financial InstitutionsLehman Brothers, Fannie Mae, Freddie Mac,Merrill lynch, AIG with total revenue $322 Billion in 2007
Followed by Largest Banks Washington Mutual(WaMu) WachoviaSent shock waves to Global Financial MarketAnd let to Current Global Meltdown
Bankruptcy/Takeover flavor of the seasonBear Stearns was acquired in March 2008 by J.P. Morgan
Chase for $1.2 billion.Fannie Mae and Freddie Mac. was placed into onservatorship government control.
Merrill Lynch was acquired by Bank of America in September
2008 for $50 billion.
Lehman Brothers declared bankruptcy on 15 September
2008.The Fed provided an emergency loan of $85 billion to AIG,
giving the US government a 79.9% equity stake at AIG.
Washington Mutual taken over by JPMorgan Chase.Citi Bank, GM and Chrysler on the brink of Bankruptcy
Global Meltdown 1929 Repeated..
• Originated From : USA• Interest Rates : First it Increased & Later
Decreases• Sector affected most : Housing• Behavior of Stock Market : All time High &
then All time Low.• Projected Loss in Stock Market : Approx 80%
GLOBAL EFFECTS
• Adverse Effect on Trade and Industrial Production• Unemployment• Increase in Oil Prices• Increase in Bankruptcy• Automobile Industry• Tourism Industry
Bail Out Packages • USA $1.1 trillion• Japan $586 bn• China $550 bn• India $ 6 bn• Singapore $13.6 bn• South Korea $10.2 bn• Taiwan $2.5 bn
Over all World Wide $ 2.4 trillion
Impact on Indian Economy
1. The industries most affected by weakening demand were : airlines, hotels, real estate, IT,BPO
2. To lift the economy out of the recession the Government announced a package of Rs 5,000 crores On December 7, 2008. The main areas benefited were:
a )Housing b) Textile
c) Infrastructure
d) Exports
e) SME’s
ARE INDIA’S POMPOUS CELEBRATIONS OVER?
Recommendations $ Actions• Regulatory Framework• Establish and rectify the loopholes present Regulatory systems• and review them periodically.• Finance• Lower down the interest rates to spur housing demand and• consumer spending.• Taxation• Raise the Tax bracket for people and provide tax reliefs to• boost the purchasing power.• Public Spending and Investment• Massive infrastructure spending should be the prime objective• of the Government.
Crisis Affecting Students
• Major Threats at Professional level
• Cut Down Of Financial Aids
• Fewer Number of seats available at foreign universities for Indian students
THE GAME PLAYERS WILL CHANGE
THE NEXT SUPER POWERS
THANK YOU !!!