International School Of Management Excellence: Global Meltdown

INTERNATIONAL SCHOOL OF MANAGEMENT EXCELLENCE

GLOBAL MELTDOWN GUIDED BY: Dr. RAMESH TAGAT Prof. NITIN GARG Prof. AVR MAHADEV

PRESENTED BY NIKHIL CHHABRA

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 Security

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

Continued….. • 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

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 & Banks Collapse of Five Giant Financial Institutions Lehman Brothers, Fannie Mae, Freddie Mac, Merrill lynch, AIG with total revenue $322 Billion in 2007 Followed by Largest Banks  Washington Mutual(WaMu)  Wachovia Sent shock waves to Global Financial Market And let to Current Global Meltdown

Bankruptcy/Takeover flavor of the season Bear 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 giving the US government a

79.9%

$85

billion to AIG,

equity stake at AIG.

Washington Mutual taken over by JPMorgan Chase.

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

References • www.wikipedia.org • www.globalenvision.org • www.workers.org • www.pdfcoke.com

THANK YOU !!!