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KAT - Sub prime Crisis

  • Written by Venkat
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Greetings… I received a feedback from an erudite personality after going through couple of articles on the blog to write something that is of huge importance to know, insights to be gained and has questions to shoot. Basically, the intention was to create enthusiasm and interaction so that we together evolve what I would like to call us “Amebous Knowledge” – a knowledge that has got No Shape; Divide and rapidly multiply easily by sharing; Fuse with other sources easily. (Inspired from Amoeba – an unicellular organism)

Let me take the initiative to start a new series: “Know About This – KAT Series”

To start with let me open the forum for the discussion, on a topic “Sub Prime Crisis”.

The crisis of 2008-09 that saw the world’s biggest and many of the Oldest Financial Institutions to tumble down. The world’s powerful countries saw highest unemployment rates. Stock market crashed down and the Bear Market is failing to raise up and in deep slumber still. There are many things that have happened in recent times that gave more nasty surprises in the economic world.

You can know something has gone wrong only when you make an odd number of mistakes – so goes the Murphy’s Uncertainty Principle. In the context of the sub-prime crisis that has taken the wind out of the sails of the financial markets the world over, one can’t argue, but agree. The crisis was a long series of wrong assumptions covered up by more assumptions with the hope that they even out. Lending to borrowers who can’t afford to repay with the assumption that the housing market will only go north, assumption that higher interest rates compensate for credit quality, securitization of such assets backed by under writings by insurance companies with the assumption that these loans carry little or no risk . . .

It was a long chain of complex transactions with increasingly larger stakes, higher risks and lesser clarity. But any chain is only as strong as the weakest link and that link snapped at some point as it should have. The story that is unwinding today looks as scandalous as it is unbelievable.

Let me open this forum to invite your thoughts on your understanding and learning on the anatomy of what is arguably the biggest financial blunder in history – the sub-prime crisis. Let us know from each other to demystify the business of mortgage.

I shall participate as and when it is required, when the thoughts are discussed enough, let us find for ourselves the huge repository of information to turn back to for reference.

Happy reading and writing….

Venkat

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