In what appears to be the biggest scandal in the history of Wallstreet Bernard,L Madoff, a former non executive SEC chairman , was put under a house arrest for running the biggest ever ponzi scheme which amounted for almost 50 billion dollars heist for clients all over the world.
What is it about the human nature that within the past 2 weeks we have seen people like Blagojevich and then Madoff getting into such scandals?
Greed it is. Wallstreet has seen many such instances where an individual has tried to beat the rules of the game just to see himself as a loser! No one can beat the markets!
What exactly is a Ponzi scheme?
A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns to investors out of the money paid in by subsequent investors, rather than from the profit from any real business.
Madoff ran a vast options game .US officials now allege that Madoff was engaged in a Ponzi scheme—using new revenues from investors to meet payments due to existing investors—at least since 2005. As of yet, no one really knows how long Madoff was paying his old clients with money obtained from new ones. The scheme collapsed after clients requested some $7 billion in redemptions.
But what is more surprising is that even after knowing the red flags raised towards Madoffs scheme in the recent past SCE has done very little to restrict the fraud of such a magnitude.
Is the SEC really an effective regulator?
It will be interesting to see how the story unfold itself and give us more insight into probably the biggest scam of the Wallstreet history...
My Memories Forever
Wednesday, December 17, 2008
Friday, September 26, 2008
The Wall street crisis
Yesterday I was watching the College Football game between Oregone state and USC(Ranked No#1 state) . In the third quarter Quarter USC was trailing, 0-21. Just for a while I switched CNBC and was watching the updates on Wall street crisis. Well it was no exception .
Wall street is currently experiencing one of the worst crisis in its history after the great depression .Today The US financial turmoil is taking its toll on the global markets and the Wall street(Top Investment destination) firms are falling apart. The collapse of the financial giants like Bear Sterns, Lehmon Brothers, AIG & other organisations indicates that the problem is much worse than one expected.On Sep 18th The Dow Jones Industrial average touched its 52 week low(10,403.7) .The Global financial markets are no exception to this and are reeling under pressure.
As an investor on Wall street you might be wondering what is happening to the Wall street! Where is the Quarterback? Are we going to make a single touchdown this year or not?Do we have "THE GAMEPLAN" ?
Well let's start by asking some of the basic questions about Wall street.
How did US economy reach to this point?
Most economists agree that the problems which Wall street is witnessing today developed over a long period of time. For more than a decade, a massive amount of money flowed into the United States from investors abroad .This large influx of money to U.S. banks and financial institutions, along with low interest rates, made it easier for Americans to get credit. These developments allowed more families to borrow money for cars, and homes, and college tuition, some for the first time. They allowed more entrepreneurs to get loans to start new businesses and create jobs.
Unfortunately, there were also some serious negative consequences, particularly in the housing market. Easy credit, combined with the faulty assumption that home values would continue to rise, led to excesses and bad decisions.Many mortgage lenders approved loans for borrowers without carefully examining their ability to pay. Many borrowers took out loans larger than they could afford, assuming that they could sell or refinance their homes at a higher price later on.Optimism about housing values also led to a boom in home construction.
Eventually, the number of new houses exceeded the number of people willing to buy them. And with supply exceeding demand, housing prices fell, and this created a problem.Borrowers with adjustable-rate mortgages, who had been planning to sell or refinance their homes at a higher price, were stuck with homes worth less than expected, along with mortgage payments they could not afford.As a result, many mortgage-holders began to default. These widespread defaults had effects far beyond the housing market.
In today’s mortgage industry, home loans are often packaged together and converted into financial products called mortgage-backed securities. These securities were sold to investors around the world.Many investors assumed these securities were trustworthy and asked few questions about their actual value. Two of the leading purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac.Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put the US financial system at risk.
The decline in the housing market set off a domino effect across US economy. When home values declined, borrowers defaulted on their mortgages, and investors holding mortgage-backed securities began to incur serious losses.Before long, these securities became so unreliable that they were not being bought or sold. Investment banks, such as Bear Stearns and Lehman Brothers, found themselves saddled with large amounts of assets they could not sell. They ran out of money needed to meet their immediate obligations, and they faced imminent collapse.Other banks found themselves in severe financial trouble. These banks began holding on to their money, and lending dried up, and the gears of the American financial system began grinding to a halt.
How much worse can it get?
The government’s top economic experts warn that, without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold.More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. Foreclosures would rise dramatically.And if you own a business or a farm, you would find it harder and more expensive to get credit. More businesses would close their doors, and millions of Americans could lose their jobs.Even if you have good credit history, it would be more difficult for you to get the loans you need to buy a car or send your children to college. And, ultimately, US could experience a long and painful recession.
How is the US Govt.(The Quarterback) planning to tackle the credit crisis?
In close consultation with Treasury Secretary Hank Paulson, Federal Reserve Chairman Ben Bernanke, and SEC Chairman Chris Cox, The Bush Govt. announced a bailout plan .
As per the govt First, the plan is big enough to solve a serious problem. Under this proposal, the federal government would put up to $700 billion taxpayer dollars on the line to purchase troubled assets that are clogging the financial system.In the short term, this will free up banks to resume the flow of credit to American families and businesses, and this will help our economy grow.
Second, as markets have lost confidence in mortgage-backed securities, their prices have dropped sharply, yet the value of many of these assets will likely be higher than their current price, because the vast majority of Americans will ultimately pay off their mortgages.The government is the one institution with the patience and resources to buy these assets at their current low prices and hold them until markets return to normal.And when that happens, money will flow back to the Treasury as these assets are sold, and the govt expect that much, if not all, of the tax dollars they invest will be paid back.
Skeptics argue that there is no "Deal" on the table for this crisis .However Economists and market experts agreed that a government purchase of distressed assets would help reveal the extent of losses at financial institutions, a necessary step before the financial sector can rebuild itself.
Currently President Bush and the congressional leaders are working on passing the Bailout deal.
As the economic events unfold themselves we will see whether its "Deal" or "No Deal"!!!
God bless Wall street !!!
Disclaimer: This website contains material in the form of information collected from different information websites. The blog does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. The blog(owner) has no financial liability whatsoever to any user on account of the use of information provided on this website. Please verify the veracity of all information on your own before undertaking any action.
Monday, January 28, 2008
The "Dream" Budget...
"Dream" is what makes a common man live in this world, a world full of unprecedented surprises…
I am an "aam aadmi" of this nation.
As a child I dream to get my basic education...
As an adult I dream to get a job and work for this country…
As a "old man" I would like to retire and live a comfortable life…
Everybody in this country has some or the other expectations including the very basic needs of the life. But isn't there a system which will make one realize at least some of these dreams...
I think the answer to this is lies in the one of the most important event in the economic and financial world .i.e. the "Union Budget".
What is the Budget?
Budget is a summary of intended expenditures along with proposals for how to meet them. It contains the government of India's revenue and expenditure for a particular fiscal year. It also provides guidelines for managing future investments and expenses.
What impact does the Budget have on the common man or the economy and what should we expect in Budget2008 ?
Well it almost impacts each and every one of us as well as every sector of the economy. However I would like to touch upon some of the key areas here:
As an adult I dream to get a job and work for this country…
As a "old man" I would like to retire and live a comfortable life…
Everybody in this country has some or the other expectations including the very basic needs of the life. But isn't there a system which will make one realize at least some of these dreams...
I think the answer to this is lies in the one of the most important event in the economic and financial world .i.e. the "Union Budget".
What is the Budget?
Budget is a summary of intended expenditures along with proposals for how to meet them. It contains the government of India's revenue and expenditure for a particular fiscal year. It also provides guidelines for managing future investments and expenses.
What impact does the Budget have on the common man or the economy and what should we expect in Budget2008 ?
Well it almost impacts each and every one of us as well as every sector of the economy. However I would like to touch upon some of the key areas here:
Education:
I think education is a key to the success of any society. For a country with more than a billion population we have a great potential to become the knowledge capital of this world .However we still have lot of challenges around this. We are still struggling to increase the literacy rate in many of the states (currently at 65-70%) . The primary education is still a concern for a lot of children, most of which, are the victims to child labor. At each level the curriculum and syllabus is still a concern. The poor and the middle class still struggle to pay for the fees at various levels of education. “Brain Drain” is still a concern.
I think education is a key to the success of any society. For a country with more than a billion population we have a great potential to become the knowledge capital of this world .However we still have lot of challenges around this. We are still struggling to increase the literacy rate in many of the states (currently at 65-70%) . The primary education is still a concern for a lot of children, most of which, are the victims to child labor. At each level the curriculum and syllabus is still a concern. The poor and the middle class still struggle to pay for the fees at various levels of education. “Brain Drain” is still a concern.
But I think converting these challenges into opportunities depend on how fast we adapt to the changing environment & implement the much needed educational reforms. The budget should address all these challenges.
The government should encourage primary education and should concentrate on making education reach to every child in this country. The govt. should also focus on improving the infrastructure of many of the govt. institutes and should implement policies/schemes so that the poor/middle class of this nation is able to get the quality education at all levels. IIT’s and IIM’s should be allowed to start multiple campuses anywhere in India with or without private partners who bring in finance and other expertise.
Increased expenditure towards education reforms has to be one of the key expectations from this budget. Ultimately the objective of the education is to replace an empty mind with an open one and make the society a better place to live.
Agriculture:
With the agriculture sector growing at rate around 3-4% it is still a laggard as compared to the other sectors of the economy. A large part of Indian population still derive their livelihood directly from agriculture. A success of an agriculture season is still defined by the monsoon . All this make us believe that agriculture does play an important role in the growth of the economy.To make it really count the govt. should focus on increasing the agricultural productivity ,increasing the rural credit for the farmers, encourage investments in the agriculture sector thereby making agriculture a cornerstone of the Indian economy.
Inflation & Growth:
The prices of essential commodities are sky rocketing and this is affecting the life of "aam aadmi".With inflation at 6% what really one can do ?
Just to mention few....I think keeping the demand in mind if we really focus on the supply side of the equation and try to address the deficiencies we will be able to manage inflation in much more effective way. Just to give an example if we improve the Public distribution system in place & encourage agriculture to meet the demand we can really manage the prices of essential commodities.
The Budget should aim at moderating the inflation without affecting growth of the economy ( just look at China which is growing at 11% with just under 2% inflation).
Agriculture:
With the agriculture sector growing at rate around 3-4% it is still a laggard as compared to the other sectors of the economy. A large part of Indian population still derive their livelihood directly from agriculture. A success of an agriculture season is still defined by the monsoon . All this make us believe that agriculture does play an important role in the growth of the economy.To make it really count the govt. should focus on increasing the agricultural productivity ,increasing the rural credit for the farmers, encourage investments in the agriculture sector thereby making agriculture a cornerstone of the Indian economy.
Inflation & Growth:
The prices of essential commodities are sky rocketing and this is affecting the life of "aam aadmi".With inflation at 6% what really one can do ?
Just to mention few....I think keeping the demand in mind if we really focus on the supply side of the equation and try to address the deficiencies we will be able to manage inflation in much more effective way. Just to give an example if we improve the Public distribution system in place & encourage agriculture to meet the demand we can really manage the prices of essential commodities.
The Budget should aim at moderating the inflation without affecting growth of the economy ( just look at China which is growing at 11% with just under 2% inflation).
All in all I wish Mr. Chidambaram should put his thinking cap on and orchestrate a successful budget by taking necessary actions to meet the expectations .
At the end I hope that an "aam aadmi" of this nation should be able to live up to his dreams...
Note:The above blog is also available @ http://www.ibnlive.com/blogs/1500/contest/view.html
Tuesday, January 22, 2008
“Taare” zameen par...
Warning: Not for the faint hearted !!!!!!!!!!!!!!!!!!!!!
It was Tuesday morning ,10.00 am to be precise , a working day for the Indian markets and yet the NSE was not trading…Surprised !!!!!!!!!!
If you are a faint hearted this one is not for you. The Sensex hit the lower circuit(4th time in its history) in the early trade suspending BSE/NSE trades for an hour , thanks to the recession fears looming from the US economy on the back of swelling discouraging numbers on jobs, consumer spending and housing. It’s almost a universal crash. All the global indices have plunged into the sea of red in the past couple of trading sessions. The start of 2008 has seen sensex tumbling from 21k to 15k levels just within a matter of few trading sessions. Billions of rupees washed out in few days.
A question to ask here : As an investor what should one do?
Well as “History repeats for itself” are lots of lessons to learn here:
It was Tuesday morning ,10.00 am to be precise , a working day for the Indian markets and yet the NSE was not trading…Surprised !!!!!!!!!!
If you are a faint hearted this one is not for you. The Sensex hit the lower circuit(4th time in its history) in the early trade suspending BSE/NSE trades for an hour , thanks to the recession fears looming from the US economy on the back of swelling discouraging numbers on jobs, consumer spending and housing. It’s almost a universal crash. All the global indices have plunged into the sea of red in the past couple of trading sessions. The start of 2008 has seen sensex tumbling from 21k to 15k levels just within a matter of few trading sessions. Billions of rupees washed out in few days.
A question to ask here : As an investor what should one do?
Well as “History repeats for itself” are lots of lessons to learn here:
Don’t just buy . Invest & Engage yourself in the business.
Investing is not just buying and selling stocks. If you like some business don’t just buy , invest & engage yourself in the business. Follow the business, evaluate the performance and think as if you are having a stake in the business. This will not only help u in getting more information but will help you in making informed decisions. Remember that over the long term the returns on the investments are much more significant in value.
Always Stay rational in an irrational world.
Markets have seen the irrational exuberance in the past 6 months or so (which is not new to the markets). We have seen the Sensex making record highs in late 2007 almost every month. Paper stocks were getting valued beyond anyone’s imagination. The “rational” of the business was kept aside and the price was getting traded irrationally .Sentiments were driving the markets in some cases rather than the fundamentals. If you look at the history of the markets it has its own way of punishing such punters and when it does that you will just see the carnage on the streets as we have witnessed in the past sessions. However you will always find value in a bull/bear markets no matter what the scenario is . It’s just a matter of being patient and staying rational.
Evaluate before making commitments and always take informed and responsible decisions:
Risk comes into picture only when you don’t know what you are doing.
Today the world is a global village and its prudent to stay informed about the latest and greatest. Just look at the recent subprime crises & recession fears in US which triggered the meltdown of the global markets which makes us believe that the decoupling of individual markets is a difficult thing in reality. So it’s very important for us to get plugged-in to the global events.
Again numbers matters the most when making any investment decision. It’s very important to evaluate the business before making any commitments.
Remember that the information is the most key weapon in the stock market .The early you know the safer you will be with your decisions.
Remember that stock will eventually follow the business. It’s just a matter getting informed , being patient and staying rational at all times.
I hope the above information will help you in making better decisions
Happy Investing.
Thanks,
Nitin Mahalle
Disclaimer: The opinions /views present in the above blog do not reflect any personal interest and are purely based on the renowned thoughts.
Subscribe to:
Posts (Atom)