Saturday, October 11, 2008

Subprime crisis explained

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each.

The villagers, seeing that there were many monkeys around, went out to the forest, and started catching them. The man bought hundreds at $10 and as supply started to diminish, the villagers stopped their efforts.

At this point the man announced that he would now buy at $20 each. This renewed the efforts of the villagers and they started catching monkeys again. Soon the supply diminished even further and people started going back to their farms.

The offer increased to $25 each and the supply of monkeys became so limited that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at $50 each! However, since he had to go to the city on some business, his assistant would now buy on his behalf for him.

In the absence of the man, the assistant told the villagers, "Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 each and when the man returns from the city, you can sell them to him for $50 each."

The villagers rounded up with all their savings and bought all the monkeys.

They never saw the man nor his assistant again, only monkeys everywhere!

Now you have a better understanding of subprime crisis...

Breaking News

Seen all day today on Indian TV Channels - Amitabh Bacchan not well, complains of tummy-ache, maybe indigestion? FTW!
Headlines Today

Times Now


Some time last year - Amitabh Bacchan catches cold
some hindi news channel

Rahul Gandhi has Dal-Puri and Vegetables for breakfast during some campaign
Aaj tak hindi news channel

Cat climbs on a wall, refuses to come down for 6 hours!!
Aaj Tak hindi news channel

Police Commissioner's lost dog returns!!
Star News hindi news channel

p.s.: Ab's latest news - photos by me, other news items - email forwards...

Tuesday, October 07, 2008


Vanity :-)
I was when I got an email from one guy today..

From: One Guy
Sent: Tuesday, October 07, 2008 2:53 PM
To: Me
Subject: RE: Really GREAT!!Read it...Do we want to be Shopkeepers or customers? --- Must Read

What you said (a year back in the below e-mail) is what is happening now. Great ! You are a real genius !


One Guy

From: Me
Sent: Tuesday, July 10, 2007 12:49 PM
To: Old project folks
Subject: RE: Really GREAT!!Read it...Do we want to be Shopkeepers or customers? --- Must Read

The supposed “Indian economist” who wrote this absurd piece is a complete moron!

Read some quotes from reputable economists, rather than some free market enthusiast who is part of a (imperialistic?) right-wing establishment – the globalization institute (really, that’s the name – – GI has recommended many hare-brained schemes like privatization of public water supply in developing countries, which led to riots in Bolivia, Columbia, Ghana, uruguay, etc. this concept has been banned in other socialist countries like Netherlands!! (bloody commies!!!!)

Stephen Roach, the chief economist of Morgan Stanley, argues that empires are not built on debt and that the explosion of the US asset bubble in the late 1990s revealed the unsustainability of the US position: "This saga is not about the bubble. It is about the unwinding of a more profound asymmetry in the global economy, the rebalancing of a US-centric world . . . History tells us that such asymmetries are not sustainable.

"Can a savings-short US economy continue to finance an ever-widening expansion of its military superiority? My answer is a resounding no. The confluence of history, geopolitics, and economics leaves me more convinced than ever that a US-centric world is on an unsustainable path" (2).


To be fair, thanks to the Federal Reserve's expansionary monetary policies over the past five years, U.S. asset-prices have risen considerably; also known as the "wealth effect". At the end of last year, the market capitalisation of the U.S. stock market rose to a record-high of US$20.6 trillion, matching the value of household real estate, which also rose to a record-high at the same time. On the surface, this may seem like brilliant news, however you must realize that this "wealth illusion" achieved by an ocean of money and record-high indebtedness is only a consequence of inflation. Moreover, history shows that although asset-prices can come down rather abruptly, debt must always be repaid. So, I remain cautious of this engineered American "prosperity".


While you may recommend “borrowing and spending over your limits” remember the time will come when you have to repay these loans… when countries start cashing in their promissory notes and/or securities, then the usa will go into another depression like the 1930’s, while countries which save AND spend, the ones in EU, China, India, will not be affected that much…



From: Another
Sent: Tuesday, July 10, 2007 12:28 PM
To: Old project folks
Subject: FW: Really GREAT!!Read it...Do we want to be Shopkeepers or customers? --- Must Read

Thanks & Regards

Another guy

From: Some other guy
Sent: Tuesday, July 10, 2007 12:21 PM
Subject: Really GREAT!!Read it...Do we want to be Shopkeepers or customers? --- Must Read

An interesting article on USA's Spending, written by an Indian Economist:

Japanese save a lot. They do not spend much. Also Japan exports far more
than it imports. Has an annual trade surplus of over $100 billions. Yet
Japanese economy is considered weak, even collapsing.

Americans spend, save little. Also US imports more than it exports. Has an
annual trade deficit of over $400 billion. Yet, the American economy is
considered strong and trusted to get stronger.

But where from do Americans get money to spend?

They borrow from Japan, China and even India. Virtually others save for
the US to spend. Global savings are mostly invested in US, in dollars.

India itself keeps its foreign currency assets of over $50 billions in US
securities. China has sunk over $160 billion in US securities. Japan's
stakes in US securities is in trillions.


The US has taken over $5 trillion from the world. So, as the world saves
for the US, Americans spend freely. Today, to keep the US consumption
going, that is for the US economy to work, other countries have to remit
$180 billion every quarter, which is $2 billion a day, to the US!

Otherwise the US economy would go for a six. So will the global economy.

The result will be no different if US consumers begin consuming less.

A Chinese economist asked a neat question. Who has invested more, US in
China, or China in US? The US has invested in China less than half of what
China has invested in US. The same is the case with India. We have
invested in US over $50 billion. But the US has invested less than $20
billion in India.

Why the world is after US?

The secret lies in the American spending, that they hardly save. In fact
they use their credit cards to spend their future income. That the US
spends is what makes it attractive to export to the US. So US imports more
than what it exports year after year.

The result:

The world is dependent on US consumption for its growth. By its deepening
culture of consumption, the US has habituated the world to feed on US
consumption. But as the US needs money to finance its consumption, the
world provides the money. It's like a shopkeeper providing the money to a
customer so that the customer keeps buying from the shop. If the customer
will not buy, the shop won't have business, unless the shopkeeper funds
him. The US is like the lucky customer. And the world is like the helpless
shopkeeper financier.

Who is America's biggest shopkeeper financier? Japan of course. Yet it's
Japan which is regarded as weak. Modern economists complain that Japanese
do not spend, so they do not grow. To force the Japanese to spend, the
Japanese government exerted it self, reduced the savings rates, even
charged the savers. Even then the Japanese did not spend (habits don't
change, even with taxes, do they?). Their traditional postal savings alone
is over$1.2 trillions, about three times the Indian GDP. Thus, savings,
far from being the strength of Japan, has become its pain.

Hence, what is the lesson?

That is, a nation cannot grow unless the people spend, not save. Not just
spend, but borrow and spend. Dr. Jagdish Bhagwati, the famous Indian-born
economist in the US, told Manmohan Singh that Indians wastefully save. Ask
them to spend, on imported cars and, seriously, even on cosmetics! This
will put India on a growth curve. "Saving is sin, and spending is virtue."
Before you follow this neo economics, get some fools to save so that you
can borrow from them and spend.