Economic Meltdown
ECONOMIC MELTDOWN IN INDIA AND THE US
Monjoree Barua Perhaps never before in recent history, has any economic development been so talked about as the ongoing ‘economic meltdown’. As it is clear no one person or institution ever understands the world economic network and functioning completely. Naturally, the fault could not be detected until the symptoms proved beyond repair. The sudden collapse of global finance giants like Lehman Brothers, AIG and battering of numerous other behemoths like Citi Corp triggered the collapse of the stock capital, affecting all US financial institutions, the effect spreading to European and Asian markets leading to worldwide credit crunch or lack of capital for daily operations, loans and expansions across all sectors and all markets. This present situation – of substantial loss of stock, money, shares being traded very low all stock exchanges, high rates for borrowing money, and low productivity due to low demand is termed ‘economic meltdown’.
How it started? Actively supported by the government, large banks led by Citi Corp started encouraging the lower middle/lower class to seek loans to ‘own a house’ in America. While the banks wanted to cash in on the booming real estate market, the less affluent were lured by the idea of having their own houses. Since the boom in real estate appeared real and actually gave high returns, the banks forayed into lending to those incapable of repayment – the poor and the students. Loans to this category were known as NINJA loans or No Income No Jobs or Assets Loan. It was assumed, and here lies the ‘core’ of the storm the house shall always be worth more than the defaulted amount and therefore the banks would always yield profits – even in the ‘default’ case. As stated above, the US government actively encouraged this arrangement as suited its welfare agenda of ‘house for all’. Institutions like Fannie Mae and Freddie Ma, which gave unlimited
Monjoree Barua Perhaps never before in recent history, has any economic development been so talked about as the ongoing ‘economic meltdown’. As it is clear no one person or institution ever understands the world economic network and functioning completely. Naturally, the fault could not be detected until the symptoms proved beyond repair. The sudden collapse of global finance giants like Lehman Brothers, AIG and battering of numerous other behemoths like Citi Corp triggered the collapse of the stock capital, affecting all US financial institutions, the effect spreading to European and Asian markets leading to worldwide credit crunch or lack of capital for daily operations, loans and expansions across all sectors and all markets. This present situation – of substantial loss of stock, money, shares being traded very low all stock exchanges, high rates for borrowing money, and low productivity due to low demand is termed ‘economic meltdown’.
How it started? Actively supported by the government, large banks led by Citi Corp started encouraging the lower middle/lower class to seek loans to ‘own a house’ in America. While the banks wanted to cash in on the booming real estate market, the less affluent were lured by the idea of having their own houses. Since the boom in real estate appeared real and actually gave high returns, the banks forayed into lending to those incapable of repayment – the poor and the students. Loans to this category were known as NINJA loans or No Income No Jobs or Assets Loan. It was assumed, and here lies the ‘core’ of the storm the house shall always be worth more than the defaulted amount and therefore the banks would always yield profits – even in the ‘default’ case. As stated above, the US government actively encouraged this arrangement as suited its welfare agenda of ‘house for all’. Institutions like Fannie Mae and Freddie Ma, which gave unlimited
References: 1. “The causes of Economic meltdown in India”. www.openlibrary.com 2. “ Indian Economy” and “World Panorama” . Manorama Yearbook 2011 3. “Causes of Economic Meltdown”. www.economywatch.com