Dear readers,
Current news of Lehman Brothers going bankrupt, Merrill Lynch sold for half of its value, AIG asked FED Reserve for a loan of 5000 Crore dollars are not at all surprising.
Sub-prime borrowers are those who can not pay installments of the loan they had taken from the Banks. Each American is tend to go for a bank loan just to spend for enjoyment. They take loans to purchase a property and for the furniture also.
Before about 10 years, the real market in USA was very bullish. At that time many Americans used to buy flats not to stay but for investment purpose. Though their income was not enough, they managed to buy flats by taking loans from the banks. Banks were giving easy loans to these investors as banks were safe, because even if the loaner fails to pay, the bank can attach the property. When the prices were going high, there was no problem. But the bullish real market was due to investors and not real consumers. Once the prices started going down, many Americans stopped paying installments of the loans. But the banks were not in a position to attach the property, as there is no demand in the market.
The banks did not keep the loss limited to them. The banks issued bonds and banks, insurance companies and other finance institutions from all over the world invested money in the bonds. Lehman Brothers or AIG are the victims, others may follow.
Most of the loser banks have not written off all the loans and show as loans receivable and they show properties at higher prices to manipulate the loss. But the written down figure up to now has crossed 60,000 Crore US $. And the companies all over the world which had invested in the bonds also show book value instead of showing the current value.
A huge amount is blocked in such bonds. But the companies had to clear their dues and there was liquidity problems for most of the companies. To clear their dues, companies borrowed from different sources for which they had to pay interest. But after few months of this practice, no one was ready to give them new loans.
Lehman Brothers or AIG are not the last companies affected by the crisis, many may follow.
In India, this may not happen directly, as in India, no one takes loan for investment. When you take loans for the flat you are living in, how dare you stop the payment of installments ?
Golden advice : Spread your legs as per the size of your blanket.
Current news of Lehman Brothers going bankrupt, Merrill Lynch sold for half of its value, AIG asked FED Reserve for a loan of 5000 Crore dollars are not at all surprising.
Sub-prime borrowers are those who can not pay installments of the loan they had taken from the Banks. Each American is tend to go for a bank loan just to spend for enjoyment. They take loans to purchase a property and for the furniture also.
Before about 10 years, the real market in USA was very bullish. At that time many Americans used to buy flats not to stay but for investment purpose. Though their income was not enough, they managed to buy flats by taking loans from the banks. Banks were giving easy loans to these investors as banks were safe, because even if the loaner fails to pay, the bank can attach the property. When the prices were going high, there was no problem. But the bullish real market was due to investors and not real consumers. Once the prices started going down, many Americans stopped paying installments of the loans. But the banks were not in a position to attach the property, as there is no demand in the market.
The banks did not keep the loss limited to them. The banks issued bonds and banks, insurance companies and other finance institutions from all over the world invested money in the bonds. Lehman Brothers or AIG are the victims, others may follow.
Most of the loser banks have not written off all the loans and show as loans receivable and they show properties at higher prices to manipulate the loss. But the written down figure up to now has crossed 60,000 Crore US $. And the companies all over the world which had invested in the bonds also show book value instead of showing the current value.
A huge amount is blocked in such bonds. But the companies had to clear their dues and there was liquidity problems for most of the companies. To clear their dues, companies borrowed from different sources for which they had to pay interest. But after few months of this practice, no one was ready to give them new loans.
Lehman Brothers or AIG are not the last companies affected by the crisis, many may follow.
In India, this may not happen directly, as in India, no one takes loan for investment. When you take loans for the flat you are living in, how dare you stop the payment of installments ?
Golden advice : Spread your legs as per the size of your blanket.
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