How Indians would have saved Lehman Brothers

How Indians would have saved Lehman Brothers

I happened to run in to Nanubhai on Dalal Street. He was eating Khaman
Dhokla in a farsan shop.

"Kame chho, Nanubhai?"

"Saru chhe."

He was looking glum but gestured me to join him. As I bit into the tasty
dhokla with tangy chutney on the Friday afternoon, which was fast turning into
a 'Manic Friday' as per Dalal Street lingo, hewas staring at the bull near
the entrance, which overnight had become a Russian bear hugging everybody that
passed the Street.

Nanubhai is a well-respected Dalal Street dada with an answer to every
shareholder' s query.

"What went wrong with Lehman Brothers?" I asked.

"Lots of things. If the founder brothers, Henry, Emanuel and Mayer were
alive this wouldn't have happened. Lehman Brothers were more than a 150-year-old
company. But yet, it had no Lehman in the company. Such a situation can never
happen in India ."

"Are you trying to tell me an Indian would have handled this differently? "

"Bilkul. If it was an Indian firm, Lehman Brothers would have fought as soon
as their father died and divided in to three companies. They would have
diversified into clothing, polystyrene, petrochemicals, vegetables, movie making,
telecom, drilling oil, mobile phones, retailing, books, spectacles, gyms,
wellness. In short, anything and everything under the sun. They would have made
money for themselves and their shareholders. "

"But when there is massive failure there would be no option but to file for
bankruptcy?"

"Fail-wail chance hi nahin! Even if they encounter tough times, they would
have friends like Mulayam Singh and Amar Singh to bail them out. They could
finish off competition by befriending the finance minister and getting duties
levied on the imports of competition. They would fund and befriend ruling
parties. Unfortunately for Lehman Brothers in 2008, without a Lehman on the board
or some Indian business brothers at the top, they couldn't open the survival
kit to stay afloat."

As we were sipping double kadak chai, I asked: "Did anybody anticipate this
global meltdown?"

"Anticipate? Mazak chodo! I will tell you something. America has some 45
Nobel laureates in economics from 1970. From 2000 alone there are 15 Nobel
laureates in econometrics sitting on company boards, treasury benches and in
places like Harvard, Stanford etc. Kisiko kuch patha nahin tha! How come none of
these had any inkling to the disaster awaiting the banking circles all over
the world? Even the finance ministers of G-7 talked of strong "fundamentals" of
world economy around this time last year! Two months back the only topic
they were discussing was the rise in oil prices."

"What will happen if it goes all on like this?"

"Some American economist will study this, write a new a theory and get Nobel
Prize next year, dekhna. Seriously, they forgot things like control, double
check, systems-in-place etc and brought in vague words like Sub primes to
give loans left, right and centre."

"What will happen to the Indian market?"

"It's already having the Lehman Brothers' effect. Our finance minister seems
to like the figure 60,000. While presenting the budget earlier in the year
he pledged Rs 60,000 crore to write off loans given to farmers. Now he is
pumping Rs 60,000 crore to help out the banks! I don't know what he will do next.
He is again from Harvard!"

"What is the lesson to be learnt from the Lehman Brothers' episode?" I asked
as we were leaving.

Nanubhai took a spoonful of saunf and said: "You know, we have an old
elementary rule for keeping hisab-kithab. Divide a page into 'Left' and
'Right' with a line in the middle to denote Debit and Credit. In case of LB,
as somebody said, nothing was right in the 'Left' and nothing was left in
the 'Right'," concluded Nanubhai.

Jokes on the crash

The Best of Financial Meltdown jokes from the BBC

1. How do you define optimism? A banker who irons 5 shirts on a Sunday

2. What do you call 12 investment bankers at the bottom of the ocean?
A good start

3. Resolving to surprise her husband, an investment banker's wife pops
by his office. She finds him in an unorthodox position, with his
secretary sitting in his lap. Without hesitation, he starts dictating,
"...and in conclusion, gentlemen, credit crunch or no credit crunch, I
cannot continue to operate this office with just one chair!"

4. Masked man holding a bank cashier up with a gun. Says: 'I don't
want any money - I just want you to start lending to each other...

5. What's the difference between Investment Bankers and London Pigeons?
The Pigeons are still capable of making deposits on new BMW's

6. What's the difference between an investment banker and a large pizza?
A large pizza can feed a family of four

7. What have Icelandic banks and an Icelandic streaker got in common?
They both have frozen assets

8. Money talks. Trouble is, mine only knows one word - goodbye.

9. What is a banker's favourite chocolate bar? A credit crunchie!

10. For Geography students Only: What's the capital of Iceland? Answer:
About Three Pounds Fifty...

11. Quote of the day (from a trader): "This is worse than a divorce.
I've lost half my net worth and I still have a wife."

and finally the Best

12. If you had purchased $1000.00 of Nortel stock one year ago, it
would now be worth $49.00. With Enron, you would have $16.50 left of
the original $1000. With WorldCom, you would have less than $5.00
left. If you had purchased $1000.00 of Delta Air Lines stock you would
have $49.00 left. If you had purchased United Airlines, you would have
nothing left. But, if you had purchased $1000.00 worth of beer one
year ago, drank all the beer, and then turned in the cans for
recycling, you would have $214.00. Based on the above, the best
current investment advice is to drink heavily and recycle. This is
called the 401-Keg Plan.

The story abt the crash ! i cant stop talkin abt it

While some blame the greed of Wall Street investment bankers and the
dangers of a totally unregulated system for the current financial
crisis, what can't be denied is that lives, and lifestyles, have been
suddenly changed across the social spectrum and careers built up over
a lifetime have vanished in an instant.

Flashback to year 2003:

Rohit (name changed to protect identity), a good friend of mine and
someone who was officially considered to be a genius with an IQ of
150+, graduated from one of the leading B schools. Rohit managed to
make it into the New York Headquarters of the most sought after firm
that had arrived on campus for the first time - Lehman Brothers - a
top U.S. Investment Bank (then). On joining, he was assigned to
Lehman's mortgage securities desk that dealt with Collateralised Debt
obligations (or CDOs).

Following is an extracted transcript of a chat session I had with
Rohit back in 2004:

Me: So man, you must feel like you are on top of the world.

Rohit: Yes dude, the job here is amazing, I get to interact with
people around the world, investment managers who want to invest
millions of dollars

Me: Great...so tell me something interesting. What's your job all about?

Rohit: You know there is a great demand for American home loans, which
we buy from the U.S. banks. We then convert these into what is called
as CDOs (Collateralised Debt Obligations) . In plain English, this
refers to buying home loans that banks had already issued to
customers, cutting them into smaller pieces, packaging the pieces
based on return (interest rate), value, tenure (duration of the loans)
and selling them to investors across the world after giving it a fancy
name, such as "High Grade Structured Credit Enhanced Leverage Fund".

Me: Wow! I would've never guessed that boring home loans could
transform into something that sounds so cool!

Rohit: Hahaha...actually we create multiple funds categorised based on
the nature of the CDO packages they contain and investors can buy
shares in any of these funds (almost like mutual funds...but called
Structured Investment Vehicles or SIVs)

Me: Dude, you make your job sound like a meat shop...chopping and
packaging. So, in effect when an investor purchases the CDOs (or the
fund containing the CDOs), he is expected to receive a share of the
monthly EMI paid by the actual guys who have taken the underlying home
loans?

Rohit: Exactly, the banks from whom we purchased these home loans send
us a monthly cheque, which we in turn distribute to the investors in
our funds

Me: Why do the banks sell these home loans to you guys?

Rohit: Because we allow them to keep a significant portion of the
interest rate charged on the home loans and we pay them upfront cash,
which they can use to issue more home loans. Otherwise home loans go
on for 20-30 years and it would take a long time for the bank to
recover its money.

Me: And, why does Lehman buy these loans?

Rohit: Because we get a fat commission when we convert the loans into
CDOs and sell it to investors.

Me: Who are these investors?

Rohit: They include everyone from pension funds in Japan to Life
Insurance companies in Finland.

Me: But tell me, why are these funds so interested in purchasing
American home loans?

Rohit: Well, these guys are typically interested in U.S. Govt. bonds
(considered to be the safest in the world). But unfortunately, Mr.
Alan Greenspan (head of Federal Reserve Bank, similar to RBI in India)
has reduced the interest rate to nearly 1 per cent to perk up the
economy after the dotcom crash 9/11attacks. This has left many funds
looking for alternative investments that can give them higher returns.
Home loans are ideal because they offer 4-6 per cent interest rate.

Me: Wait, aren't home loans more risky than U.S Bonds?

Rohit: We have made home loans less risky now. In fact they have
become as safe as U.S Govt. bonds.

Me: What are you saying, man? What if the people who have taken these
underlying home loans default? Then the investors would stop getting
the EMIs, and their returns would take a hit. Wouldn't it?

Rohit: Boss, may be some will default, but not definitely more than
2-3 per cent. Moreover, we have convinced AIG (a leading insurance
company) to insure our CDOs. This means that even if there were big
defaults, the insurance company would compensate the investors.

Me: that's amazing. What are these insurances called?

Rohit: Credit Default Swaps.

Me: Definitely you guys are the most creative when it comes to naming.

Rohit: Thanks.

Me: And why has this AIG guy insured millions of home loans?

Rohit: See man, the logic is simple.. Home prices in the U.S always go
up. In fact over the last three years alone they have doubled. So even
if someone defaults paying the EMI, the home can be seized and sold
for a much higher price. So there is no risk. Insurance companies are
actually competing to insure this, because they can earn risk-free
premiums.

Me: No wonder investment managers from all over the world want to put
money in your CDOs.

*A global financial cobweb started getting built around the American
dream of purchasing a home and it rested on the assumption that "home
prices will keep rising". As demand for the CDOs started growing
across the global investment community, the investment bankers (like
Lehman) who were meant to sell these instruments also started
investing a significant portion of their own capital in these. I guess
after selling the story to the whole world, they themselves got sold
on the seemingly foolproof concept. Gradually the markets for CDOs and
Credit Default Swaps started expanding with traders and investors
buying and selling these as if they were shares of a company, happily
forgetting the underlying people behind these products who took the
home loans in the first place and on whose capacity to repay the
loans, the safety of these products depended.

As Wall Street firms like Lehman were churning more and more home
loans into CDOs and selling them or investing their own money, there
was a pressure on the banks to issue more loans so that they can be
sold to the Wall Street firms in return for a commission. Slowly banks
started lowering the credit quality (qualification criteria) for
availing a home loan and aggressively used agents to source new loans.
This slippery slope went to such an extent that in 2005, almost anyone
in the U.S could buy a home worth $100,000 (45 lakhs INR) or more
without income proof, without other assets, without credit history,
sometimes even without a proper job. These loans were called NINA -
"no income no assets".

The U.S. housing market went into a classic speculative bubble. Home
loans were easy to get, so more and more people were buying houses.
The increased demand for houses caused the price to increase. The
rising prices created even more demand, as people started to look at
homes as investments - investments that never went down in value.

When I touched base with my friend Rohit in late 2005, he was on cloud
nine. During the previous one year, he managed to buy a home in Long
Island (a posh area near New York City) worth almost a million
dollars, and got himself a Mercedes. All this was interesting to hear,
but what shocked me was that although he was earning close to $200,000
a month (that is what CEOs in India make) he was not able to save
anything because his lifestyle expenses where growing faster than his
salary.

Unheeded signals

In late 2006, Mortgage lenders noticed something that they'd almost
never seen before. People would choose a house, sign all the mortgage
papers, and then default on their very first payment. Although no one
could really hear it, that was probably the moment when one of the
biggest speculative bubbles in American history popped.
Another factor that lead to the burst of the housing bubble was the
rise in interest rates from 2004-2006. Many people had taken variable
rate home loans that started getting reset to higher rates, which in
turn meant higher EMIs that borrowers had not planned for.

The problem was that once property values starting going down, it set
off a reverse chain reaction, the opposite of what had been happening
in the bubble. As more people defaulted, more houses came on the
market. With no buyers, prices went even further down.

In early 2007, as prices began their plunge, alarm bells started going
off across mortgage-backed securities desks all over Wall Street. The
people on Wall Street, like Rohit, started getting call from investors
about not getting their interest payments that were due. Wall Street
firms stopped buying home loans from the local banks.
This had a devastating effect on particularly the small banks and
finance companies, which had borrowed money from larger banks to issue
more home loans thinking they could sell these loans to Wall Street
firms like Lehman and make money.

Everyone got into a mad scramble to seize and sell the homes in order
to get back at least some of the money. But there were just not enough
buyers. The guys who had insured these loans thinking they had near
zero risk (e.g. AIG) could not fulfil the unexpectedly huge number of
claims. The best part was that since these insurance policies (credit
default swaps) could themselves be traded, multiple people had bought
and sold them, and it became so tough to even trace who was supposed
to compensate for the loss.

The global financial cobweb built around mortgages is on the brink of
collapse. Firms, large and small, some young some as old as a 100
years have crumbled as a result of suing each other over the dwindling
asset values. Lehman's India operations, that employed over a thousand
staff, is up for sale and many of the employees have been asked to
leave. The Indian stock market has crashed almost 50 per cent from its
high (and so have markets around the world) as the
Wall Street giants sold their investments in the country in an effort
to salvage whatever is good in order to make up for the mortgage
related loss. Hedge funds, pension funds, insurance companies all over
the world have lost billions in investor's money.
Many Indian B-School graduates with PPOs (pre-placement offers) in the
financial sector (India and abroad) have either received an annulment
or indefinite postponement of joining dates. IT firms that built and
maintained software for the U..S. mortgage industry or the related
Investment Banks, have shut down their business units, laid-off people
or transferred them to other verticals.

Fragile system

For all the hoopla over the sharp and sophisticated people on Wall
Street, the current financial crisis has exposed the fragility of the
system. Wall Street is blaming the entire episode on people who could
not repay their home loans. But the reality seems to point towards the
stupidity of people who lent all this money, financial institutions
that built fancy derivative packages and in effect facilitated
billions in trading and investments in these fragile low quality
loans.

The U.S. Govt is planning to grant 700 billion dollars to the Wall
Street firms to compensate the financial speculators for the money
that they have lost. Isn't this like rewarding greed and stupidity?
The head of a leading Investment Bank has stated, "This is necessary
to sustain financial ingenuity. We don't want to spend this money on
ourselves. We just want this money to go into the market so that we
can carry on trading complex securities, borrowing and lending money."
(Yeah...right, so that one can act as if nothing had happened without
analyzing too much into it). The real question is: Who is going to
compensate the common investors across the world who have lost their
wealth in the resultant market meltdown? (either directly or through
pension funds).

After being unreachable for a month now, finally I heard back from my
pal, Rohit, saying he is back in India to take a break from the roller
coaster ride that he had lived through. After Lehman's collapse he has
lost his job and probably the house that he had bought by taking a
hefty loan. I really don't know whether to feel happy for him, for
getting an opportunity to learn a lesson or two from the experience or
to feel sad for him for losing his job. Maybe I'll get a better sense
of things once I meet him.
Now I know why /*_Warren Buffet calls derivatives, the financial
instruments of mass destruction! !!!!!!!!_ */

The ABC of the crisis

ce there was a little island country. The land of this country was the
tiny island itself. The total money in circulation was 2 dollars as there
were only two pieces of 1 dollar coins circulating around.

1) There were 3 citizens living on this island country. A owned the land. B and C each owned 1 dollar.

2) B decided to purchase the land from A for 1 dollar. So, now A and C own 1 dollar each while B owned a piece of land that is worth 1 dollar.

* The net asset of the country now = 3 dollars.

3) Now C thought that since there is only one piece of land in the country,
and land is non producible asset, its value must definitely go up. So, he
borrowed 1 dollar from A, and together with his own 1 dollar, he bought the
land from B for 2 dollars.

*A has a loan to C of 1 dollar, so his net asset is 1 dollar.
* B sold his land and got 2 dollars, so his net asset is 2 dollars.
* C owned the piece of land worth 2 dollars but with his 1 dollar debt to A, his net residual asset is 1 dollar.
* Thus, the net asset of the country = 4 dollars.

4) A saw that the land he once owned has risen in value. He regretted having sold it. Luckily, he has a 1 dollar loan to C. He then borrowed 2 dollars from B and acquired the land back from C for 3 dollars. The payment is by 2 dollars cash (which he borrowed) and cancellation of the 1 dollar loan to C.
As a result, A now owned a piece of land that is worth 3 dollars. But since
he owed B 2 dollars, his net asset is 1 dollar.

* B loaned 2 dollars to A. So his net asset is 2 dollars.
* C now has the 2 coins. His net asset is also 2 dollars.
* The net asset of the country = 5 dollars. A bubble is building up.

(5) B saw that the value of land kept rising. He also wanted to own the
land. So he bought the land from A for 4 dollars. The payment is by
borrowing 2 dollars from C, and cancellation of his 2 dollars loan to A.

* As a result, A has got his debt cleared and he got the 2 coins. His net
asset is 2 dollars.
* B owned a piece of land that is worth 4 dollars, but since he has a debt
of 2 dollars with C, his net Asset is 2 dollars.
* C loaned 2 dollars to B, so his net asset is 2 dollars.

* The net asset of the country = 6 dollars; even though, the country has
only one piece of land and 2 Dollars in circulation.

(6) Everybody has made money and everybody felt happy and prosperous.

(7) One day an evil wind blew, and an evil thought came to C's mind. "Hey,
what if the land price stop going up, how could B repay my loan. There is
only 2 dollars in circulation, and, I think after all the land that B owns
is worth at most only 1 dollar, and no more."

(8) A also thought the same way.

(9) Nobody wanted to buy land anymore.

* So, in the end, A owns the 2 dollar coins, his net asset is 2 dollars.
* B owed C 2 dollars and the land he owned which he thought worth 4 dollars
is now 1 dollar. So his net asset is only 1 dollar.
* C has a loan of 2 dollars to B. But it is a bad debt. Although his net
asset is still 2 dollars, his Heart is palpitating.
* The net asset of the country = 3 dollars again.

(10) So, who has stolen the 3 dollars from the country ? Of course, before
the bubble burst B thought his land was worth 4 dollars. Actually, right
before the collapse, the net asset of the country was 6 dollars on paper.
B's net asset is still 2 dollars, his heart is palpitating.

(11) B had no choice but to declare bankruptcy. C as to relinquish his 2
dollars bad debt to B, but in return he acquired the land which is worth 1
dollar now.

* A owns the 2 coins, his net asset is 2 dollars.
* B is bankrupt, his net asset is 0 dollar. ( he lost everything )
* C got no choice but end up with a land worth only 1 dollar

* The net asset of the country = 3 dollars.

************ **End of the story; BUT ************ ********* ******

There is however a redistribution of wealth.
A is the winner, B is the loser, C is lucky that he is spared.
A few points worth noting -

(1) When a bubble is building up, the debt of individuals to one another in
a country is also building up.
(2) This story of the island is a closed system whereby there is no other
country and hence no foreign debt. The worth of the asset can only be
calculated using the island's own currency. Hence, there is no net loss.
(3) An over-damped system is assumed when the bubble burst, meaning the
land's value did not go down to below 1 dollar.
(4) When the bubble burst, the fellow with cash is the winner. The fellows
having the land or extending loan to others are the losers. The asset could
shrink or in worst case, they go bankrupt.
(5) If there is another citizen D either holding a dollar or another piece
of land but refrains from taking part in the game, he will neither win nor
lose. But he will see the value of his money or land go up and down like a
see saw.
(6) When the bubble was in the growing phase, everybody made money.
(7) If you are smart and know that you are living in a growing bubble, it is worthwhile to borrow money (like A ) and take part in the game. But you must know when you should change everything back to cash.
(8) As in the case of land, the above phenomenon applies to stocks as well.
(9) The actual worth of land or stocks depend largely on psychology

Atlas shruggd ,, to a limit o mebbe

LEARNING WITH THE TIMES: Anatomy of a crisis
12 Oct 2008, 0051 hrs IST,TNN (Times News network)

Over the past several weeks, TOI has sought to bring you a sense of
the tectonic changes in the global financial order, and their impact
on economies and people. In our 'Learning With The Times' series, we
have traced the origins of the meltdown-in the US sub-prime loan
crisis-as well as the reasons for the spread of fear to stock and
credit markets around the world. As the situation assumes grave
proportions, even in India, investors and to an extent depositors are
hitting the panic button. Many don't follow business closely and are
spooked by economic jargon. That doesn't mean they don't want to know
what's happening to their money. We therefore invited economist Abheek
Barua to explain as lucidly as possible the unfolding crisis, and what
it means for all of us.
------------ --------- --------- --------- --------- --------- -
If your palms start to sweat whenever you see the business headlines
or flip to a business channel, you might draw solace from the fact you
share these symptoms with millions. Investors across the world are in
a state of absolute panic. As they dump risky assets like shares and
rush to safe havens like gold and government bonds, stock-markets and
currencies across the world keep falling.

The origins of today's crisis can be traced back to mid-2007 when
three things became clear. One, low income or sub-prime US households
that had borrowed heavily from banks and finance companies to buy
homes were defaulting heavily on their debt obligations. Two, the size
of this sub-prime housing loan market was huge at about $1.4 trillion.
Three, Wall Street's financial engineers had packaged these loans into
really complicated financial instruments called CDOs (collateralized
debt obligations) . American and European banks had invested heavily in
these products.

However, no amount of financial engineering could protect investors
from one simple and irrefutable principle-if these housing loans
turned 'bad', the instruments that were based on these loans would
lose value. CDO prices started plummeting as defaults on US home loans
rose. Falling prices dented banks' investment portfolios and these
losses destroyed banks' capital. The complexity of these instruments
meant that no one was too sure either about how big these losses were
or which banks had been hit the hardest.

Banks usually never hold the exact amount of cash that they need to
disburse as credit. The 'inter-bank' market performs this critical
role of bringing cash-surplus and cash-deficit banks together and
lubricates the process of credit delivery to companies (for working
capital and capacity creation) and consumers (for buying cars, white
goods etc). As the housing loan crisis intensified, banks grew
increasingly suspicious about each other's solvency and ability to
honour commitments. The inter-bank market shrank as a result and this
began to hurt the flow of funds to the 'real' economy.

To cut a long story short, today's financial crisis is the culmination
of these problems in the global banking system. Inter-bank markets
across the world have frozen over. Indian banks are in the middle of a
severe cash crunch. Wall Street blue-chips like Bear Stearns and
Merrill Lynch have been acquired by other more 'solvent' banks at
bargain-basement prices. Lehman Brothers, which had survived every
major upheaval for the past 158 years, went bust. Panic begets panic
and as the loan market went into a tailspin, it sucked other markets
into its centrifuge. The meltdown in stock markets across the world is
a victim of this contagion.

Some questions need answers at this stage. Why are the sensex and the
rupee getting hurt so badly by the woes of the American and European
banks? Their presence in India is minuscule compared to the
nationalized banks or the bigger private banks. A glance at Indian
banks' balance sheets would show that their exposure to complex
instruments like CDOs is almost nil.

A word, 'globalization' , and a phrase, 'risk aversion', should explain
why India has not been spared the contagion of the US and European
banking crisis. Global investors are seriously concerned about the
prospect of a great upheaval, if not a complete collapse in the
banking system in the developed world. This, they fear, would affect
all financial transactions in the near term. Going forward, this
disruption could trigger a global recession (that is about 3% growth
in 2009 for all economies put together). Agencies like the
International Monetary Fund have endorsed this view.

The upshot is that the global investment community has become
extremely risk-averse. They are pulling out of assets that are even
remotely considered risky and buying things traditionally considered
safe-gold, government bonds and bank deposits (in banks that are still
considered solvent). Emerging markets like India have over the last
few years offered spectacular returns but have always been considered
'risky'. It is not surprising that they have got the short shrift in
the flight to safe haven.

Does India deserve to be treated differently? Are we the victim of
irrational 'herd' behaviour where differences across economies are
getting blurred in this mad rush to safety? Yes and no. It is true
that our economy depends more on domestic rather than external
drivers, a fact that we keep touting endlessly. However, it is also
true that we have embraced 'globalization' fairly enthusiastically
over the past decade-and-a- half.

This, from an economic perspective, means two things. For one, we
depend more on external markets to sell our goods and services. In
1995-96, for instance, we sold 9.1% of our goods abroad. In 2007-08,
we sold 13.5% of our goods to foreign buyers. It also means that we
depend more on external funds to support our growth.

In the last fiscal year alone, we borrowed $29 billion from foreign
lenders and got $34 billion of foreign direct investment. A global
recession would hurt external demand. 'Risk-aversion' among
international lenders could limit access to international capital.
Both India's financial markets and the real economy will be hurt in
the process. Suddenly, the 9% growth target does not seem that
'doable' any more; we should be happy to clock 7% this fiscal year and
the next.

The sell-off in the stock markets is not entirely the effect of global
contagion. To a degree, it reflects anxieties about our prospects of
future growth. The blood-letting in the financial markets is unlikely
to stop soon. Governments and central banks (the RBI's counterparts)
are trying every trick in the book to stabilize the markets. They have
pumped hundreds of billions of dollars into their money markets to try
and unfreeze their inter-bank and credit markets. Large financial
entities have been nationalized. The US government has set aside $700
billion to buy the 'toxic' assets like CDOs that sparked off the
crisis. Central banks have got together to co-ordinate cuts in
interest rates. None of this has stabilized the global markets. Thus,
it is impossible to predict when the haemorrhage will stop and what
will stem it.

That said, history tells us that financial crises end as suddenly as
they start. I would not be surprised if by early next year, the worst
of the mayhem is over. The wounds that it leaves behind could,
however, take much longer to heal.