The Crazy Meltdown!

Banking and financial services industry is really crazy. Analysts say that there is a serious melt down, yet claim that there is a liquidity crunch. This is impossible, because basic science indicate that when something MELTs down, it leads to liquidity! With eye-banking becoming more lucrative than i-banking, life for an average American has become easy! Their investment decisions have been simplified with very few banks left in the marketplace. The aftermath of Heman Brothers and Mamu (names changed on no specific request) is visibly felt by the other banks which are “cat on the wall(street)” cases! Accountants are finding it extremely easy to draw the P&L statements for these banks. On one side there is financial aid from Govt and on the other side there is bad Debt!

The story we are talking here is credibility, or rather the lack of it. I mean, it is an “in-credible” story! It all started with the sub-prime lending issue. Let me tell you how sub-prime lending leads to bankruptcy. Well to begin with, anything which is sub-PRIME is not composite and COMPOSITE is manure, therefore anything sub-prime is not MANURE. Anything which has no manure is not fertile. Anything which is not FERTILE is not amenable for growth. Where there is no GROWTH there is no opportunity. Lack of OPPORTUNITY implies lack of cash inflow. When you give away loans and don’t have subsequent cash inflow, you will be broke! You don’t need to be an Amartya Sen to figure this out. Even Riya Sen, Raima Sen or Konkana Sen will be able to tell this. (Now I understand why in America they call it a SENate!)

Reports say that, at one point in time people were given loans to repay their loans! Think about it, banks giving loans under the guarantee that individuals will be given loans to repay their loans. Interestingly, the banks which give them this loan to repay their loans, think that there will be some other bank which will give the individual a loan to repay this loan which was given to repay their initial loan! This becomes a vicious cycle and finally the CEOs of the banks are now going in a cycle (instead of their Mercs)! The way US banks operated was in summary encapsulated by this statement of a CEO who, in one of the interviews when he came to India, said that his favourite Indian destination was “Lo(a)navala”! Can you beat that???

The US senate has approved a $ 700 bn “bail out” package to reform the situation. Interestingly after the bail-out package was announced, the Indian markets have seen a continuous fall. I was thinking very hard why this happened, and I got an answer today. Let me explain how.
The US senate has named the reform as “Bail-out” plan. India’s national language is Hindi, and in Hindi “Bail” means “Bull” (as in “Bail Gadi” which means bullock cart”). Everyone wants the bears to disappear from the market and the Bulls to come in. But unfortunately, this package is called “Bail-OUT”! So people thought that the Bulls will go out and the bears will rule… The package was named in direct contrast to the market sentiments. That’s why I am weary of the Republicans. They have someone called “Sarah Palin”, they could have very well named the reform in similar line, something like “Sarah Bail-in”, which in Hindi would have translated to “All the bulls in”! This would have taken the sensex skyward!

Whatever, the financial meltdown has frozen the economies of many countries! Financial experts in India say that we are well “Insulated”. I would kind of believe them. The logic being credit / debit cards have replaced paper money. Since cards are made of plastic and plastic is an insulator, our economy must be definitely well insulated! So guys… do not worry about the IS-LM curves! Invest as much as you want. NDTV profit says that a long term investor has no reasons to worry. But how short a “long term” is something that no one explains clearly to me. In the very long run, the survival rate of everyone drops to Zero! Short term & long term is relative. Therefore live life at your own terms! Get your salaries, spend it all and enjoy life happily. All you single people out there, if you don’t know how to spend your salary then it is about time you get married!