sub-prime

Just when the first rays of sunlight had begun to appear through a dark storm, they’ve disappeared again. Bear markets are like that. They often taunt you into making gambles with your money and the moment you think you’ve made the right decision you realize that the ever powerful stock market has once again humbled you. It’s been the case for the past few months but the beginning of November seemed to bring in the confirmation of the market bottom, or so we thought.

The ambitious 700 Billion Dollar Bailout package was supposed to be the answer. American Politicians sat through the night and went through every single line of this proposed plan in an effort to save the lending arm of our financial system: The Banks. They went ahead and announced that they had reached a plan that would allow the money to flow into the US Markets and trickle on to the rest of the world. Strategically announced before the Australian markets opened, it was supposed to bring back a certain amount of confidence. This certainly didn’t happen because markets across the board were hammered today leaving many scratching their heads. Our Sensex was one of the biggest losers.

If the Finance Minister is to be believed then everything in the Indian banking sector is hunky dory. The banks have enough cash and the RBI is doing a wonderful job. At least, that’s the impression one would have got if he or she were present at a press conference addressed by P.Chidambaram earlier today. Cynics have already pegged this estimation as a deliberate lie that misguides people about our banking system making out the case for Indian banks to be as bad as faced by banks in the US.

Both arguments are valid but on this count it’d the Finance Minister’s statements that have turned out to be more accurate. Indian banks aren’t as comfortable as he says they are but they definitely have an ample supply of liquidity to power the Indian economic engine.

For a country which doesn’t like to hear the term ‘Socialism’, the US government backed bailout of insurance company AIG is exactly that: pure unbranded socialism. Politically the government might have given it a spin saying that this was a bailout of AIG’s consumers and insurance policy holders and not the shareholders. The fact however remains that this bailout was necessary to prevent a bigger stock market crash across the world. Had AIG not been saved by the US Federal Reserve, the ripples would have been massive for the Indian markets because apart from the obvious global impact, AIG is also an important stock holder in many Indian equities.