The subprime lending crisis is not an isolated event & it won’t be easily contained

A recent research piece by Bank of America estimates that approximately $500 billion of adjustable rate mortgages are scheduled to reset skyward in 2007 by an average of over 200 basis points. 2008 holds even more surprises with nearly $700 billion ARMS subject to reset, nearly ¾ of which are subprimes.

It was not supposed to be this way. 1% teasers or 3% 2/28’s were supposed to be rolled with no points into something resembling… well…1% teasers & 3% 2/28’s. Instead today we have nearly 7% fixed rate mortgages & not a teaser to be found. Congress, regulators, even Fed officials are stepping in & warning mortgage originators (even mortgage buyers!) that they’d better be careful & only make good loans. Those nasty capitalists! They must have gotten carried away a few years ago. Somehow all those BMWs in the New Century parking lot in Irvine, California didn’t attract much notice in 2006. Now, well, there’s nary a Prius to be found there, but lots of outraged politicians in Washington, that’s for sure. The right places to look for contagion are therefore not in the white-washed Bear Stearns hedge funds, but in the subprime resets to come & the ultimate effect they will have on the prices of homes – the collateral that’s so critical in this asset-backed, & therefore interest sensitive financed-based economy of 2007 & beyond.

In the near future, delinquencies will lead to defaults & then to lower home prices, then we have problems & the potential for an extended – not a 27-day Paris Hilton sentence.

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Source: IIPM Editorial, 2008

An IIPM and Management Guru Prof. Arindam Chaudhuri's Initiative

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Irrespective of the hits that the varmint simian creature took, you loved the special effects, didn’t you?

Irrespective of the hits that the varmint simian creature took, you loved the special effects, didn’t you? There was something, how do we put, lovable about the fiendish imp, wasn’t there? Snap back! We accept that the sector has seen special effects of quite some sorts this year. According to Assocham, the sector is expected to become a $60 billion piping hot commodity by 2010. If that didn’t leave your mouth wide open, the estimation of $180 billion by 2020 (PHDCCI) will unquestionably do so. The IT sector alone will entail more than 150 million square feet (2010) in the commercial realty domain. In the residential domain, current shortage of 20 million homes will further keep realtors’ dimples alive.

The icing on the cake, the estimated growth rate of 35% of the retail sector will work as firecrackers in the realty fiesta. B. P. Dhaka of Parsvnath Developers Ltd., quips, “The real estate sector is maturing day by day and in times to come the sector is going to be a more transparent and a stable one.” Haven’t we heard that one before? But seriously, when we drove through the roads around newly constructed buildings and residential locations in New Delhi, Mumbai, Pune, Bangalore, Chennai and Hyderabad, we nowhere near slowing down, spawning overnight billionaires. Believe this or not – four out of the seven new entrants in the illustrious Forbes Billionaire List, 2006, were from the sector (K. P. Singh of DLF, Ramesh Chandra of Unitech, Pradeep Jain of Parsvnath, Vikas Oberoi of V. O. Constructions).

Worryingly, this misleading ‘billionaire’ advertisement is adding to hordes of ostensible ‘entrepreneurs’ and investment firms ready to rock the realty cradle by a technique now known as ‘carpet investment bombing’. Nearly two dozens of USbased funds are raising more than $3 billion to grab a pie of the immense opportunities. The list of thespians includes heavyweights – Blackstone Group ($1 billion), Goldman Sachs ($1 billion), Citigroup Property Investors ($125 million), Morgan Stanley ($70 million) et al. Even developers are finding it hard to keep themselves out of this golden bird. In all, more than $20 billion is expected to pour in the sector from foreign lands. Dubai’s Nakheel Group signed a $10 billion deal with DLF for Tier l & ll cities, apart from many more such deals. Shravan Gupta, Executive Vice Chairman & MD, Emaar MGF Land Pvt. Ltd., reveals to B&E, “Emaar MGF has committed a capital outlay of $12 billion in a phased manner over the next four-five years.”

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Source: IIPM Editorial, 2008
An IIPM and Management Guru Prof. Arindam Chaudhuri's Initiative

Cold War deja vu!

One wonders, why did the world undergo the trial & tribulations associated with the Cold War nuclear politics? The question gains added salience especially when one sees the West & Russia walking the beaten tracks & once again entering into a dangerous missile race.

The recent withdrawal of Russia from its obligations under the conventional forces in Europe (CFE) treaty certainly doesn’t portend well, either for global peace or for the continent (Europe), which has presumably bid good bye to war as an instrument of state policy. The treaty came into being in 1992 (the collapse of Communism saw a revised treaty, CFE II enacted in 1999) as a confidence building measure between NATO & former Warsaw pact nations to reduce the deployment of conventional forces between the Atlantic Ocean and the Urals.


For Complete IIPM Article, Click here

Source: IIPM Editorial, 2008

An IIPM and Management Guru Prof. Arindam Chaudhuri's Initiative

IIPM Arindam Chaudhuri 4Ps Business & Marketing Business & Economy Kkoooljobs Planman Media Planman Consulting Planman Marcom Planman Technologies Planman Financial Planman Motion Pictures GIDF The Daily Indian IIPM Think Tank The Sunday Indian