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On the Subprime Crisis

For quite some time I had been thinking to put up something on the topic. I am sure there wouldn’t be a person who hasn’t heard of the term by now. It has been a year since the buzz has been around. It has only *peaked* a couple of weeks ago with the collapse of the BIG financial giants. I’ve grown up hearing that United State’s economy being one of the most stable in the world only to find this sudden fiasco.

I tried to search for the term on Google and the definition itself spells doom!

  • Look at what Wikipedia has to offer for Sub Prime Lending. The term has created such confusions that Wikipedia still has issues with the article.
  • Investopedia says:

“A type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans. Quite often, subprime borrowers are often turned away from traditional lenders because of their low credit ratings or other factors that suggest that they have a reasonable chance of defaulting on the debt repayment.”

To cut it short subprime lending is lending money to subprime borrowers (borrowers with a not-so-good credit history). To risk of default is accommodated through a higher than average interest rate.

That’s ok! But why did it result in such a big fiasco?

Well, fortunately I got an opportunity to get through a short course in financial instruments. I was amazed by the sheer complications of the various instruments floating in the markets! I guess the more complicacies one introduces, the higher is the respect in the financial community. Look at the following terms:

‘derivatives of derivatives’

‘reverse mortgage’

‘collateralized debt obligations’ (CODs)

Don’t they sound cool?

So tons of ultra-complicated financial instruments were made whose base was subprime loans. The complications grew so much, that no one could actually estimate the actual worth underlying these instruments. And when the borrowers started to default, everything started ripping apart like a castle of cards. Since the base of all the *exotic* instruments was these sub-prime debts, when the foundation collapsed, no one could have done anything to stop this.

What is money?

I never understand the fact that the Fractional Reserve Banking allows banks to print money by just keeping aside a meager percentage of deposits and lending out the rest. So the injection of currency is actually based on debts!!!!! The more indebted the citizens are, the more money gets injected into the country’s economy. Anyways, I am too naïve to comment further on this. There must be some rationale which I still have to understand. The following video is a MUST WATCH for anyone who wants to understand money:

Money as Debt

How is India impacted?

Fortunately, Indian bank’s exposure to such instruments is almost nil. So no direct concerns over there. However, with the US economy slowing down, some impact can’t be ruled out. I guess the whole world will have to slow down a bit. India seems to have definitely lost it’s shine as is evident through the Indian stock markets and general perception as well.

Why has everything to be so complicated? Why can’t things be simple? I guess the reason is human nature. We constantly look to challenge ourselves and in the process introduce complications. I hope things will settle down soon and people will be careful for a while. But I am sure all this will definitely manifest again in some or the other way in our own lifetimes!

4

When more means less!

It has been almost a month since I’ve put a posting. I was just wondering, was I so busy that I couldn’t spare time to write something? Or did I not have topics to write? Well, none of them hold true. I have been busier (than now) since I’ve started blogging and in the last month or so, I’ve probably been through numerous situations and experiences which warrant a post. I was just a bit too lazy to pen them down.

I just realized that the amount of reading I’ve done in the last couple of months is actually comparable to what I’ve read in the last year or so (well by my standards. I read at my good slow pace.). I’ve travelled more. I’ve met more people. I’ve had more ideas run through my mind. I’ve watched more movies. I’ve downloaded and watched more documentaries. So all the more(s) lead to lesser blogging perhaps. I’ve posted lesser articles. I’ve read lesser blogs.

I guess I am caught by the paradox of choice. The more you have, the difficult it becomes to choose. I have so many topics in my mind which I want to write about, but I feel I should learn more before I write. The more I read about the topic, the lesser I seem to know about it!

Ah, forget about the more and less. Bottom line is, I’ll try and post more frequently. Keep coming once a while 🙂

3

On getting lucky..

I must announce that I won INR 1000 worth’s gift voucher from Indiaplaza(Books) by participating in the ‘Golden Quill 2008’ awards. Apparently the book I voted won the ‘Reader’s Choice’  award. 

Here’s what Indiaplaza has to say about the awards:

Concept Behind The ‘Golden Quill’ Awards

Indiaplaza is today India’s largest online bookstore with over a million customers worldwide and we are launching this awardto encourage Indian writing and also to further our commitment to the cause of reading in India.      

The Indiaplaza Golden Quill will be finally awarded to an author whose work of fiction in English is judged the best among a select lot of titles published in India in the calendar year 2007.

A good initiative to promote Indian authors I must say.

So which book won? Well, the following:

And why did I choose it? Honestly speaking, among the contenders this was the only book I had heard of. I had briefly browsed through it in a bookshop a week before voting. So I was lucky indeed.

I am going to order this one immediately!

Oh, did I forget to thank Ankit who reminded me to vote 🙂

7

Google Chrome!

iLog on Chrome

  iLog on Chrome

Couldn’t wait to try out the all new browser Chromefrom Google after Ankit introduced it to me yesterday . From the first couple of hours of use, it looks simple, elegant, intuitive and feels lightweight! I just hope there’s a release for Linux soon, so that Ankit can use it as well :-) 

I think I am going to continue using this…..

The Tao of Physics : A Review

(Photograph courtesy : Amazon.com)

“Physicists do not need mysticism, and mystics do not need physics, but humanity needs both.”

Fritjof Capra

A couple of years ago, I happened to pick this book while casually browsing through a bookstore in Bangalore. Though I knew a bit of Physics, but I had no idea what Tao is. Little did I know that this book will turn out to be one of the best I’ve ever read (and will read I guess). No wonder it is on the best sellers list even today, more than 25 years after it was first published. While there are loads of reviews on the web, I would keep it very short and quickly mention my point of view. The book attempts to build a bridge between modern Physics and Eastern Mysticism, which are otherwise, pretty  antonymous to each other. A Modern Physicist would always disregard the Eastern Schools of Thought as baseless and unscientific, and an Eastern Mystic would always look down upon Science as being far from the reality. Fritjof Capra, in the most elegant and eloquent of ways, displays the striking similarities between the ancient arts of enlightenment and the modern discoveries in Physics. He has drawn numerous parallels between the two, which would make anyone, no matter what point of view they hold, appreciate them and think. The book starts upon building the concepts in both Physics as well as some Eastern Schools of Thought, draw parallels between them and towards the end consolidates and draws some conclusions. To me this book was simply amazing, not only because of the parallels it draws but because of the window it provides to quite a few concepts, which were alien to me. I had never ever appreciated quantum and modern physics as much as I did while reading this book (If I remember well, I had done 3 courses on these subjects during my engineering days!). The Eastern Mysticism was new to me (I did know in bits and pieces though), but the book gave a good precise overview. To quickly put through, the book provides a window to the following:

Classical Physics
Quantum Physics
Tao
Zen
Hinduism
Buddhism

More than this, it provokes a new way of looking at things around us and within us too! Fritjof Capra, being a front line Physicist himself and someone who has done enough research on Eastern Mysticism, was in a good position to look at the bigger picture, which can be seen in his work. However, it will take an open mind to appreciate this. The book simply added 15-20 books to my reading list! That is the kind of inquisitiveness it generates. Unless you are agnostic, I would highly recommend this book.

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