What Happened in USA in 2008, Can Happen To You or MIGHT HAVE Happened To Many of You – Understand the GAME.
What Happened in USA
in 2008, Can Happen To You or MIGHT HAVE Happened To Many of You – Understand
the GAME.
Greetings
from Hitesh! Our last post on MARKET DOWNTREND was well received by many of our
regular readers. They could also see the possibilities what we shared. The
secret in SHARE MARKET investments is this much only. Just see the
POSSIBILITIES of rise or fall before it happens and take appropriate actions
accordingly to benefit from the same. NO ROCKET SCIENCE.
The
challenge is MANY ARE NOT ABLE TO SEE THEMSELVES / MANY ARE NOT READY TO SEE
INSPITE OF TELLING THEM “N” NUMBER OF TIME / MANY ARE TRUSTING ON FREE ADVISE
GIVING EXPERTS / MANY ARE JUST GAMBLERS.
Let
me first explain what happened in USA in 2008.
Lending in the PAST
V/s. Lending in the PRESENT:-
In
the past – Homebuyers or Borrowers used to approach Lenders for the loan. The
Lenders used to check his capacity to repay as home loans are generally for a
longer period of time. He used to take 15%-30% down payment before giving the
Balance as a LOAN.
Say
you want a loan of Rs.1Cr. You pay Rs.30 lakhs / the Lender pays the Rs.70
lakhs and you repay the loan in installments of 10 to 30 years. It was simple.
In this system – the LENDER money was secure as till first 30% drop in the
price – the borrower’s equity used to get wiped out. Such falls were not taking
place and if at all taking place – the borrowers had repaid the major portion
and he would not like to BACK OUT from the property he had bought. The
percentage of DELIQUENCIES or DEFAULT was small.
Now comes the
FINANCIAL INNOVATORS:-
They
changed the system.
Home
OWNERS – LENDERS – INVESTMENT BANKERS – RATING AGENCIES – INVESTORS – INSURANCE
COMPANIES.
Understand
the above game NOW.
In the NEW set up –
1. Lender will lend to
Borrowers as they used to lend.
2. But LENDERS used to
SECURITISE the Lending book and sell it to INVESTMENT BANKERS.
3. Investment BANKERS
used to buy all the Borrowings of HOME BORROWERS / CAR BORROWERS / PERSONAL
BORROWINGS or ANY OTHER BORROWINGS from all possible lenders. (In this way Lenders used to get their money back immediately!!
So they became LAX in looking out for the right borrowers!! They started
lending more and more to TOM/DICK and HARRY).
4. Now Investment BANKERS
will CREATE LOTS of all the BORROWINGS knows as CDO – COLLATERISED DEBT
OBLIGATION. It is a DEBT OBLIGATION but COLLATERISED – so you do not know the
borrower!!
5. Now to sell these they
took the help of RATING AGENCIES. Rating agencies used to rate them AAA –
making it most SECURE. (the funny part is they are paid for RATING but they are not
penalized if their rating turns out to be WRONG)
6. Depending on the
RATING agencies Ratings CDOs were sold to INVESTORS worldwide. (in other words – lenders were financed by Investment bankers
and investment bankers were financed by INVESTORS thanks to RATINGS.)
7. In other words –
Investment BANKERS can make tons of money by selling more and more CDO’s. More
they sell – more commission they can make. (The Sales guys were paid HANDSOME
BONUSES)
8. Now, see the WALL
STEET BRAIN – they sold insurance on CDOs also. It was known as CREDIT DEFALT
SWAPS. If the money does not come – Insurance Company will pay you. Simple.
9. The insurance
companies used to insure depending on the RATINGS on CDOs and they also made
tons of money on PREMIUMS. They started showing these as profit and paid handsome
bonuses to their guys. They were also sure, as the ratings were AAA. So, 100%
profit.
Now
the Problem started. Borrowers stopped paying, as they were not the right kind
of borrowers only. The LEVERAGE was to the EXTENT of 33:1. For every Rs.1 rupee
borrower had – they were ready to give him Rs.33!! If the price goes down by
just 3% - Borrower can just walk out and the investors/insurance
companies/investment bankers/ Lenders all got SCREWED UP.
Due
to these kinds of LEVERAGE all the assets prices went up. There were TEJI all
around. All were happy from 2000 to 2006!!
What is HAPPENING with
You NOW?
The
same thing started happening all over the WORLD. You have investment
instruments/ ratings and a SMART GUY with CHARTS and PRESENTATIONS convincing
you about the investments.
In August 2015 –“Two JP Morgan Mutual Fund's debt schemes — Short Term
Income Fund's and India Treasury Fund — had to take a hit on their portfolios
which had Amtek Auto's debt papers. These schemes had to partially write-down
the value of their investments in these schemes. On August 21, Amtek Auto
informed stock exchanges that it was facing some temporary cash flow mismatch.
Data collated from the websites of
the fund house, AMFI, the industry trade body, and Value Research, a fund
industry analytics company, showed that JP Morgan MF had a combined exposure of
Rs 200 crore in Amtek Auto's debt papers. As of June 2015, JP Morgan MF had
average assets under management of Rs 14,684 crore. When this paper was issued
earlier this year, it was rated AA- (double A negative) by the ratings agency
CARE. However, earlier this month CARE suspended its coverage of the company
saying the company was not sharing information crucial for its continuing
ratings opinion.”
This was reported in
TIMES OF INDIA dt.29th August .,2015.
Just
compare the above modus operandi with Indian experiences.
There
is a BORROWER – AMTEK. He borrows based on RATINGS. FUND invests. The agent who
sold you made his commission. The fund mangers got his salaries. The investors
in the FUND paid the bill.
As
per the MINT report on 8th DEC.,2015 – J P MORGAN could get back 85%
of the money. (http://www.livemint.com/Home-Page/KTnUNO51YM2tJnGZiZFbqK/JP-Morgan-AMC-manages-to-recover-85-of-Amtek-bond-dues.html)
During the 3
months from August to December – the fund house had capped the REDEMPTION – the
fund house with Rs. 14684 Crores capped/stopped the redemption due to Rs.200
Crs. default!!
What is the PURPOSE of
this POST?
It’s
pure education. Just educate on what happened in USA and what is happening
elsewhere. It is said “TO ERR is HUMAN” but if you keep on ERRING like this –
you will have NO CAPITAL left for your RAINY days. Mind well you are not in USA
– so your RETIRMENT will not be taken care off in INDIA!!
I
have just reported the above incidence as REPORTD in MEDIA with DATE.
All
I want to bring to your NOTICE is – You know earning money. You are earning
tons of money from your JOB or BUSINESS.
Now
just LEARN investing your HARD earned MONEY.
If
you like our APPROACH – You can learn from us. You just need to be with us for
the same. So, what are you waiting for? Just contact us or write to us.
Wish
You ALL a Very Happy Weekend.
Follow me on Twitter @hiteshmparikh or
on WhatsApp - +91-9869425399 or www.hiteshmparikh.com
Live With Passion…Invest With Passion.
Hitesh Parikh.
www.hiteshmparikh.com
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