Posts this month
A blog on financial markets and their regulation
In terms of the financial crisis in India, I believe we are where
the US and Europe were in August/September 2007. This is how the comparative
chronology stacks up.
|US and Europe: August/September 2007||India: October 2008|
|August 9/10, 2007. Liquidity
strains in the money market becomes acute. ECB injects liquidity of
€ 95 billion. Fed injects $ 38 billion.
|October 10, 2008. Liquidity
strains in the money market become acute. RBI injects liquidity of Rs
600 billion by cutting the cash reserve ratio (CRR).
|September 18, 2007. Fed cuts Fed
funds target by 50 basis points (0.5%). It also cuts discount rate by
100 basis points (1%) including a cut a month earlier.
|October 20, 2008. RBI cuts repo
rate by 100 basis points (1%).
|Q3 2007. Real estate prices (Case
Shiller index) after peaking in the second quarter of 2006 has been
declining for five quarters but has fallen by only 5% from the
|October 2008. Real estate prices
in India probably peaked in late 2006 or early 2007 and has also been
declining unofficially for several quarters, but the sticker price has
not yet fallen significantly.
|Q3 2007. The ABX index of AAA
rated sub prime securities indicates losses of only 5-10% of par
value. Actual defaults and even downgrades of AAA securities are yet
to come: the infamous downgrade of nearly 2,000 AAA securities over a
mere two days came only in April 2008.
|October 2008. Lenders still
believe that the best real estate lending will hold up reasonably well
and think that losses will be confined to the really low quality
If we assume that the peak to trough decline in real estate prices
in India will be comparable to what we have seen in the US, then it is
clear that most of the pain still lies ahead.