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  • Pandyan Ramar 4:34 pm on October 24, 2008 Permalink | Reply
    Tags: sub prime crisis financial turmoil   

    What is Sub-Prime Crisis – A Simple Primer 

    Here is a simple article to know about the sub-prime crisis, current hot topic. Let us know whats going on around us and why… Here we go….
    What is a sub-prime loan?

    In the US, borrowers are rated either as ‘prime’ – indicating that they have a good credit rating based on their track record – or as ‘sub-prime’, meaning their track record in repaying loans has been below par. Loans given to sub-prime borrowers, something banks would normally be reluctant to do, are categorized as sub-prime loans. Typically, it is the poor and the young who form the bulk of sub-prime borrowers.

    Why loans were given?

    In roughly five years leading up to 2007, many banks started giving loans to sub-prime borrowers, typically through subsidiaries. They did so because they believed that the real estate boom, which had more than doubled home prices in the US since 1997, would allow even people with dodgy credit backgrounds to repay on the loans they were taking to buy or build homes. Government also encouraged lenders to lend to sub-prime borrowers, arguing that this would help even the poor and young to buy houses.

    With stock markets booming and the system flush with liquidity, many big fund investors like hedge funds and mutual funds saw sub-prime loan portfolios as attractive investment opportunities. Hence, they bought such portfolios from the original lenders. This in turn meant the lenders had fresh funds to lend. The sub prime loan market thus became a fast growing segment.

    What was the interest rate on sub-prime loans?

    Since the risk of default on such loans was higher, the interest rate charged on sub-prime loans was typically about two percentage points higher than the interest on prime loans. This, of course, only added to the risk of sub-prime borrowers defaulting. The repayment capacity of sub-prime borrowers was in any case doubtful. The higher interest rate additionally meant substantially higher EMIs than for prime borrowers, further raising the risk of default.

    Further, lenders devised new instruments to reach out to more sub-prime borrowers. Being flush with funds they were willing to compromise on prudential norms. In one of the instruments they devised , they asked the borrowers to pay only the interest portion to begin with. The repayment of the principal portion was to start after two years.

    How did this turn into a crisis?

    The housing boom in the US started petering out in 2007. One major reason was that the boom had led to a massive increase in the supply of housing. Thus house prices started falling. This increased the default rate among subprime borrowers, many of whom were no longer able or willing to pay through their nose to buy a house that was declining in value.

    Since in home loans in the US, the collateral is typically the home being bought, this increased the supply of houses for sale while lowering the demand, thereby lowering prices even further and setting off a vicious cycle. That this coincided with a slowdown in the US economy only made matters worse. Estimates are that US housing prices have dropped by almost 50% from their peak in 2006 in some cases. The declining value of the collateral means that lenders are left with less than the value of their loans and hence have to book losses.

    Since in home loans in the US, the collateral is typically the home being bought, this increased the supply of houses for sale while lowering the demand, thereby lowering prices even further and setting off a vicious cycle. That this coincided with a slowdown in the US economy only made matters worse. Estimates are that US housing prices have dropped by almost 50% from their peak in 2006 in some cases. The declining value of the collateral means that lenders are left with less than the value of their loans and hence have to book losses.

    How did this become a systemic crisis?

    One major reason is that the original lenders had further sold their portfolios to other players in the market. There were also complex derivatives developed based on the loan portfolios, which were also sold to other players, some of whom then sold it on further and so on.

    As a result, nobody is absolutely sure what the size of the losses will be when the dust ultimately settles down. Nobody is also very sure exactly who will take how much of a hit. It is also important to realize that the crisis has not affected only reckless lenders. For instance, Freddie Mac and Fannie Mae, which owned or guaranteed more than half of the roughly $12 trillion outstanding in home mortgages in the US, were widely perceived as being more prudent than most in their lending practices. However, the housing bust meant that they too had to suffer losses — $14 billion combined in the last four quarters – because of declining prices for their collateral and increased default rates. The forced retreat of these two mortgage giants from the market, of course, only adds to every other player’s woes.

    What has been the impact of the crisis?

    Global banks and brokerages have had to write off an estimated $512 billion in sub-prime losses so far, with the largest hits taken by Citigroup ($55.1 bn) and Merrill Lynch ($52.2 bn). A little more than half of these losses, or $260 bn, have been suffered by US-based firms, $227 billion by European firms and a relatively modest $24 bn by Asian ones. Despite efforts by the US Federal Reserve to offer some financial assistance to the beleaguered financial sector, it has led to the collapse of Bear Sterns, one of the world’s largest investment banks and securities trading firm. Bear Sterns was bought out by JP Morgan Chase with some help from the Fed.

    The crisis has also seen Lehman Brothers – the fourth largest investment bank in the US – file for bankruptcy. Merrill Lynch has been bought out by Bank of America. Freddie Mac and Fannie Mae have effectively been nationalized to prevent them from going under.

    How is the rest of the world affected?

    Apart from the fact that banks based in other parts of the world also suffered losses from the subprime market, there are two major ways in which the effect is felt across the globe. First, the US is the biggest borrower in the world since most countries hold their foreign exchange reserves in dollars and invest them in US securities.Thus, any crisis in the US has a direct bearing on other countries, particularly those with large reserves like Japan, China and – to a lesser extent – India. Also, since global equity markets are closely interlinked through institutional investors, any crisis affecting these investors sees a contagion effect throughout the world

    Reports suggest that insurance major AIG (American Insurance Group) is also under severe pressure and has asked for a $40 bn bridge loan to tide over the crisis. If AIG also collapses, that would really test the entire financial sector.

    Recieved by email from Mr K, Sundararaj of Honeywell/Saravanan PK

    • Greg Angelo 8:18 pm on October 24, 2008 Permalink | Reply

      The repercussions are being felt here in Australia, with a significant impact on equity markets as a consequence of market falls in the US and other international markets. There are some sub-prime losses in Australia through the purchase of CDOs originating from US, but the biggest impact over all is the instability in financial markets. The Australian government’s ill conceived plan to guarantee bank deposits has backfired on non-bank financial institutions suffering a huge liquidity loss leading to freezes on withdrawals.

    • Neon Light 4:21 pm on January 25, 2011 Permalink | Reply

      ;”- I am very thankful to this topic because it really gives up to date information –~

  • Pandyan Ramar 6:58 pm on June 19, 2008 Permalink | Reply
    Tags: , , selling, shopping cart   

    How to rescue the Shopping Cart from being abandoned? 

    Every year, hoards of online shoppers bolt when they’re just a click or two away from finishing the checkout process. Maybe it’s a security concern, or what if returning the item turns out to be too much of a hassle? Whatever the reason, one study found that as many as 60 percent of online shoppers flee, making shopping cart abandonment a huge and costly problem for any business selling on the Web. The great frustration for online businesses is that a salesperson can’t just walk over to you and offer help.

    A start-up firm is using automated chat to keep online customers from abandoning their virtual shopping carts.

  • Pandyan Ramar 5:55 pm on April 30, 2008 Permalink | Reply
    Tags: summit,   

    What Happened at the SFO Web 2.0 Expo? 

    Is the Web 2.0 economy in limbo? Wrapping up the Web 2.0 conference CNET News.com Editor in Chief Dan Farber and reporter Caroline McCarthy wrap up the Web 2.0 conference in San Francisco and discuss the current Web 2.0 boom and how long it will be sustained.

    Watch the video

  • Pandyan Ramar 5:47 pm on April 30, 2008 Permalink | Reply
    Tags: , Sales,   

    Web 2.0 – What have you to offer Sales? 

    Leveraging Web 2.0 to Sell by Geoffrey James
    The Internet is the ultimate disruptive technology. Like telephony, radio, television, and even the printing press, the Internet is dramatically changing nearly every aspect of daily life, both inside businesses and in the daily lives of individuals. Much of this disruption has been both unplanned and unexpected, and nothing more so than the sudden prominence of what’s been called Web 2.0: the blogs, wikis and social networking sites where users generate content for consumption by other users. 


    Sales 2.0 represents not just a better way of selling, but a substantial enhancement of the customer experience. The Web 1.0 environment, with its emphasis on pushing information out to a wider audience, overloaded customers with information. While they had access to information that in the past belonged entirely to sales professionals (i.e. product features, comparison pricing, customer complaints etc.), many customers saw all that data as an undifferentiated blur of meaningless facts. By creating a more collaborative environment, Sales 2.0 allows the sales professional to use his or her specific expertise to help the customer differentiate between information that’s essential and information that’s not.

    Read More


  • Pandyan Ramar 11:43 pm on January 30, 2008 Permalink | Reply
    Tags: Crowd Sourcing, ,   

    Is the Internet Inter-active enough? 

    Interactivity untill recently meant software interactivity. Software Engineers were keen on developing softwares that can interact with the user based on business logic and algorithms. The new Social Networking concepts are proving that enabling human interaction via softwares are as valuable too.However we are yet to see the explosion. My friend was mentioning about Time magazine featuring “YOU” as the Person of the year 2006 because of the participation of the PEOPLE in the internet. Are these social networking sites the only answers for interactivity on the net? 
  • Pandyan Ramar 10:57 pm on October 18, 2007 Permalink | Reply
    Tags: investment, web 2, web 2.0 summit   

    Web 2.0 Summit – Did it make the sale? 

    Sure the Summit (SFO, Oct 17 -19) was sold out. I would have loved to be there, but living in the other corner of US makes it difficult to participate in the excitement. It might have been really refreshing to see Mark Zuckerberg, wearing jeans and his signature sandals.  Zuckerberg had informed attendees that he expected the number of workers at Facebook to increase to 700 in a year from the more than 300 employees today.

    Mark Zuckerberg

    The line-up of speakers was indeed very impressive: Meg Whitman (eBay), Steve Ballmer, Rupert Murdoch, Stewart Butterfield (Flickr) and more – the complete list here

    Get the official scoop:

    Wweb 2.0 Summit

    Any how, Ii am hoping to catch some of the happenings on pod-casts and screen-casts. I am sure you-tube will have a few pretty soon. Here is one that covers the last years (2006) Opening Session. Please post any links you have in the comments.

    I hope that many investors walked out of the event with a commitment to support web 2.0 initiatives further. All the software makers and start-up entrepreneurs owe one for Oreilly for coining the terminology and nurturing the concept of web 2.0.

  • Pandyan Ramar 9:02 pm on October 11, 2007 Permalink | Reply
    Tags: Buy, , Laptop, Motivation,   

    Motivating the buyer to BUY! 

    The idea of buying a new laptop was looming in my mind for a while now. I visited CNET to find whats the right product for my needs and did some research. I also visited Best Buy, Wal-Mart and Circuit City to take a look at whats out there. I liked Toshiba, HP and Dell from a price/quality perspective. When at Best Buy i almost bought a Toshiba but decided to do some more research before i spend the bucks. Last week i was continuing my research and visited Dell website and found some thing that i liked. Dell Inspiron 1420. While reviewing the product i found a “Chat” button on the website and clicked to ask a few questions. I wanted to know if i can ask Dell to package Windows XP instead of Vista. The girl i was connected to said that is not possible. She continued asking if i would be purchasing the Laptop today. She mentioned to me that she can get me a 25$ discount if i made the purchase today. She connected me with her Supervisor who was able to call me instantly and we were on the phone. Apart from answering my questions, the Supervisor doubled the discount. At that point i decided that i will make the purchase. The discount was not that great for the price of the product, but hey i was going to buy a Laptop any way and any discount i would get is good. We made the transaction and there you go, i finally bought the laptop i needed. Even though i had a need to buy a laptop, i needed some motivation to make the final move. I loved the chat service and also the ability of the sales associates to guide me and throw some discount. Who does not love discount especially when offered on the spot. Dell website did have comparisons and product reviews – but all of that were static. What made me really buy was the personal touch of somebody offering me product information and a discount at the right time.

  • Pandyan Ramar 11:08 am on September 27, 2007 Permalink | Reply  

    Online Sales – When do you decide to buy? 

    Lots and lots of money is being spent over research on the science of human bahaviour on buying (decisions leading to a transaction). What is the ONE thing (or couple of things) that drives a persons decision to buy a product. Ofcourse there is the Need, Price, Quality – all fundamental factors. But research shows that THESE three fundamental principles are violated quite often if not always.

    More that Need/Price/Quality, it is the shopping “experience” that people are after. We love to share good experiences especially “first of its kind” or great deals with our friends. If a product purchase experience would give that – most of us wouldn’t mind the cost. Mona Patel from Human Factors International shared her online shopping experience where she entered an online store with no intention to buy but eneded up making the purchase and was happy about it. Mona was just checking if there were any new clothing item listed on this online store. She found one that was of interest and also found that the store did not carry her size. While she was about to leave the site, – a popup window appeared and a store associate was there to chat. The associate asked if she needed help. When our lady told the guy that she did not find her size for a clothing she liked, the guy said, “wait, i will check the inventory”. He replied in a while and said, – “we have the last one of that size in a customers shopping cart.” He went on and said “if you wait for few mins i can transfer it to yours if the other customer does not purchase it”. Our lady accepted the offer and bought the clothing. Now isnt that a great story to share with.

    Selling a product is more that just selling a comodity. Stores that have smart sales people – create that experience you would love to have. 

     Web Cast: The difference between evaluating “can do” and “will do” – How Persuasion, Emotion and Trust relate to conversion -Click the image below to watch.

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