The impact of the current recession on the world economies, as presented by B.V.Raghunandan to MBA students at SDM College of Business Management, Mangalore in Karnataka state in India on February 26, 2009
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Recession & its Impact Recession & its Impact on Indian Economy on Indian Economy - - B.V.Raghunandan, SVS College, B.V.Raghunandan, SVS College, Bantwal Bantwal SDM College of Management, Mangalore. February 26, 2009
Transcript
1. Recession & its Impact on Indian Economy -
B.V.Raghunandan, SVS College, Bantwal SDM College of Management,
Mangalore. February 26, 2009
2. Recession: What it Means An economic situation of
continuously declining demand resulting in dwindling business and
industrial confidence
3. Characteristics of Recession
Reducing Sales and profits
Increasing Unemployment
Hesitation of New Investment
Reducing Government Revenue
Gold replacing Dollar as Reserve Currency
Risk free Investments
Larger Holding of Cash by Institutions
Lesser FII
Basic Commodities
Expectation of Intervention by Government
4. Role of Government
Passive upto 1929-32
Keynesian Economics
WTO against any Government Role
In 2009, no voice of discontent about Government
Intervention
Nationalisation which was a dirty word in Liberalisation has
become very much relevant even in the USA
5. Genesis of A Recession
Consequence of a Hyper Industrial Activity
Very High Level of Speculation
Huge Turnover in Derivatives
Real Estate Boom and the Speculation
Central Banks Efforts in Contraction of Credit
6. US Recession
Collateralised Debt Obligations (CDOs): Started in 1970s by
packaging mortgages and selling them as CDOs
Mortgage Backed Securities(MBSs): In 1983, Larry Fink of First
Boston Corporation pioneers MBSs by dividing mortgages on the basis
of Risk. Interest varied with Risk. Toxic Debt gave highest Rate of
Interest
7. US Recession (contd)
1990s- Supreme success of MBSs put a lot of money with Banks
& Mortgage Houses
Lenders lower interest rates to 100% sub-prime mortgages.
Rising house prices gave a false sense of security in case of
defaulters
Credit Default Swaps (CDSs): In 1997, Blythe Masters of JP
Morgan Chase invented CDS, whereby the buyer paid a premium to
seller to protect the buyer against default
8. US Recession.contd
Shadow Banking System: Swaps cover mortgages, business loans,
credit card debt and student loans
Transactions through e-mails by speculators, insurance
companies, hedge funds and pension funds worldwide
2000-03-Alan Greenspan cut Federal Fund Rates from 6% to
1%
9. US Recession.contd
2004: Government Sponsored lenders Fannie Mae, Ginnie Mae and
Freddie Mac have mortgages that are hugely sub-prime
2005: Housing Boom-80% of lending is in Shadow Banking
2006: Housing Markets begin to collapse
2007-08: Banks start failing worldwide
10.
11. Recession Then & Now
Government's Determination for Intervention
International Financial Bodies Determination to Help
Central Banks Close Monitoring
Huge Funds Waiting for Deployment
Third World Countries Less Affected by Recession
12. India & Recession
Export Oriented Units getting Affected
Reduced FDI & FII Activity
Lesser Revenue to the Government
Lesser Foreign Exchange Reserves
Dull Organised Markets
Lackluster Employment Markets
RBIs Close Watch
13. Beneficial Impact on India
Stoppage of the Mad Spree of Westernisation
Recognition of a Bigger Role to Government
Questioning the Utility of Derivatives
Domestic Industries are being Explored by Export Oriented
Units
Lop sided Development is getting Corrected
Managerial Remuneration is being Revisited
14. An Agenda for Management Students
Be an Entrepreneur
Follow Blue Ocean Strategy
Develop a Socially Relevant Business
Consider CSR to be far more important than profit or
Efficiency
Join Government Departments connected directly with Business
& Industry