Opinion - Letters to the Editor   

Market meltdown

India should take immediate lessons from the bankruptcy of the leading U.S. banking company Lehman Brothers due to over-financing on real estate. India is also running institutions in similar conditions. Prices in the real estate sector have risen manifold only due to easy finance by financial institutions at a time when money-liquidity is otherwise very tight in trade circles. The bubble in real estate in India can explode anytime with private banks luring the people with the promise of higher interest rates on deposits. The Reserve Bank should take immediate steps to impose checks on private banks.

Subhash Chandra Agrawal,

Delhi

In a series of failures starting with the sub prime crisis, the rescue of Bear-Stearns, Fannie Mae and Freddie Mac, the takeover of Merrill Lynch by the Bank of America and the latest bankruptcy of Lehman Brothers, one brutal fact emerges: the endemic of financial crisis has its roots in the lack of regulation in the U.S. economy. Risk assessment and creditworthiness were totally absent when the funds were dispensed to the customers. More importantly, multiple packaging and securitising of these assets further hid the risks underneath. And when things became clear the crisis had covered the whole market.

The U.S. may be trying to save these entities but they have dealt a severe blow to the advocates of accelerated financial reforms like, deregulation of the rupee, capital account convertibility, etc.

Ashwani Sharma,

Ghaziabad

The crisis appears to mark the end of a bubble in the financial markets that has lasted nearly two decades. Speculation began in technology stocks in the 1990s and turned to real estate, commodities and private equity buyouts this decade. The problem has been worsened by the financial instruments that banks hedge funds and insurance companies have created to swap loans and risk with one another. In theory, those products can help investors and companies to diversify risk, but they are nearly impossible to value. The problem now is there is not enough capital in the banking system to sustain the amount of credit that was extended.

V. Siva Anantha Krishnan,

Tirunelveli

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