Report on subprime loan crisis

Subprime loan, or subprime mortgage loan, crisis came to the notice on 9^th august, 2007. Subprime loans are given to people with unstable incomes or low creditworthiness. It is, as it sounds, very risky. The only reason for giving subprime loans to such people is high profit that the investor gets some time period later. Here’s the detailed explanation.

An American has either good or bad credit rating, which is the decisive factor for banks to give loan to that American. Consider an American with bad credit rating. He needs loan to invest in the property. Since his credit rating is not good, he does not qualify for the loan. There is another American, or say, a financial institution, who has a good credit rating, hence qualifying for the loan. Second American, who has a good credit rating, goes to the bank and gets the loan. Now, to earn a good amount, he gives the loan to the first American, whose credit rating is not good. The rate of interest at which the second American gives loan to the first American is higher as compared to that of the bank. And this is his main income that he expects he will get in the near future.

The higher rate at which the second American has given loan to the first American is subprime rate.

The loan that the second American has given to the first American is subprime loan.

The above situation is subprime home loan market. Prime home loan market is a situation in which banks directly lend to individuals who have good credit rating.

What happens later is, the financial institution securitises home loans. Securitisation is the process of converting home loans into financial securities which promise to pay a certain rate of interest. Financial securities are then sold to big financial institutions, who then sell the financial securities and passes the money to the lender bank.

What went wrong if everything was going perfect? Here is the answer.

The problem began with the United States keeping its interest rates very low for a long time, hence making it easy for every American to go and get the loan. These rates are regulated by the Federal Reserve System-the central banking system of the United States.

Next, subprime loans were given at floating rate, i.e., rate which is not fixed. These rates increased, equated monthly instalments (EMI for short) increased and ultimately, subprime borrowers defaulted. The problem worsened for the investors as home loans could easily be securitised and money kept on flowing in.

It affected.........

While in the U.S it has affected home equity loans, commercial estate, etc, in India it has led to a drastic fall of sensex. To make good of their losses, the U.S sold most of its investments in India. India bought it because the amount of buying was much less than the amount of selling. Had that not been a case, image of U.S is so good in the mind of Indians that we would have bought it even otherwise.  

panipat girl

(fiction)

After the struggle of ten minutes to find the venue of the marriage my uncle parked his car loaded with 5 elders and two seven & three years young cousins of mine. We all stepped out of the car, relieving me from the weight that was on my laps of my healthy cousin. Parking space was a sandy expanse. We went to the side of the road and saw the baraat. Punjabi baraat. Marriage was of my mother’s cousin, whose name i never took to my knowledge except when we reached the venue. From our side only my mother and i were present. Rest were my mother’s relatives who left no second pass by saying that a search of a girl for me should start. Effect of the atmosphere of marriage.

We crossed the road and joined the baraat. Music and dance, as in all Punjabi marriages are, were high. Punjabi music, dance and fun vibes that made a non dancer within me shake his body.

“yaaahooooo!!!!!”

We all heard when the volume of the music was decreased as the demand of some other song was being done. Everybody looked up at the balcony. The passage to the entrance of the venue was through a narrow lane, with houses and shops on both the sides. As the volume was back to the normal-in a Punjabi marriage normal volume is a very high volume-the guy started to dance. He first kicked, then punched and jumped saying, “yaaaahoooo!!!!”. Laughter broke among all of us but the man continued to dance. Crazy guy.

“lets go ahead. I want to meet some relatives.” Mother said and i obliged. My mother met her relatives. But i saw a girl. I did not see her intentionally. I was just having a glance at the people in the baraat, suddenly i saw her.

Open black hair and green salvaar kamiz, i noticed. She was with an old lady, her grandmother, i guessed. I could not take my eyes off from her. Her allure kept me looking at her. I felt as if nobody was walking with me. My eyes were stuck on her. Only her, and at a time when she had not even looked at me. I wanted to go closer to her and see her face. I wanted to hear her voice. I had an option to go, but i did not. Something held me from going to her. Suddenly, she looked back at me with an angelic smile. I got so nervous that i could not smile. She was looking at me with a smile but i was looking at her like a fool, with a blank face.

She again looked back, and i felt a connection. One, because she looked at me for the second time. Two, with a smile. We looked at each other continuously for a good amount of time. We looked at each other at least five times and did not break the connection unless someone called us.

We entered the venue, which i thought would be edifice. But it was not. When entered, i had lost her. She was nowhere to be seen. I wanted to get connected to her. I wanted to feel what i had felt when we were looking at each other in the baraat. That feeling is still undefined yet the most memorable.

My uncle took me, with his five year young daughter, to a place in the venue to eat something where i saw her sitting beside my cousin. That was the closest i was to her in that evening. She looked at me. I looked at her. Connected.

I have not found a word to describe her pulchritude. It cannot be defined by words. She was simply comely with a statuesque model perfect figure. Her eyes conveying her demure nature made me go mad. Her green salvar kamiz with transparent sleeves, i still remember.

I had to leave as my cousin demanded to. We did not talk. We only looked at each other. While leaving, she was smiling but the pain got on my face. I failed to hide it with a smile. I wanted to smile and leave and say “good bye”, but could not. That time i realised that no “bye” is ever “good”.

That was one year back i saw her. Now all that is with me is that image of her in my mind. I did not talk to her, even with the feeling of being connected. I regret the fact. Time, if asked, i really want back is THAT time. I think about her.

“is she okay right now?”

“is she smiling right now?”

I ask myself but don’t get any answer. Worst of all, i don’t know even if she is alive.

I cannot define the feeling but yes, i have baptized her as “panipat girl.”