Is this an economic crisis ?

Fortunately, for India, this is not a crisis, just a fallout from a crisis affecting the western world. For Europe and America, it is a crisis. At voxeu.org, a paper on the crisis says:

The episodes of credit crunches and housing busts are often long and deep. For example, a credit crunch episode typically lasts two and a half years and is associated with nearly a 20 percent decline in real credit. A housing bust tend to last even longer: four and a half years with a 30 percent fall in real house prices. And an equity price bust lasts some 10 quarters and when it is over, the real value of equities has dropped to half. (Italics mine)

There is more. “The unique nature of the current financial crisis—combining a house price bust, a credit crunch, and an equity price bust—unlike any other one the US has experienced before, makes it difficult to assess its implications for the real economy.”

My Notes: The bear market will not end abruptly. Bull markets start from long bases. This takes time. Once the volatility comes down, there should be many opportunities for traders.

Will regulators do their job ?

In the USA, Bankers are now a discredited group, reports Bloomberg, – “Bankers Might Need 50 Years to Regain Credibility”. The bankers referred to, are really investment bankers, similar to brokers in India. “The real bloodshed will occur in the weeks and months ahead. Nobody knows what the real outcome of this disaster will be, although it’s very likely that the financial industry will be crushed. ”

American regulators will no longer be pushed about by financial wizards. (They are not really wizards, are they ? Just overpaid ****!) On the contrary, “we are going to see newly empowered regulators go on the rampage. The taxpayers will demand nothing less. “.

What about India ? I have written earlier about proprietary trading in derivatives by some brokerages. This is an activity that should be stopped forthwith, by SEBI, before a catastrophe happens. Why should a brokerage use public money – your money to trade privately ? Brokerages are allowed tax benefits, access to institutional finance and entry into stock exchanges for one purpose – to serve the clients. Trading in derivatives is not part of their charter. It is a black hole which may well be the cause of manipulation of the markets. It serves no economic purpose.

UBS – the large Swiss bank has just announced that it will stop all proprietary trading. If UBS feels this activity has large risks, what do you think could happen in India ? In difficult times, the wise regulator plugs all leaks, prevents any possibility of misuse.