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Economy
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Fundamentally, the term bailout refers to the practice of injecting liquidity to a business when it is bankrupt or close to the point of bankruptcy. There are multiple ways in which this could be done.
The money could be given as a loan to the company which it needs to repay on reaching solvency. Alternatively, the bank buys the distressed assets of the company and gives it cash in return.
It could also be done via the trading of stocks and bonds. It can be undertaken either by a group of investors or in certain cases by the government.
A group of investors may pump in the money and get a stake in the company. However, intervention from the government generally happens in a case when it is expected that the downfall of the company could have larger repercussions on the economy.
What is happening in the US?
The last month has seen some of the largest investment banks in the US taking a downturn or seeing a change in their status. Lehman Brothers filed for bankruptcy, Merrill Lynch was taken over by Bank of America, AIG declared it was near bankruptcy and requests by financial big-wigs like Morgan Stanley and Goldman Sachs being given the status of depository institutions by the US Federal Reserves.
Earlier in the year, Bear Stearns was acquired by JP Morgan Chase. In lieu of these events, the US Federal Reserve has devised a $700 billion bail-out package to buy the bad debts which caused the credit crisis. This is expected to revive credit markets and interbank lending.
Although the Congress initially refused this bailout plan, they reconsidered their decision and have now said that the $700 billion will be disbursed in stages over two years: initially $250 billion will be given to purchase risky assets from banks, another $100 billion could be requested by the President and the final $350 billion will need another approval from the Congress.
The Congress has also introduced the Emergency Economic Stabilization Act 2008, based on which the US Treasury can get a stake in the companies involved and if the company fails, they will be amongst the last investors to incur losses.
What does it mean for investors?
The stock market has seen a bit of rough weather lately , a stark reminder to Indian investors that we are no longer insulated from what happens in global markets. The final decision regarding the bailout plan will hence, definitely be a confidence boosting mechanism on Dalal Street and could be reflected by the possibility of a slight increase in share prices.
ET......
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RAMGE,
Men are born with oedipus complexes dont blame me for converting you....
In reply to:
Nuke Deal Sets Ball Rolling.......
Posted by :
RAMGE
WoWji,
``Keep ur poetry for the Queen Elizabeth``
When u fight its duty when i fight its timepass.
LOL...
The problem is I have started seeing Queen Elizabeth in you (ROFL)
I am going to let the secret out to those chappies you are busy fighting ``Catholics and conversions in Karnataka`` that you have converted me (hahahaha)
cheers
ramji 
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WoWji,
``Keep ur poetry for the Queen Elizabeth``
When u fight its duty when i fight its timepass.
LOL...
The problem is I have started seeing Queen Elizabeth in you (ROFL)
I am going to let the secret out to those chappies you are busy fighting ``Catholics and conversions in Karnataka`` that you have converted me (hahahaha)
cheers
ramji...
In reply to:
Nuke Deal Sets Ball Rolling.......
Posted by : radhika_nandlal
RAMGE,
I dont want ur poetry.. Keep ur poetry for the Queen Elizabeth.
When u fight its duty when i fight its timepass.
LOL...
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Prime Minister Manmohan Singh has said his government’s foremost priority is to insulate the Indian economy “to the maximum possible” extent from the global financial meltdown.
Interacting with the media on Tuesday-Wednesday night, on the way back home from Paris, Dr. Singh argued that India was not all that susceptible to the upheavals in the western markets.
“We are not immune from what happens in the outside world. But we are not vulnerable to the extent that some other countries are vulnerable,” was his formulation.
At the same time, the Prime Minister did concede that the global crisis could lead to a decline in capital inflows because foreign investors may “need liquidity, [and] take money out.” In such a situation, the stock markets would be affected and the Indian corporate houses would have difficulty raising resources abroad.
“And if there is a recession in the developed world, particularly the United States, it could hurt our exports. We have to work out a coherent strategy to protect our interests, and we are confident we will be able to do so,” he said. He also suggested that the international financial crisis would also help moderate inflation at home.
Despite all this the Prime Minister was confident that the economy would be able to grow at 7.5-8 per cent – even if a decline from the current rate of 9 per cent – and that would still make India “the second fastest growing economy in the world.”
Asked if the current global financial disorder is an occasion to revise the faith in the markets, he argued that “we have no ideological positions. We have been cautious reformers, [carrying out] reforms with a human face. We do not have a strong ideological commitment to the markets; markets are useful servants but markets also need regulations, purposeful regulations.”
The Prime Minister pointed out that “we still don’t have a full blown capital convertibility, so whatever we have done has been done with the long term interest of the country in mind, and at the same time we have sought to ensure that the risks in the process of opening up are controlled.”
He brushed off a question on when the country could expect a new Home Minister, in the wake of criticism against Shivraj Patil after fresh terror blasts. He said, “you don’t expect me to discuss the issue of Cabinet formation in a press conference.”
He had earlier said there was need to “strengthen our intelligence gathering machinery, to streamline our investigation process, and also our prosecution processes.”
Pressed if he was willing to exercise his prerogative of selecting/reshuffling his Cabinet colleagues, he said, “I have to take into account the totality of interests, totality of concerns and whatever will be done will be done in the interest of our country.”
Asked whether he agreed with the interpretation that he stood transformed after the July 22 trust vote, he said he was now the captain of the team. But, he entered the caveat, that it was a coalition team and that such a team was not without its constraints.
‘A purposeful government’
“The charge against the Congress is that the Congress is not good at managing coalitions. I wanted to prove that statement wrong and I think we have nearly succeeded. We have given this country a purposeful government, a government which by-and-large has the support and respect of all the constituents of our coalition,” he explained.
He regretted the parting of ways with “our Left colleagues” on the nuclear deal issue but said that “ I sincerely believe that whether it is the BJP or the Left, if they look objectively there is nothing in the nuclear deal which will hurt the interests of the country.”
Asked if he would be the Congress prime ministerial candidate in the next Lok Sabha poll, Dr. Singh said: “It is too early to talk in terms of a potential Prime Ministerial candidate. The Congress party has several leaders who are equally or better qualified than I am. I have not applied my mind to that sort of question.” ...
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The Indian economy will grow at a rate of 7.5 to 8 percent this year despite being dented by the global slowdown, Prime Minister Manmohan Singh said on Tuesday.
India is aiming to sustain high growth rates but also needs to cool double-digit inflation before the government heads into a general election in 2009.
Singh acknowledged that slowing growth elsewhere, exacerbated by the financial markets crisis, had taken its toll on India`s economy but added that the outlook was still strong.
"Despite the uncertainties of the global economic and financial outlook, the prospects of Indian growth seem very good," Singh told a conference hosted by French business lobby group MEDEF.
"Our economy has grown at an average rate of 9 percent in the past four years. It is expected to slow down in the current financial year, reflecting the slowdown in the global economy. Even so, it will grow between 7.5 to 8 percent," he added.
India`s gross domestic product grew by 7.9 percent during the April-June period from a year earlier, and the prime minister`s economic advisory council expects it to average 7.7 percent for the full fiscal year.
"More importantly, our medium-term prospects remain strong, based on good fundamentals. We have weathered the current credit crisis facing the global banking and financial sectors," Singh added....
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Sir,
if I am not wrong From first Oct inflation was to be annouced on monthly basis.So how come inflation has been declared this thursday? regards...
In reply to:
Inflation
Posted by : zoombusiness
Inflation numbers came in at 11.99% for the week ended September 20. Earlier, inflation was seen inching lower. A CNBC-TV18 poll saw inflation for the week ended September 20 at 12.12 % against 12.14% a week ago.
Inflation has slipped below 12% for the first time in 13 weeks. WPI for all commodities came at 241 vs 241.1 week ago. Inflation for week-ended July 26 is revised to 12.53% vs 12.01% (provisional).
-moneycontrol/nw18
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United they were. The House voted by a huge 263-171 margin for the bail-out, a dramatic reversal of the 228-205 rejection on Monday. On Friday October 3rd 172 Democrats backed the bill, up from 140; 91 Republicans did so, up from 65. As the Senate had already approved the bill, it was immediately signed by George Bush.
The rejection on Monday was caused by conservative Republicans who said it was socialism, by Liberal Democrats who said it did not do enough for poor people, and fears by many that voters would fire them for bailing out Wall Street. The rejection triggered a plunge in stocks and a scramble to sweeten the bill. In the end numerous, mostly unrelated, items have been grafted on, from higher federal deposit-insurance limits to a tax exemption for wooden children’s arrows. The tide was turned because of that, nausea over market turmoil, news that non-farm employment sank by 159,000 in September (the steepest in five years) and because of furious business lobbying.
Now the real test comes: will it help? The Treasury is expected to take a week to set up the auctions for the first mortgage purchases, and the first purchases could therefore take place within weeks. Henry Paulson, the treasury secretary, could act sooner: he has the authority to buy mortgages from individual institutions or inject capital into them if they are nearing failure.
Speed is of the essence. Banks are loth to lend to each other, except at record punitive rates and for the shortest of periods. Most want their money back within a day. Massive liquidity injections by the Federal Reserve and other central banks have done little to unclog the pipes.
Worse, the availability of short-term loans to companies is shrinking at an alarming rate. The market for commercial paper has shrunk by around $600 billion since last summer, with almost $100 billion of the reduction coming in the past week alone. This hurts companies large and small. General Electric has had to raise new capital partly because of funding concerns. Retailers report problems financing purchases of holiday-season inventories. The head of AutoNation, a car dealer, told CNBC that “banks were looking for every excuse to say no…We’ve gone from a credit crunch to a credit panic.” Firms say that some banks are trying to invoke “market disruption” clauses to cut credit lines or raise the fees for renewing them, leaving corporate treasurers unsure how long they can pay employees or buy raw materials.
The pain is reaching municipalities and states. Alabama’s Jefferson County is on the verge of bankruptcy. California’s governor, Arnold Schwarzenegger, has reportedly given warning, in a letter to the Treasury, that his state is running out of cash to fund day-to-day operations and may need an emergency loan of $7 billion from the federal government.
While the Troubled Asset Relief Programme, or TARP, may ultimately unfreeze the mortgage market, restore confidence to banks and restart lending, that may take too long for a far more pressing problem, the blockage in the money markets. Tellingly, the yield on short-term government debt—the most popular destination for investors seeking safety—barely budged after the vote. Bank-to-bank loan spreads fell only slightly. American stockmarkets first gave up gains built up in the hours before the vote, then ended the day down by 159 points.
While the TARP may lift confidence, the timing and extent to which it boosts their capital will depend on the prices paid, which remain unclear. Moreover, the target is moving. Even if house prices stabilise soon, non-mortgage credit will go on deteriorating as the economy shrinks. Bank regulators will have their work cut out as failures mount among small and medium-sized lenders. More will seek sanctuary in the arms of stronger rivals. On Friday Wachovia threw itself at Wells Fargo, only four days after Citigroup had agreed to buy its banking operations in a government-backed deal. Citi threatened to sue.
The crisis is intensifying in Europe, where governments have been forced to prop up several banks in the past week. European leaders are due to meet this weekend to discuss forging a more co-ordinated response, possibly including a continent-wide bank-rescue fund. And doubts about solvency are spreading beyond banks. After a sharp drop this week in the share prices of large American insurers, such as MetLife and Prudential, they came under pressure to raise fresh capital as a bulwark against the storm.
...
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The crisis in the financial markets may depress business and consumer confidence besides slowing down global economic growth and exacerbating existing trends that have been causing corporate credit quality to deteriorate for more than a year, said Moody’s Investors Service in its Global Credit Outlook report.
Moody’s observes that a number of companies are trimming their spending plans due to increasing apprehension about the economic outlook and their future access to debt and equity capital. A substantial pull back in business investment at a time when consumer spending is flagging could further slow the global economy, which would precipitate a surge in bankruptcy filings by companies over the next year, the report said.
India not immune
While no region is immune from a global slowdown, concerns are greatest for companies whose business is heavily reliant upon the EU countries, Japan and North America, where the pace of economic activity is visibly slowing. Weak growth in these mature markets may also be a drag on countries with high growth rates, such as China and India, affecting companies in those markets as well.
Companies whose business is dependent upon discretionary consumer spending are particularly likely to be hurt. The damage may be most severe for already ailing companies in consumer-oriented sectors such as housing, autos, consumer durables, restaurants, retail, apparel, gaming, and airlines.
“These companies are struggling with high leverage, disappointing cash flow, and weak customer demand, which is already proving to be a lethal combination for many firms,” said Mr Gates.
Lenders to tighten belt
“Recent events may make a bad situation worse by undercutting consumer spending and economic growth in the months ahead, which would push many more weak companies over the edge of the cliff,” he added.
Moody’s also predicts that lenders will further tighten credit standards for corporate borrowers, limiting access to new financing that could stave off bankruptcy for troubled companies. It expects that credit conditions will become tighter over the near term because capital-constrained financial institutions will be more reluctant to make loans, especially at a time when the number of defaulting companies is rising rapidly.
...
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i think indian economy is fluctuating because september and october month is not good for market due to the impact on a american crisis now the bailout package could stabilise the market ...
In reply to:
House of Rep approves new bailout package
Posted by : MMB Messenger
The House of Representatives has approved the revised USD 700 billion bailout package. The US House voted 263-171 to approve of the financial rescue bill.
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The House of Representatives has approved the revised USD 700 billion bailout package. The US House voted 263-171 to approve of the financial rescue bill.
...
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Hi latikav,
This deal is really good step towards development of the economy. Power will become more expensive with all the additional implication of carbon credits etc. Nuclear power is known to be the cheapest.
India can not afford and does not need the machoism of another nuclear test. Once you have demonstrated the bomb, the deterrant is in place. As said by you, the spin offs could be great for Indian industry. Smaller countries have become rich by engaging the world in an un hindered way, allowing transfer of technology and capital. India of past was scared of foreign influence. Now after the likes of Infy & Tata have shown the capacity of Indian companies to stand their own against global competition, there will be less scepticism. We should try & get in the main stream of global business. Indian population has for long sufferd from political & economic isolation, China has side stepped these obstacles and become a great power, which will surpass US in a few years.
Now is the time India tries the same path.
Let us hope that we are able to manage the extra power efficiently, if the "losses" in distribution continue, more generation will mean more "losses".
Any ideas what this will mean for the long term prospects of Thermal power players like Reliance Power?
Regards
...
In reply to:
N-powered India :)
Posted by : latikav
N-powered India: what are the implications ?
New Delhi: After over three years of laborious negotiations the Indo-US nuclear deal cleared its final hurdle with the US Senate voting to ratify it. The act is likely to be signed into law when US secretary of state Condoleezza Rice visits New Delhi on Saturday. The nuclear deal has conferred on India the de-facto status of a P6 power. The significance of the 123 Agreement, cannot be underestimated as not only has it reversed 34 years of US nuclear non-cooperation with India, but many view this as endorsement of India’s increasing weight in international affairs.
Economically it’s a huge leap forward for energy-hungry India. It could mean power companies getting high value orders from US for nuclear reactor components. It could also translate into technology deals in sectors such as defense, IT and nanotechnology. The deal will also go a long way in helping generate an additional 48,000 mw of power by 2032.
The deal also clears the way for American and European nuclear companies to bid for contracts worth $27 billion to build 18-20 nuclear reactors in India. And though its high cost may mean nuclear energy never comprises more than 6% of India’s power generation, it will go a long way to fill the growing economy’s desperate energy deficit.
The nuclear deal has also sparked a big debate whether India has surrendered its sovereign right to conduct a nuclear test post implementation of the 123 agreement. Some analysts and the opposition allege that all civil nuclear cooperation will cease once India tests an atomic weapon. That could mean a return to a nuclear winter.
LiveMint.........
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N-powered India: what are the implications ?
New Delhi: After over three years of laborious negotiations the Indo-US nuclear deal cleared its final hurdle with the US Senate voting to ratify it. The act is likely to be signed into law when US secretary of state Condoleezza Rice visits New Delhi on Saturday. The nuclear deal has conferred on India the de-facto status of a P6 power. The significance of the 123 Agreement, cannot be underestimated as not only has it reversed 34 years of US nuclear non-cooperation with India, but many view this as endorsement of India’s increasing weight in international affairs.
Economically it’s a huge leap forward for energy-hungry India. It could mean power companies getting high value orders from US for nuclear reactor components. It could also translate into technology deals in sectors such as defense, IT and nanotechnology. The deal will also go a long way in helping generate an additional 48,000 mw of power by 2032.
The deal also clears the way for American and European nuclear companies to bid for contracts worth $27 billion to build 18-20 nuclear reactors in India. And though its high cost may mean nuclear energy never comprises more than 6% of India’s power generation, it will go a long way to fill the growing economy’s desperate energy deficit.
The nuclear deal has also sparked a big debate whether India has surrendered its sovereign right to conduct a nuclear test post implementation of the 123 agreement. Some analysts and the opposition allege that all civil nuclear cooperation will cease once India tests an atomic weapon. That could mean a return to a nuclear winter.
LiveMint............
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i expect erverthin 2 fall..
either its comodity prices,sensex,nifty,,,
all GLOBAL economies wil be hit by serious financial crisis...evn 700BN package couldnt make DOW rally...
dats shows some serious crisis .......so all everthin will fall
expect new lows on sensex in comin days...
In reply to:
Inflation at 11.99% vs 12.14%
Posted by : MMB Messenger
Inflation numbers came in at 11.99% for the week ended September 20. Earlier, inflation was seen inching lower. A CNBC-TV18 poll saw inflation for the week ended September 20 at 12.12 % against 12.14% a week ago.
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I expect inflation to drop further. Crude is dropping and Indian basket of crude is likely to drop to $70 within a time period of one month. There is also steep fall in commodity prices. Inflation for sure will fall steeply in next few weeks. This is good news for our economy and well being of common-man....
In reply to:
Inflation at 11.99% vs 12.14%
Posted by : MMB Messenger
Inflation numbers came in at 11.99% for the week ended September 20. Earlier, inflation was seen inching lower. A CNBC-TV18 poll saw inflation for the week ended September 20 at 12.12 % against 12.14% a week ago.
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It is really a good news for all of Indian...
In reply to:
Inflation at 11.99% vs 12.14%
Posted by : MMB Messenger
Inflation numbers came in at 11.99% for the week ended September 20. Earlier, inflation was seen inching lower. A CNBC-TV18 poll saw inflation for the week ended September 20 at 12.12 % against 12.14% a week ago.
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