Thursday, September 20, 2007
Credit Crunch effect?
I was just wondering...that the current credit crunch started with the housing market. And its effects can be seen on the financial industry and economy in general. But how has it affected other industries? Since we all are from different industries (Vinay- Finance, Rahul- IT, Sumit- Wireless technology, me- oil and energy), maybe we can discuss how it has had effects on our industries. There maybe some general effects which will be applicable to all (it'll be good to talk about those too) and there maybe industry-specific effects. I still need to research on mine and find this out. But if any of you can write about your opinions, it would be good.
Subscribe to:
Post Comments (Atom)
5 comments:
As we all know Credit is the life blood of the American economy. Without credit one stands no where. Having said that I don't think the Credit Crunch is industry specific, because it affects any company who needs money to bankroll expansion and in-turn boost the economy, and when it becomes more difficult to obtain credit, people and companies in general will refrain from spending, hence slowing down the overall economy.
In the United States there are three bond rating aganecy Moody's, S&P, and Fitch that rate a company abiltiy to borrow money from financial institutions, or in-turn issue convertable bonds to investors. These agencies rate each public company based upon their cash flow, past earnings, their current debt and other criteria. In this case if the rating was low then naturally that company will have to provide more incentives to investors to purchase their bonds. These rating agencies are very much similar to the traditional credit rating agencies like TransUnion, Equifax and Experian, that rate our ability to borrow money for buying a house, car, or any other big ticket item on Credit. So just as the credit crunch affects us based upon our credit rating it affects the Companies in the same way regardless of the industry they are in... I can go into more details as to how companies borrow money, but I don't know if that was the topic of discussion :)).
well..i just asked a vague question..even i dont know if its industry specific or not...interestingly i didnt realize it would affect our industry jobs earlier..but sometime back i saw one of our clients stop his ongoing projects coz of financing problems because of this ongoing market problems and banks' hesitance in giving it loans...n so all people on that job had to be taken off and put elsewhere. yaa i guess thats pretty general to any industry..
Good explanation though..for someone like me :)
ppl borrowed as much money as possible to finance spending. Huge flows of money poured into stocks, real estate and commodities. Hedge and private equity funds and other speculators leveraged themselves. We borrowed excessive amounts to trade and purchase a variety of inflated assets.
And now dooooooommm.... everyone is in toruble ... its simple as it sounds, we starting spending money which not ours and we had no plan how to pay it back.
Now expand this to organization, state and a country level. that's what it is all about, and now everyone is in trouble.
I think I missed your question...how it starts in housing industry, because in America, everyone has a low equity gigantic home.
And ppl are not able to pay the mortgages, now mortgage industry came in trouble. Mortgage industry is dependent on banks, now overall banking came in trouble... banks started aggressive selling of there equities, across the globe... selling.. selling.. impacted everything, every sector, every company.
I hope that clears your question !!
yeah..i kind of know the starting point...the whole subprime market issue...but not the effects that much...so that was what i was asking about..good discussion though :)
Post a Comment