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When economy goes down......

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Can anybody explain what happened to US economy in 2001? Was that recession triggered by the 9/11 attack or Did it start even before attack?
I had read some well known stocks like Nokia dropped by a huge percent and many network companies got hit badly.What happened to the housing market?
Did Indian economy have such recessions in the past?Can we really handle such situation ?
When economy....

Dear Mr. Fire,

I know the history of such slumps and depression. But I do not have
any solution to this problem. If only I have ready-made solutions , sir,
the Heads of all the countries would be contacting my secretary seeking
an appointment to see me !!!

As J.K. Galbraith said , We economists plan for growth, there is no growth.
We plan for a welfare society, there is no welfare. we plan for an
egalitarian society, there is more inequality.

So please do not trust us sir.
One of the troubling spots in the U.S. economy is the subprime bubble that is busting. The impact of it in the financial markets particularly the banking sector has echos all over the world and has already sounding out loud in Germany and other European countries. The following is an excerpt from Barrie McKenna's article.

WASHINGTON — So you want to buy a used car. The trouble is that one silver Malibu looks just like the next one as you kick the tires at the used car lot.
You fret that one of those cars might be a lemon. But which one?
Naturally, you hedge your bets by low-balling the price, even for the low-mileage gem with the perfect paint job and loaded with options.
The result is that the market breaks down. Buyers bid low, and sellers refuse to sell good cars into the dysfunctional market.
The Catch-22 inherent in this classic used car dance was first described in U.S. economist George Akerlof's ground-breaking 1970 paper: "The market for lemons: quality, uncertainty and the market mechanism."
Mr. Akerlof, who shared a Nobel Prize for his work in 2001, concluded that because of the murkiness of information, the seller has a strong incentive to pass off a lemon as a high-quality car. Knowing this, the buyer assumes the product is of dubious quality.
Nearly four decades later, the wizards of high Wall Street apparently haven't learned this fundamental lesson about the asymmetry of information.
Just look at the sick state of the $350-billion (U.S.) market for structured investment vehicles. SIVs are one of the main reasons global stock markets are now in so much turmoil.
These massive bank-run investment vehicles - sometimes billions of dollars in size - generate profit by exploiting the gap between short-term borrowing rates and higher long-term returns on bonds backed by assets, such as residential mortgages.
They're like virtual banks, but off the balance sheet.
The trouble is that the quality of the assets is virtually unknown to many of the players involved thanks to complex packaging and the veneer of safety provided by credit-rating agencies. High-risk, subprime mortgages are routinely blended with better credits, and sold and rated as one, making the lemons virtually indistinguishable from the quality assets.
"In the context of structured credit, we have buyers who ... have used credit-rating agencies as a substitute for analysis of the complex structure of the securities," economist John Ryding of Bear Stearns pointed out in a recent report.
So buyers assume the seller has better information and a strong incentive to sell them junk. Murkiness has bred dysfunction, just as Mr. Akerlof postulated. And now no one wants to touch this tainted commercial paper.
"As a result of the lack of information, which is a product of as yet unfolding economic developments and the complex structure of many products, good securities are dragged down along with bad ones," Mr. Ryding wrote.
And now it isn't only the SIVs that are in trouble. It's the banks who created them, the investors who bought in, the homeowners who need credit and the investors who are sitting with stocks in these banks, unable to discern which one may, or may not, have dark investment secrets.

For complete article, see

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