My Thoughts & Views

India Advises the World at G20

Posted on: April 5, 2009

Actually I dont have access to the TV (Idiot Box) so, lately i came across this Video on You Tube.

I thought to post it here and write something about it.

During G20 Summit Indian Prime Minister Dr. Manmohan Singh, advised the G20 Nations with 4 ways to tackle the Economic downturn.
1. IMF & Asian Development Banks resources needs to be enhanced immediatly.
2. Industrialized Countries need to take toxic assets out of Financial System.
[Toxic Assets an Example (from Yahoo Answers) : Let’s say that Raj had a loan with ICICI Bank. The Loan is for Rs 200,000 for a house and Raj pays 6% interest. The house is collateral, meaning ICICI gets the house if Raj defaults. But this house was valued at Rs 275,000, so what is the worry?

So now ICICI Bank has “mortgage paper”, which is an asset. They can sell the mortgage to anyone they wish. Raj will then be required to pay the purchaser, who will get the benefit of the 6% interest. It’s an investment which may (or may not) make more money in the future. A good idea if ICICI needs money immediately.

But old Raj doesn’t have the money to pay this mortgage. At the same time, the house value has greatly reduced to Rs 150,000. Raj still owes Rs 199,000.

If Raj defaults on this, ICICI Bank will only be able to recover a portion of their money back. The mortgage paper has now become illiquid (the house can’t pay the mortgage). ICICI Bank is now unable to sell it. Why would somebody pay for an asset that guarantees you will lose money?

That mortgage has become a “toxic asset”.]

3. Access of Funds needs to be restored to emerging economies like India.
4. Need to commit ourselves to keep protectionism away.


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