What can we learn from the Sub Prime Mortgage Collapse?

There are lots of things to be learned considering the fact that our environment is created different from theirs.

1)permanent employment here VS non-permanent employment there.

2)endowed wealthy life for citizen or economic agent where wealth maximization and utility maximization the norm there VS Gandhian village life for Indians.

3)Professionals trained in Univesity campuses there to create and manage reality in ones chosen field there VS People who gets trained only in work places. Our students may never be able to conure up the Asian crisis or the subprime crisis in our campuses.

4) We are never trained with formation of heightened self interest in our chosen field, individuality or reasoning power which is the case there.

5) there knowledge is what is you learn and from numbers they create abstraction VS our knowledge is from environment and news.

6)inefficient environment of ours VS efficient environment of theirs

7)Networked business practices here VS anti trust dictated, competitive and individualistic business practices of theirs

8)Bahamas type degree mill education structure here in campuses VS 18% graduation rates abroad in campuses.

Unless all of these or some of these are incorporated slowly we will be immune to such crisis except may be contagions.

What Mr. Vivek wrote may not be altogether right because American has strict contract laws and if any one manipulates contrac agreements then they tend to face 'punitive damages' on top of normal damages awarded.

What transpired is like this. They sold subprime loans rated cc+ to non-creditworthy individuals and used this as collateral and did something called 'striping' where they converted this inot bonds rated as aa+ to Mutual funds and high networth individuals all over the world even in europe. The original money for mortgage lending was borrowed by the mortgage initiater from the interbank market that is from fellow banks. Once the collateral failed they stoped payment to fellow bank and interbank market collapsed. The aa+ were downgraded and world and european banks failed subsequetnly.

In India we are still issueing mortgage loan in subprime to creditworthy borrowers. We don't strip or create structured investment products for customers by Banks or other fianancial institutions.

It is clear from the fallout from the sub prime mortgage industry is that mortgage companies encouraged very aggressive sales techniques. Salesman, paid on a commission basis, had an incentive to sell as many mortgage products as possible. The salesman focus is on selling mortgage deals at any cost, they were not always concerned with the long term affordability.

I could say that secret of selling many sub prime mortgage deals was an attractive introductory period, with a significant discount on the base rate. This meant the product could be sold with emphasis on the first 2 years heavy discount. However, the real cost of the mortgage, which occurred at the end of this period, was usually hidden in small print. It is very important to be clear on all the costs and changes to the interest rate. If in doubt, go through an independent mortgage adviser.