Subprime crisis fallout

Though we have noted elaborately on the subprime crisis in our blogs, we should not miss when great economists like Joseph Stiglitz write on the subject. It gives us a different perspective. Take a look at what he wrote in today’s ET on how the mortgage lending went wrong:

People have borrowed money to indulge in consumption. And Greenspan has encouraged it. He encouraged them to take variable rate mortgages, at a time when interest rates had nowhere to go but up. Predatory lenders went further and offered negative amortization loans. In these loans, the amount owed went up year after year – i.e., ballooning payments. Borrowers were wrongly advised by the financiers that when payments balloon, they need not worry as the house prices would rise faster, it is easy to refinance with another negative amortization loan. But the reality soon dawned on everybody, as people were left with mortgage payments which have far exceeded their entire income.

He further says that ‘securitization’ with all its advantages in sharing risk, has three problems that were not adequately anticipated:

· It meant that American banks would not be as hard hit as they would otherwise be; but their bad lending practices have had global effects.

· It contributed to bad lending. Banks that originated bad loans were able to pass them on to others.

· It had made debt restructuring difficult, if not impossible. Restructuring debt would have had a corrective effect on bad lending practices.

One fallout of this crisis that is right unfolding in the international banking circles is the setting up of a $80 bn fund to buy ailing mortgage securities and other assets, in a bid to prevent the credit crunch from further hurting the global economy. This fund is being setup by Citigroup along with other banks.

You may also be interested in reading the following on the subject:

The first casualty of the subprime crisis.

Why will India not be affected by the subprime crisis?

Some recommendations on handling the subprime crisis.

Can the the subprime crisis threaten the Indian economy?

Copy of recent 100 shout-box discussions - 1

amjad
sir, any site for psychology? 12 Oct 07 18:54
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amjad
any way to read the old discussions completely? 12 Oct 07 18:36
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amjad
sir, 12 Oct 07 18:35
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vikraman
policies, BASEL II which requires 15% of to be set aside for operational risks, IPDI has been exempted from SLR/CRR+ call option is disabled which idon't understand why. 12 Oct 07 16:45
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vikraman
Thanks a lot for clearing my 3 doubts. Sir, regarding the introduction of Innovative perpetual debt instrument(IPDI) and debt capitals to help banks generate funds in view of tighetening monetary 12 Oct 07 16:40
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vikraman
We must soon adpot newer basket of G&S to calcluate the WPI. The present one idicates the taste and preferences of 1993-94 12 Oct 07 16:37
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vikraman
Sir, There is a debate about changing the basket of goods that constitute the WPI index. Though the inflation has been "tamed", the food prices are still climbing as indicated by CPI(AL) and CPI(IW). 12 Oct 07 16:36
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ramkyc
@Naveen: Refer this: http://indiancurrentaffairs.blogspot.com/2006/09/glossary.html#GAAP 12 Oct 07 11:20
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ramkyc
@Gaurav: So long as the inflation is not a significant contributor to the GDP growth, I would settle for 9%+7%. Otherwise, the latter is better. In a growing economy inflation CAN be tackled. 12 Oct 07 10:51
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ramkyc
@Jyothikarthik: A test of majority on the floor of the hosue (Assembly or Parliament) as the case may be. 12 Oct 07 10:47
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Gaurav
sir, GDP growth of 9% with 7% inflation is better than GDP growth of 7% with 4-5% inflation? 12 Oct 07 00:45
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Naveen
sir what exactly do you mean by "generally accepted accounting principles".can you please explain it in detail 11 Oct 07 21:43
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Jyothikarthik
What is a Floortest? 11 Oct 07 20:35
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ramkyc
Debt has to be repaid whether or not you make profits. Equity has no such gaurantee as it gives you ownership. 10 Oct 07 19:12
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ramkyc
Bonds means debt. Shares are equity. Equity is ownership. Debt is just money that is advanced. Equity gives u voting rights. Debt doesn't give u that. 10 Oct 07 19:11
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ramkyc
On tier 1 and tier 2 capital refer this: http://discover-it.blogspot.com/2006/09/basel-norms.html 10 Oct 07 19:09
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ramkyc
Call is an option contract for buying shares at a price agreed upon now. Put is an option contract for selling at a future date for a price that is agreed upon now. 10 Oct 07 19:08
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vikram
3. what is the difference between TiER1 capital and TIERII capital? 10 Oct 07 17:28
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vikram
2. How are corporate bonds different from money raised from scrips/shares raised through stock exchange? 10 Oct 07 17:28
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vikram
Sir, I would like to know 1. What is Call and put option? 10 Oct 07 16:46
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ramkyc
Only when there is a reverse tide. Such fluctuations keep happening. Its only when sustained one way flows happen there will be problem or some correction has to happen -- like allowing appreciation 07 Oct 07 09:02
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naraynan sethurao
Dear Sir, under MSS, if RBI keeps on proping up the rupee parity against Doller every time when FII flows are there...how and when RBI will offload thefunds into the system..? 07 Oct 07 08:12
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ramkyc
@Rishi: On reserve currency wait for today's post. On selling dollars, yes it means so, if you are selling in the Indian markets. 06 Oct 07 10:57
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rishi
sir what is a reserve currency ? and also does selling dollars mean getting it exchanged for its worth in rupees? 05 Oct 07 22:00
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ramkyc
@Gaurav: Distribution of land to the landless. 05 Oct 07 11:13
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ramkyc
@Satish: Thanks for the clarification. Will carry it out shortly. 05 Oct 07 11:12
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Sathish
Sir,Just to clarify -Irani trophy is played between Last season's ranji champions and Rest of India.and Mumbai were last years champions 05 Oct 07 10:54
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Gaurav
ok bt what does land reform means exactly? 05 Oct 07 00:37
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ramkyc
@Gaurav: Land is the ultimate security one can get in a predominantly agrarian country like ours. Spend a couple of days in a village. I am serious. You will notice the answer to ur question. 04 Oct 07 16:16
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ramkyc
@Vikash: You should have noticed that of late I have been covering Hindu also a bit generously. But whether or not any thing gets noted in my blogs is highly subjective. I should feel is importance. 04 Oct 07 16:14
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ramkyc
@Ankur: And do try the India Year Book. 04 Oct 07 16:13
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ramkyc
@Ankur: Though not very comprehensive, you can check this: http://discover-it.blogspot.com/2006/10/indian-defence-scene.html 04 Oct 07 16:12
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Ankur
Sir, I wanted a detailed review of Indian Defence forces..All about the missiles they have, other weapons they possess, the joint exercises undergoing these days..Is there any link..Its urgent.. 04 Oct 07 15:20
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Ankur
Sir, I wanted a detailed review of Indian Defence forces..All about the missiles they have, other weapons they possess, the joint exercises undergoing these days..Is there any link..Its urgent.. 04 Oct 07 15:19
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Ankur
Sir, I wanted a detailed review of Indian Defence forces..All about the missiles they have, other weapons they possess, the joint exercises undergoing these days..Is there any link..Its urgent.. 04 Oct 07 15:18
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Vikash
Dear sir , Can you plz add the summary of the HINdu Editorial column also in your daily blog. 04 Oct 07 12:14
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Gaurav
how land reforms coul have helped india in uplifting the poor farmers? 04 Oct 07 00:06
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Suresh
http://www.sanjeev.sabhlokcity.com/breakingfreeofnehru.pdf 03 Oct 07 08:10
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ramkyc
@Ajay: A growing economy should also result in increase in jobs. If there are no jobs being created and still the economy is growing it is called jobless growth. 02 Oct 07 17:13
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Ajay
I got few details like it will be around 7% this year. and some figures. But not much. Job breakup i couldnt find :( 01 Oct 07 22:42
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ramkyc
@Ajay: Try the Economic survey. It will have full details. If u can't get it there, get back to me. I will chip in surely. 01 Oct 07 20:28
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ramkyc
Assets minus liabilities is net worth. 01 Oct 07 20:27
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rishi
sir what is meant by net worth ? 01 Oct 07 20:23
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Ajay
Hi, can you please give pointers for what contributes to India's GDP - % wise. What is the breakup in IT industry. similarly - %job sector wise. Also, what is jobless growth? 01 Oct 07 17:19
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ramkyc
@Karthik and Jasmeet, I will answer you in Discover It. It will be a bit longish. 30 Sep 07 10:58
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jasmeet singh
Sir, what is core inflation and how is it different from WPI (in india),? is there any specific index to measure core inflation in india? 29 Sep 07 22:15
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ramkyc
@hsha: Thanks. 29 Sep 07 11:39
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karthik
sir, please tell me why Japanese currency vakue is less than indian rupee? I don't think their economy is inferior to india; i heard something called undervalue of currency?whats that? 29 Sep 07 08:08
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hsha
thanks sir your guidence is very great sir. 28 Sep 07 23:21
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ramkyc
Hi ALL: I answered some of ur queries in today's Discover It. Look there. 28 Sep 07 20:18
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Page: [1] 2 3 4

abhimanyu
sir the concept roll section is really a good one,very helpful, thankyou 28 Sep 07 13:00
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Sadananda
sir, i have asked earlier hw the value of Rupee is decided u said Market, Which Market & hw. tell me by example 28 Sep 07 10:34
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Sadananda
sir, i have asked earlier hw the value of Rupee is decided u said Market, Which Market & hw. tell me by example 28 Sep 07 10:34
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neha
sir, what is banda chelva pact all about??? 27 Sep 07 23:37
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rishi
what is the meant by Indian Economy's fundamentals? 27 Sep 07 22:23
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rishi
sir what is the meant by Indian Economy's fundamentals 27 Sep 07 22:23
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ramkyc
It is the MARKET. Ofcourse with active intervention from the RBI. But then RBI can influence it only to a certain extent. No central banker, not even the fed can dictate it. 27 Sep 07 19:22
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RIshi
Good question, who decides how the value of money changes 27 Sep 07 15:46
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Sadananda
sir, Can u tell me how the value of Rupee is decided.I mean how the value of any currency is decided.. 27 Sep 07 11:45
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ramkyc
@hsha: It is www.britannica.com 27 Sep 07 11:24
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hsha
sir thnks for reply pls give the web address of britannica 26 Sep 07 23:45
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ramkyc
Hi ALL: Take a look at the CONCEPT ROLL that I placed above this shout-box just now. Click on a word/phrase and it will take you to the relevant place explaining smthg abt it. Let me know ur views. 26 Sep 07 21:16
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ramkyc
BSE calculates the sensex. Similarly NSE calculates its own Nifty50 Nifty100 etc. Each exchange does its own calculations. 26 Sep 07 21:14
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ramkyc
@Rishi: Our economy is our consumption driven. Not dependent excessively on exports. Savings are great 35%+. Investment rate is good 35%+... 26 Sep 07 21:13
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RIshi
Nice piece bout Dividend Stripping 26 Sep 07 18:09
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RIshi
Who determines the actual Sensex values in the market?? is there any agency which monitors and declares that the values should be so and so? 26 Sep 07 18:09
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RIshi
Hi Sir , what is the meant by Indian Economy's fundamentals. 26 Sep 07 18:08
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Rishi
Hi..Sir in a reply you have told that Indian economy is built on strong fundamentals,so rupee is gaining.I am not clear about that fundamentals of my country's eceonomy.Can you detail it out ? 26 Sep 07 17:54
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ramkyc
@hsha: I would recommend regular stuff like guides for it. They will give you all at one place. Try Britannica if u hv time. 26 Sep 07 12:23
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hsha
sir where can i found social and cultural movents of india in 19th and 20th centuries? 26 Sep 07 06:51
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ramkyc
@saima: Both are same. Is anybody having a different take on this matter? 25 Sep 07 14:35
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ramkyc
@subham: India' economy is based on strong fundamentals. So rupee is gaining. Because the US economy is feared to be going into a recession, dollar is weakening. The fed rate cut hastened this fall 25 Sep 07 14:34
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ramkyc
@subham: Foreign portfolio is investment in stocks like FII investments. For private equity refer our glossary. 25 Sep 07 14:33
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saima
sir what is the difference between unorganised sector and informal sector ? are they the same ? 24 Sep 07 23:52
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subham
what's the reaon behing strenghening of rupee and faling of dollar ? 23 Sep 07 22:14
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subham
sir i meant could please explain the terms : foreign portfolio and private equity investment 23 Sep 07 22:08
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ramkyc
@subham: Thanks and welcome. 23 Sep 07 11:21
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ramkyc
@raina: Increases liquidity; interest rates will come down. Economic activity expected to pick up. But inflation also can rise. 23 Sep 07 11:20
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subham
Sir thanks a lot for this glossary section of your blogs ..its a real help :) 23 Sep 07 00:14
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raina
what is the consequence of tax tare cut by US federal bank ? 22 Sep 07 21:05
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ramkyc
@Vinod: Tell me is it not already in the hands of such people? I believe ULCA is a retrograde step. It's time we moved away from such hackneyed attempts at controlling asset distributions. 22 Sep 07 11:17
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ramkyc
@Subham: didn't get ur second question. 22 Sep 07 11:14
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ramkyc
@Subham: Military uses lot of spectrum in high GHz ranges to avoid using satellite technology. The tropo-scattering method deployed by them is considered inefficient. 22 Sep 07 11:14
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ramkyc
@RamaNaidu: See 14.9.2007 and our glossary for them. 22 Sep 07 11:12
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Vinod
Sir...govt is asking maharashra to remove the urban land ceiling..isnt it a move which will lead the land to fall into the hands of a few land contractors.......... 21 Sep 07 22:32
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subham
foreign portfolio and private equity investment in FDI ? 21 Sep 07 21:20
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subham
spectrum ineffeciency? hwz it used ny the defence ? 21 Sep 07 21:19
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RamaNaidu
Sir, would u please explain the terms:White goods, Intermadiate goods, consumer non durable goods 21 Sep 07 20:14
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ramkyc
Quiz Contest in downloads section. 21 Sep 07 17:06
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ramkyc
@All: Posted the key for the 21 Sep 07 17:06
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ramkyc
@Vinod: There has to be a lid somewhere on what the country borrows! So the government fixes the limit. 21 Sep 07 17:02
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ramkyc
@Praveen: It is here: http://indiabudget.nic.in/es2006-07/esmain.htm Do you still want it to be on our blog? Thought it is well-known. 21 Sep 07 17:01
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ramkyc
@Subham: It's all in the ad revenue that it is able to generate out of the eye-balls that follow the game. It is the same for European soccer and American Basketball. 21 Sep 07 17:00
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Suresh Nandigam
hi guys& gals, a good cartoon in recent times in todays TOI-Hyderabad edition 21 Sep 07 16:13
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vinod
Why does the govt a limit on the ECB by the companies? 21 Sep 07 15:03
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praveen
plz ir can you put eonomic survey 2007 in this blog 21 Sep 07 00:23
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subham
why is BCCI so rich ? 20 Sep 07 23:01
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ramkyc
@Santoshi: Check ur mail. Sent it just now. 20 Sep 07 21:08
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ramkyc
@Varun: Tried India Street? I link it from here. It is good. 20 Sep 07 21:08
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santoshi P
Sir Plz reply to the mail I have sent ,It would be og gr8 help in improving my abilities.pLzzzzzzzzzzz :( :( :( 20 Sep 07 19:18
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VARUN
can u suggest some blog for business relted news 20 Sep 07 19:16
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ramkyc
@Vinod: Income, if taxed in one country will not be taxed in another country again. That is a DTAA. 20 Sep 07 18:39
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Vinod
Sir...what is double tax avoidance agreemnet 20 Sep 07 07:17
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ramkyc
@Karthik: Sure I will post them tomorrow in Discover It. 19 Sep 07 22:22
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karthik
sir, please give the answers for the quiz contest 19 Sep 07 20:25
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ramkyc
@hsha: If it is from GS perspective, I would recommend reading Britannica. In fact that is what I did 2.5 decades ago. 19 Sep 07 18:22
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ramkyc
Hi All: Imteyaz Ali was in touch with me through mail. He says shoutbox is banned in his organization. Hence he preferred to contact me through mail. All the best to him once again. 19 Sep 07 18:18
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hsha
sir can any one tell how to preare hisotry of indian heritage and culture 18 Sep 07 00:05
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abhijeet
Sir, can u tell us what benifit/s & advantage/s will india get out of several joint- milatary, naval and air exercises with different countries? 17 Sep 07 23:02
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Suresh Nandigam
congrats to Inteyaz Ali 17 Sep 07 20:21
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ramkyc
Is Imeteyaz Ali listening? Can he say hi? 17 Sep 07 08:54
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ramkyc
@Vinod: I don't think so. Strictly who is the champion of NAM today? I feel it has lost all its relevance. All the NAM countries also seem to have realised this as much. 17 Sep 07 08:42
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ramkyc
@Narayanan: That's what it fears. Hence the corrective measures. 17 Sep 07 08:41
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ramkyc
@abhijeet: Surely Abhijeet. I will do it. 17 Sep 07 08:41
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Vinod
Sir...thank you...will our joint military excercises with the "imperialsit countries" have any effect in our relation withour fellow NAM countries? 17 Sep 07 08:06
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naraynan
Jho Ram Ka Nahi Hai, Oh Kham Ka Nai..Will this slogan topple the centre..? 17 Sep 07 07:52
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abhijeet
Hello Sir, can u plz write an essay or significance of INDIAN OCEAN REGION to india and the region with recent happenings in view. 16 Sep 07 22:57
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ramkyc
@RamaNaidu: Vow, this will need a full article. I will do so in the next couple of days in Discover It. 16 Sep 07 09:20
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ramkyc
@Vinod: I agree with such an assessment fully. Results in log of discontentment. 16 Sep 07 09:19
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ramkyc
@amjad: Caribean islands are in South American continent. 16 Sep 07 09:18
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RamaNaidu
Thanks for reply Sir! but, i could not understand your openion clearly, it may be becs I don't know much about Nuclear NPT. Can please elaborate what r the implications of becoming a signatory to NPT 16 Sep 07 00:16
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Vinod
Sir...i think the concept of having different rules for different sections of a country will have its toll on our unity? 15 Sep 07 21:42
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amjad
sir, again in which continent carribean island situated? 15 Sep 07 19:28
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amjad
thnx a lot 4 clarifying my doubt. 15 Sep 07 19:28
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ramkyc
@Vinod: Disparate religious practices, which have a lot of bearing on one's civic conduct in general. That is the root cause. 2. Lack of political will. 3. Is it really that necessary? 15 Sep 07 13:47
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vinod
Why is it not possible to have a unified civil code? 15 Sep 07 02:06
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sadhana
@Naveen: thnx a lot 4 clarifying my doubt. 15 Sep 07 00:50
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ramkyc
@ALL: Any idea about pink tide? What is it? Amjad wants it. Couldn't know anything about it. 14 Sep 07 23:45
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ramkyc
@Amjad: A red corner notice is a 'look out for this offender' notice given for wanted persons. All countries cooperate with each other in nabbing such people. 14 Sep 07 23:44
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ramkyc
@Vinod: A good question. But successive governments have failed to come up with that magic formula of integrating the NE and NW into our mainstream. Let's keep wracking our brains about it. 14 Sep 07 23:42
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ramkyc
@RamaNaidu: Why should it join? Don't you see that NPT perpetuates an unequal world? Besides comparisons with China can never be wished away. 14 Sep 07 23:41
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Suresh Nandigam
blog address once again essaysofmine.blogspot.com 14 Sep 07 21:00
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Suresh Nandigam
hi to all, as Roopa Singh pointed out, let us share all of our knowledge and doubts, I request you all to have a look at my blog @ essaysofmine.blogspot.com, pass your comments to me 14 Sep 07 21:00
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amjad
sir, what is red corner notice? 14 Sep 07 17:59
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amjd
sir, what is pink tide? 14 Sep 07 17:03
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amjd
in which continent carribean islan situated? 14 Sep 07 17:03
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Vinod
Sir.dont u feel that we all behave in a different way our countrymen in north-east.....whats are the govt initiatives to increase the feeling of belongingness in them . 14 Sep 07 16:32
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Vikash
Sir , Plz Add international news summary also in ur section 14 Sep 07 14:44
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RamaNaidu
Sir, Why India is not willing to join NPT? 14 Sep 07 13:57
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ramkyc
@abhijeet: Follow the article given in Discover It. Follow all the links given there. That should be good enough. 14 Sep 07 12:39
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ramkyc
tenders as you know are quotes for carrying out the work already put up for bidding. 14 Sep 07 12:39
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ramkyc
@ni****ha: Expression of interest is only willingess to carry out the work and bid for it as part of the subsequent process of award of contract. And... 14 Sep 07 12:38
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abhijeet
Sir, can u plz tell us what it means by subprime mortgage? and all related terms to it like hedge funds,etc. or plz give us a link to all about the SPM . 13 Sep 07 23:26
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nishitha
sir,what's the difference betn expression of interests and tenders 13 Sep 07 23:01
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ramkyc
@Vinod: Tried the India Year Book? Can't get a better source than that. Then do a search for 'social security' in our blogs. You will have ur answer. 13 Sep 07 17:04
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ramkyc
be gone ahead with without hurting the religious sentiments of the people. 13 Sep 07 17:02
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ramkyc
@Sreenadh: As far as feasible, governments should not play with the 'faith' element of religions. It should better stay away from it. The project is otherwise very good and economical. It should... 13 Sep 07 17:02
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vinod
What are the differrent programmes initiated by govt to ensure social security for people(old people,farmers,unorganised sector other than agri)? 13 Sep 07 12:19
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Sreenadh
Sir, What is your opinion on controversy surrounding Sethu samudram Project ? 13 Sep 07 11:48
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ramkyc
@Abhimanyu: Thanks. But that would take a lot more effort from me. I would keep you suggestion in mind though. 13 Sep 07 11:17
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Page: 1 2 [3] 4

abhimanyu
rama krishna sir your site is excellant.i too am a civils aspirant.sir,won't it be good if there are more questions in "today's quiz".if it is not trouble for you please make that to 15 .thank u sir 12 Sep 07 19:20
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naveen
and often the pre-existing site/facilities are contaminated/polluted 12 Sep 07 16:39
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naveen
green field projects are built from scratch on green field land (undeveloped) like new plants, airport factories etc while brownfield projects are built on pre existing infrastrucutre 12 Sep 07 16:38
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ramkyc
@Sadhana: Which field are you referring to? Can you elaborate your question? 12 Sep 07 14:01
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ramkyc
@Vikash: It's a tough call for me. 12 Sep 07 14:00
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sadhana
Sir, can u plz tell me the significance of colurs in different fields like green field and brown fields etc... 12 Sep 07 13:48
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Vikash
Plz help me out i am not able to devote continuity in my preparation..as my time goes in reading the news paper only...i am worried for my Public Adminstration Subject 11 Sep 07 16:41
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Answers to shout-box queries-16

I answer below two questions raised by Vikraman in the shout-box.

Question:
12 Oct 07, 16:36
vikraman: Sir, There is a debate about changing the basket of goods that constitute the WPI index. Though the inflation has been "tamed", the food prices are still climbing as indicated by CPI(AL) and CPI(IW).We must soon adpot newer basket of G&S to calcluate the WPI. The present one idicates the taste and preferences of 1993-94.

Answer:Yes, my take is that the WPI basket should be reconstituted once in every five years to reflect ground realities. Actually, my preference is for the CPI's adoption for measuring inflation. Any idiosyncracies that may arise out of its adoption have to be/can be tackled at the time of revamping the basket of goods and services itself. I hope the government comes out with a committee to examine the issue ind detail. It should be also mandated to look into the issue of which of the inflation figures have to be taken into account by the monetary authorities while deciding the monetary policy -- is it the core inflation or should it be the headline inflation?

Question:
Sir, regarding the introduction of Innovative perpetual debt instrument(IPDI) and debt capitals to help banks generate funds in view of tighetening monetary policies, BASEL II which requires 15% of (capital) to be set aside for operational risks, IPDI has been exempted from SLR/CRR+ call option is disabled which idon't understand why.

Answer: I am not able to understand your question well. Are you wondering as to why the call option on the IPDIs is disabled? If that is so, my initial reaction is that it is termed 'perpetual'. How can there be a call option at all? Can you call back your capital? You can't; know? IPDI is capital. So it can't be called back by the investor. He can only divest it; provided there is a market for it.

If you are wondering as to why IPDI is exempted from SLR/CRR computations, (though I really can't confirm whether this was done) it appears quite logical. SLR/CRR are on net demand/time liabilities; isn't it? Can capital figure under 'net demand/time liabilities'? It can't. So it should stay excluded from the SLR/CRR computations.

Those of you who have a penchant for detail can take a look at the RBI's circular in this regard.

Answers to shout-box queries-15

29 Sep 07, 22:15
jasmeet singh: Sir, what is core inflation and how is it different from WPI (in india),? is there any specific index to measure core inflation in india?

Core inflation is a measure of inflation which excludes certain items that face volatile price movements. Example fuel prices. In many countries, fuel prices see wide fluctuations. Hence they are excluded from the computations of core inflation. When they are included it is called headline inflation. WPI is just an index. It by itself is not inflation. An increase in the index represents inflation.

I give below an excerpt from our RBI Governor's speech in June 2006 about why we don't consider core inflation in our inflation calculus:

"Finally, let me also respond to Professor Jacob Frenkel who raised the general issue of focussing on the core-inflation in policy and not the headline inflation in spite of persistence of high oil prices for a long period. In India, we could not consider core-inflation for several reasons, especially because the two major sources of supply shock, food and fuel, account for a large share of the index. In our case, pass through of higher oil prices has been halting and not full. Thus, the headline inflation in our country in a way understates the problem. So, in our monetary policy communications we emphasised the fact that there is clear evidence of a permanent component in the oil price increase, and hence the headline inflation may be understated till that component is fully passed through. While the permanent component is judgmental, broad magnitudes could be perceived and articulated. Such an explanatory approach to headline and underlying inflation pressure in monetary policy has added credibility to the policy and influenced and guided the inflation expectations in India."

Hope this helps.



29 Sep 07, 08:08
karthik: sir, please tell me why Japanese currency vakue is less than indian rupee? I don't think their economy is inferior to india; i heard something called undervalue of currency?whats that?

Japan has introduced the yen in 1870. At that time a yen represented the value of 24.26 gms of pure silver or 1.5 gms of pure gold. If you were to buy that much of gold or silver now at the current rates, it would approximately require 1181 yen for that much silver and 3572 for the gold. This is where the weakness of the yen comes from. Over the years the yen has lost its value. Especially so during the World War II when its value was fixed as 360 yen for one US dollar. Afterwards, it has actually strengthened against the dollar and is today trading at about 120 yen for the dollar.

There were subdivisions of the yen also, just as we have paise for our rupee. Those subdivisions were the sen and rin. Sen was 1/100th of a yen and rin was 1/1000th of a yen. But these were discontinued in 1953. I hope you can guess why they were discontinued.



1 Oct 07, 17:19
Ajay: Hi, can you please give pointers for what contributes to India's GDP - % wise. What is the breakup in IT industry. similarly - %job sector wise. Also, what is jobless growth?

Look at http://mospi.nic.in/4_gdpind_cur.pdf for the composition of GDP. You will have to calculate the percentages from the figures given. A point to note is that if a sector you are looking for is not found in the table, you are on your own in finding about it from the industry body relating to that sector. They usually have some reliable estimates of their contribution to the GDP. But anyway that would not be official.

I have already answered about jobless growth in the shout-box itself. Any economic growth without creating employment is jobless growth. Such a growth is not considered good. It is more prone to widen the income disparities. Remember the Gini coefficient?

You can get authentic information on Indian Budget and the Economic survey at http://indiabudget.nic.in/

Hope this helps.