Credit crunch, Liquidity crisis and Economic recession

Anyone following international economics will know what I'm talking about. For those who are happy reading only the headlines and not the content, you must know about the subprime crisis and fears of economics recession in the global markets. For those who are not bothered with international news, you must know the SENSEX, as recently as yesterday, closed below 16,000.

If you think these events are not connected, you are an IDIOT. A pristine one at that.

If you think the problem is only with global economies, why do you think ICICI took a $263 million mark to market loss ?

Oh thats easy to explain, ICICI has foreign subsidiaries and the MTM loss is a result of their lending activities.

Oh yeah, so who owns these subsidiaries huh ? These are fully owned subsidiaries of ICICI bank. You think this MTM loss will only reflect on the price of ICICI ADR's listed on NYSE. Of course not, it will eventually reflect on ICICI's consolidated earnings and ultimately flow through to the price of ICICI stock listed on the BSE SENSEX and NIFTY.

If you think that is not possible, I'm going to say this one more time. You are an IDIOT.

Of course ICICI management claims this is only a mark to market loss, which means its only notional at this point and not yet realised. The assets will rebound and these losses will be recovered.

But somehow, i'm so not sure that will happen.

At some point I will try and put in my understanding of the subprime crisis and assoiated problems. It will take time to type that post. Actually, I have the time, just don't have the patience. Maybe sometime over the next week or maybe even tomorrow.

Meanwhile, at a very holistic and abstract level, the following comment sums up the problems faced by the international financial markets.

"It's interesting that the industry has invented new ways to lose money, when the old ways seemed to work just fine."

As said by Mike Smith, ANZ's Chief Executive quoting Wells Fargo Chief Executive John Stumpf, while addressing the Australian British Chamber of Commerce.