ECONOMIC

RECESSION

SOLO PRESENTATION BY
SAGNIK SEN
M.B.A [GENERAL]
ROLL NO.-20
QUESTION:-
1. Why economic recession is in the news in last 2
years?
2. What is :- a. Subprime lending
b. Securitization
c. Credit default swap
 3. Effect on India and remedial measures.
4. Questions
Eighteen months after the sub-prime loan crisis
broke through the surface in the United States
(us), 12 months after the investment banking firm
Bear Stearns was rescued and six months after
Lehman Brothers collapsed, there is no sign that
the people of the world have seen the worst of the
crisis that now envelopes the global economy.
What started as a financial crisis has become a full
blown real economy crisis that seems to spare no
corner of the world.
The world economy is expected to contract in 2009 by
up to the 1%
Unemployment is expected to touch 233 million.
What went wrong:
The crisis which was triggered by the us sub-prime
mort­gage market in early 2007 and then spread
broadly and deeply was not the world's first banking
crisis.
If an event with widespread and severe economic and
social consequences keeps on repeating itself, the onus
is surely on the authorities to change something.
When a regulatory mechanism has failed to mitigate
boom/bust cycles, simply spreading its basic structure
across more institutions, instruments and countries is
unlikely to be a successful strategy and could make
matters worse.
Moreover, a type of crisis that repeats itself cannot
easily be put down to new derivative instruments.
Another Tipping Point?
 The tipping point will be caused by rising general
awareness throughout Europe, America, Asia and
South America that hundreds of millions of people are
experiencing rapidly falling consumption;
That the crisis is getting worse, not better;
It has escaped the control of public authorities. More
big banks and non-financial companies are likely to
fail, raising the level of fear in the economy and
prompting banks to contract credit still more.
The Opportunity and Its Enemies
The crisis is of such magnitude that 2008 will probably
be looked back on as a turning point equivalent to
1945, 1971 and 1989. The silver lining is that the crisis
has discredited many established ideas about how
societies should run their economies, and the impact
of this discrediting will last well beyond the recovery.
1. Why economic recession is in the news in last 2
years?
2. What is :- a. Subprime lending
b. Securitization
c. Credit default swap
 3. Effect on India and remedial measures.
4. Questions.
Definition
Subprime lending (near-prime, non-prime, or
second-chance lending) in finance means making
loans that are in the riskiest category of consumer
loans and are typically sold in a market from prime
loans.
In the United States subprime loans are usually
classified as those where the borrower has a FICO
SCORE below 640.
Subprime lending encompasses a variety of credit
types, including mortgages, auto loans, and credit
cards. The term was popularized by the media during
the “credit crunch”. Of 2007.
What is prime lending & prime lending rate?
The prime lending rate is the minimum lending rate
(PLR) charged by the bank from its best corporate
customers or prime borrowers.
Norms relating to the PLR
 From October 18, 1994, interest rates on loans above Rs
2 lakh were freed and banks were permitted to
determine their PLRs.
 From April 1998, banks were given the freedom to
determine the interest rates on loans up to Rs 2 lakh,
subject to small borrowers being charged at rates not
exceeding the PLR.
The Indian Banks' Association (IBA) advised its
member banks to announce a benchmark prime rate
(BPLR) taking into account
 (i) actual cost of funds,
(ii) operating expenses, and
 (iii) A minimum margin to cover regulatory
requirement of provisioning/capital charge and profit
margin, with the approval of their boards keeping in
view the operational requirements.
1. Why economic recession is in the news in last 2
years?
2. What is :- a. Subprime lending
b. Securitization
c. Credit default swap
 3. Effect on India and remedial measures.
4. Questions
Securitization  is the process of taking an illiquid
asset, or group of assets, and through financial
engineering, transforming them into a security.
 Definition:-
Securitization is a structured finance process that
distributes risk by aggregating debt instruments in a
pool, then issues new securities backed by the pool.
Securitization could also be defined as a financial
process leading to an issue of an asset-backed
securities(ABS).
1. Why economic recession is in the news in last 2
years?
2. What is :- a. Subprime lending
b. Securitization
c. Credit default swap
 3. Effect on India and remedial measures.
4. Questions
A swap designed to transfer the credit exposure of fixed
income products between parties.
A specific kind of counterparty agreement which allows the
transfer of third party credit risk from one party to the other.
One party in the swap is a lender and faces credit risk from a
third party, and the counterparty in the credit default swap
agrees to insure this risk in exchange of regular periodic
payments (essentially an insurance premium). If the third
party defaults, the party providing insurance will have to
purchase from the insured party the defaulted asset. In turn,
the insurer pays the insured the remaining interest on the
debt, as well as the principal.
1. Why economic recession is in the news in last 2
years?
2. What is :- a. Subprime lending
b. Securitization
c. Credit default swap
 3. Effect on India and remedial measures.
4. Questions
The confidence
is back
There has been a
steady rise in new jobs
since this july.
Turning
positive
Hiring intensions over
the next three months
peak in IT and Auto
Future
perfect
There is more good news
in the air; salaries are
expected to go up in
almost all sectors
QUESTIONS
THANK YOU