Many people have asked me what is the starting point of the “sub-prime” problem. This is really very difficult to answer. Relaxing of credit standards in US, over-leveraging by the Investment banks, spending far, far beyond one’s ability to repay..all of them can be taken to be the starting point.

However, 2-3 events are remarkable in “acknowledging” the sub-prime problem. Let us look at them:

1. Merill revised its losses from $5 billion to $ 8.4 billion – the CEO got sacked (not bad if you were him, he got a nice, nice package and he must be sitting on that small pile).

2. Citigroup announced a $6 billion loss and increased it to $ 11 billion. CEO had already resigned, so nothing could be done.

3. Gary Crittenden, Citigroup CFO said 2 weeks before announcing the quarterly results “I have some bonds that I do not have any idea of how to value”.

However, like Enron is no longer a noun, subprime will soon enter the Oxford dictionary!

And frankly I seriously think this is not even the beginning of the beginning. There is just too much to go. The following excesses in the US market are scary:

1. excessive credit card debt

2. slowdown in the economy

3. excessive pay (still) in the financial services industry

4. paying financial engineers much more than real engineers.

In the Indian context the following excesses will visit us:

1. Misselling of mutual funds, unit linked plans, and structured products

2. Traders being far, far more than investors in the equity products

3. Wage inflation in the financial service industry

4. Over enthusiastic relationship managers – selling term insurance as an investment products

5. GoK (God only knows)

So pray, it might help!

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