Memoirs Part 2

As soon as X entered the room, the cold hit him, literally too. Prof. Y was on the phone talking with someone and curtly pointed to the chair in front of his huge table. X obediently took the chair. Not wanting to worsen the situation, he lowered his head humiliatingly and kept staring at his own fingers. Time seemed frozen. The banter on the phone extended to eternity.

And then as abruptly as things had happened all day, Dr. Y hung up and asked X, ‘Mr. X, How do you find the courses here? Are they up to your standard?’ X thought of the damage control mode he had decided to adopt. So he just looked at Y pleadingly. Y stressed, ‘What are your thoughts on my course and International Marketing? Write them down on this sheet.’

X took the sheet obligingly and stared at it. His thoughts were racing. Should he write anything at all, the least now he wanted was to make Y more furious? So he timidly started writing the course names. Y was waiting with his hands folded. Seeing that, X timidly started writing.

Good structure and content. Case studies extensively discussed. Live strategy games could be held to make the class more interesting.

X now wondered what made him write that last point. Why is he habitually pointing out things? Will he ever change? Maybe the dressing down today will achieve that. He meekly extended the sheet forward. And then something hit him on the face. He was surprised although he expected anything to happen. Then he realized it was another sheet of paper. He slowly picked it up. It was THE FORM.

Y spoke calmly, ‘I had to study all the handwriting in the answer papers to zero down on the one who wrote this. Now what made you write this?’

X was wondering if that was really a question or just figurative. So as always he kept quiet.

‘I have had some mistakes pointed out in feedback forms. In fact there were 5 negative forms from your class, but nothing this outrageous’, said Y, still very calm and restrained.

X was still pondering if at all he should say anything. X went through his form again to get a grasp of things he was hearing. Then he noticed the word, ‘FAMILY’. What made him write it? Who in their right senses would have mentioned that in the feedback form of an academic course?

X had his reason as always. X had had his share of trouble with Prof Y prior to this. Once he had rejoined college 2 days late as his dad was due to fly back home then. His father told him that he will call up the administrator. X had insisted, ‘This is no primary school dad, I can handle it’, thinking of how much an arse he will be made to be by Y in class, after his dad’s call. But X, to his rude shock was awarded 4 DGPs (Derogatory Award Points) for joining two days late. And as the trimester progressed he found that people were joining weeks late. But the only thing they did right was they were in Y’s good books. And meanwhile Prof. Y was rescheduling all his classes to take a break and go home.

DGPs are awarded in extreme breaches of code of conduct. If one gets 8 of them, they are duly asked to forfeit the course. Y had sarcastically remarked when awarding the DGP’s, ‘What if you had started out of home and then wandered away and then joined late. This will teach you a lesson.’ X was slipping away in his thoughts. But this was no time to think of all of that. He needed to imagine something good about Prof. Y so as to have a real pitiful expression. He knew he could not fake his feelings now.

Dr.Y ’s voice brought him back to reality, ‘What is your CGPA Mister? What makes you think that you are eligible to advise me, when the toppers have all given me a good review? Tell me, what is you CGPA?’

X was cornered now. He did not recall his CGPA. 20 years of education and thousands of scores. How can anyone remember them all? He tossed between 3.1 and 3.3. Trying to be modest, ‘Sir, it is 3.1’.

Dr. Y was getting hysterical. X could clearly see the signs. X was wondering where was all the usual nervousness he had had during interviews in the past. Strangely, he was feeling quite calm unlike the other side of the table.

Dr. Y screamed, ‘What makes you think, you can do this and get away with it? Do you know my history? If this thing happened anywhere else, you no longer will be alive. I studied in Loyola in Chennai. You should know about its notoriety. How long have you lived in a metro? You have no idea about the kind of contacts I have.’

X was stupefied. How can anyone kill someone for writing a feedback form? Under the influence of his new found temperance, he was even laughing at the irony of the statement. If it really gets down to it, he was wondering who would be in a better position. A college guy or a man 10 years into teaching?

‘You had no right to say anything about my family, forget the teaching part which is also false by the way’, shouted Dr.Y. X now made up his mind to answer. ‘Sir, I never thought any faculty member goes through these feedback forms. I just wanted to sound funny to my friends. Nothing in it, I ever meant’, said X politely, knowing that it dint even convince him. And as expected it fell on deaf ears.

‘Even those DGPs have not helped. Now I would not punish you. I will let you go and I never want to see you again. Don’t attend my lectures. I will give you an A in Business Management. Don’t even come anywhere near my classes’, barked Y.

‘Sir, I am sorry, I never meant any of it’, pleaded X.

‘Do you know what I can do to your career? Just one minute, and you would be a loser even before you start’, said Y, snapping his fingers demonstrating the fickleness of X’s career. X was wondering if he should have used the college fee and started a kirana store rather than joining here.

‘Now get lost out of here. You will get an A. Don’t come to my class. I will make sure you repent for this, till you leave this place’, said Y tapping THE FORM.

X rose out of the chair, turned his back and walked out of the room with a sheepish grin across his face. What more could he have asked for? An A, full attendance, a one on one with the boss and special treatment for the rest of his college years. He took out his mobile and dialed. He sure had a grand tale to tell her.

Memoirs part 1

Disclaimer: Personal views. This post has high perishability.

This is where our Mr. X (for choice of a better name) can speak out. Now can he? That is what he thought when he filled out that wretched feedback form. The course was some basic one on management. The lecturer was the Numero Uno Mr.Y, of the new campus. He was terror unleashed on the students. His booming voice, hostile remarks and short temper unnerved everybody. Now in this perfect setting, our bloke sat about filling the form at the end of his first trimester exam. The form had just 3 simple questions. And enough space to communicate his feelings. Or so X thought. So here goes THE FORM.

Comment on the following

1. 1.Course structure

Loosely structured with total disregard to students.

2. 2.Course content

Out of date case studies. Repetitive slides

3. 3.Course scheduling

According to the whims and fancies of the professor and his family.

The forms were collected back by the assistant. As usual the chatter was about the exam. People were asking each other how many additional sheets they used. Our X felt so much left out of all this. He was wondering if anyone will even go through the answer scripts and he was pretty sure about the feedback forms being thrown away. Or else someone would have infused some sanity into the professor way back. But in his batch he was sure no one else would have written anything other than the typical three ‘GOOD’s. He smirked with an evil sense of power at having had the opportunity to lead the crusade. He turned to his mates to begin the ‘chai’ routine before classes resumed. But they were still immersed in discussing the paper. In his mind, he reinforced his thoughts of not belonging to the college in any way.

The rest of the day was uneventful, some boring lectures with few nodding in the first row and religiously making notes of what ever were on the slides, not withstanding the fact that the lecturer mailed all of it the next day. The chai routine was only something that our X was looking forward to everyday. Sipping his cuppa, he reached in his trousers for his ringing mobile. X was wondering as to who it could be. A local landline number in a new city was unusual. As he answered, he heard the familiar voice of the dutiful assistant from the administrative desk. Again unusual! What does X have to do with the administrative desk? In fact he wanted to be as far away as possible from it.

The assistant said ‘Where are you Mr. X? Prof. Y wants to meet you. Immediately!’ Then it dawned upon our dumbo. Oh Holy f***!! They have zeroed in on the feedback form. But how could they? It was supposed to be anonymous. The assistant was awaiting his reply. ‘Oh! Mam. I just returned to the hostel. Can’t it wait till tomorrow?’

‘NO ! SIR SAYS HE WANTS TO SEE YOU TODAY!!’

‘OK mam. I am starting from the hostel to college mam. I will meet him right away’, X hung up.

Now was the first time, X missed all his close friends back home. Anyway he had a new group. So form the Chai Dukhan opposite his campus, he called them (SMS: Save My Soul). B & C turned up. X curtly narrated the situation. C said, ‘Bosidike! Kya ho gaya tuje!!’ And B pitched in saying, ‘Dude you are a goner’.

So the three gulped their chais, trying to think clearly. The gravity of the issue was still sinking in them. B broke the silence saying, ‘Dude the maximum he can do is, throw you out of campus. Can you handle that? Will your parents stand by you then?’.

X was simply blinking, imagining how his father will react if he came to know of it. No, that is too much to think about now. One problem at a time. ‘Guys! Just tell me what I can tell him now, to reduce the impact of the damage already done.’ B called out, ‘Gulfam!! 3 more cups.’ Gulfam gleamed and was right there with his chai.

C out of the corner of his eye watched the assistant returning home. X now tried hiding behind the tree. Too conspicuous. Gulfam’s cash counter seemed better. So he pushed Gulfam out and hid himself there.

‘OK you are safe now. Come out. How much time do you have left?’ enquired B, glancing at his watch.

‘Not much. I told her, I am starting from the hostel. That gives me like 20 minutes. So ten more I guess’, said X wiping out beads of perspiration from his forehead. X was now visibly shaken. Adrenaline was coursing through all his veins. Such level of heightened thrill, he had never felt before.

‘Mate! You cannot go in and argue that it is not your form. So get in, agree that it is yours and ask sorry. Also I think he cannot throw you out, as an anonymous form cannot be used as evidence’, B encouragingly told X. Now X felt a little better. Yeah! You cannot use a lousy form as evidence against you. C chipped in saying, ‘Dude, be brave. We are with you.’ X knew that it was only figurative. But when you are under pressure, you like to hear reassurances like that, though they mean nothing.

‘Chalo logon, time to face the music. Anyone coming with me’, asked X mockingly. B being in the goodbooks of Prof Y asked earnestly, ‘I can mate. If you want me to.’ ‘Thanks yaar! Let us save that one for the bigger troubles’, grinned X.

X got into the lift, acknowledging the ‘All the best’ signs shown by B & C sarcastically. He found the lift climb slowly. He smirked to himself thinking even the lift is having its share of fun. Finally it jerked to a stop on his floor. He walked out of it and asked the guard if Dr.Y was in his room hoping against hope that Y would have left. The guard nodded his yes very cheerfully. The lift and now the guard, X felt as if everybody is conspiring against him.

To be continued….

Subprime crisis

It is time to get technical. Cuff up. This ain’t gonna be easy. So what is all the hullah about subprime mortgage crisis? Over debated, less understood as is any financial term. Join me in this attempt to demystify it. Before getting lost or dozing off, let us first make sure of a few basics before progressing.

In very few words, the crisis is just a lot of loans that went bad. So this may lead you to believe that the banks that lend the money would have gone bust. But by the end of this discourse (if you manage to!!!!) you will discover that it was the borrowers and other people totally alien to the mortgaged houses who ended up losing.

Some terms to understand which will put the crisis in its right perspective include,

1. Mortgage
2. Sub prime market
3. Securitization
4. Refinance
5. Fed rate

Mortgage

The simplest of the terms, this refers to the loan secured in order to purchase a real estate property, mostly a house. The parties involved include the debtors or borrowers i.e. the one buying the house and the creditors or lenders, either a bank or other financial institution.

Sub-prime market

Based on credit history (borrowing history), people are divided into tranches (groups). The prime borrowers are those whose history of repayment has been good and risk of default is less assuming that they will continue to be as good as they have been. So this leads us to sub-prime borrowers, who naturally have had a bad credit history. This includes default of loans, delayed EMI payments and also declaration of bankruptcy.

So what is the point of lending money to someone who is likely to default? Here comes the crux of any financial market. ‘RISK INVOLVED JUSTIFIES THE RETURNS’. These borrowers are lent money at an interest rate that is much higher than the prime borrowers. This is under the assumption that the defaults can be compensated by the higher returns obtainable from the borrowers who repay.

Securitization

Technically it can be defined as treating any receivables, cash flows or assets as securities and bundling them and passing it onto investors.

Okay if that just buzzed by, in our context, it can be understood as follows.

A bank issues loans to borrowers. So it has a stream of future cash flows receivable. Now what the bank does is, it bundles up all the loans and sells this as a security (a financial instrument) to interested investors. For example, ICICI lends money for auto-loans. Say it has a pool of 1000 borrowers. Now it prepares a security and issues it to 1000 investors. These investors are assured of receiving the EMI payments of the borrowers.

Why has the traditional lending-borrowing model undergone a change like this? It is because as in our example, it gives ICICI bank more funds to lend again (as the securitized loans are sold) and allows it to specialize in evaluating credit risk and giving away loans. The investor himself cannot go and find 1000 people buying automobiles to lend a small amount to each one of them. Since the pool is large, it inherently has risk diversification. Thus it seems like a win-win situation for all.

Refinance

Refinance generally refers to replacing one loan with another. The motive behind refinancing a loan in the mortgage market is to get a lower interest rate and hence a lower EMI payment. Banks have a tendency to charge a rate of interest in line with the proportion of investment. That is for the same house, if the borrower pools in 20% and borrows for 80%, the loan will be cheaper (lower interest rate) than going for 100% borrowing.

For example let us consider, someone buys a house for $ 1 million in California borrowing 100% of the capital from say Citibank. Now in a booming real estate market, one year down the line, the property appreciates to $ 2 million. So now a new bank say Countrywide is willing to lend the owner $ 1 million at a rate lesser than Citibank as Countrywide is only paying 50% of the house value. Thus the owner is willing to refinance his loan as he is required to pay a lesser EMI.

Fed rate

The fed rate is the interest rate at which the banks can borrow from the Federal Reserve in US. This rate almost decides all the other interest rates applicable in the economy. So an increasing fed rate implies, floating rate loans are expensive and vice versa. The fed rate reached abysmal levels of about 1.75% in 2002. Since then the Feds have been increasing the rate 11 times in a row by 25 basis points( 0.25%) each time.

La crisis

So now that we (though few :D) are clear with the terms, let us delve a little deeper and try to figure out what caused the bubble to grow and then finally burst.

The low fed rate around 2002 made home loans cheaper. To fuel the housing boom, banks started to lend to sub-prime borrowers. The banks became so involved in disbursing new loans, that they relaxed their credit risk (repayment capacity) evaluation procedures. At heights of such lending, jokingly even NINJAs (No Income No Jobs Also) were given home loans. And moreover the banks also quickly securitized this sub-prime lending and sold it as securities to investors. These investors included pension funds, Mutual funds, financial institutions, other banks and big investors spread over US, Europe and other regions.

The demand in housing as a result of such reckless lending resulted in prices of houses skyrocketing. So people who had already borrowed started to refinance their loan on account of their appreciated houses. This reduced their EMIs. This created some strain on the banks and credit enhancement (We will delve into this part sometime later. Not today!!) agencies involved in securitization of the loans.

Now the fed believed the rates have been artificially low for long and started to raise it in 2004. Since then there has been an increase of 25 basis points (0.25%) 11 times in a row. Thus the EMIs increased which started to trigger defaults all around. This snowballed and the banks took over the houses of the defaulted people and put them on sale. But there were no takers. Hence the prices of these properties plummeted. Thus the bubble burst.

The people who were affected in all this were the investors in sub-prime mortgage securities. They had invested in it attracted by the higher rate of returns they offered. But the investors had no clue about the credit worthiness of the borrowers. They believed by what the lenders had to say. Also the defaulters are going to be affected in the future by way of poor credit evaluation. So now they will be tranched even lower than subprime borrowers. So the loans they take hereafter will be more expensive.

So how can all this be undone now? As an immediate relief the Fed is lowering its rate, thus making more funds available for the institutions on the verge of bankruptcy. But will that solve the problem is yet to be seen. To make sure this does not happen again, securitization should be done with prudence and the investors should demand access to the borrowers risk profiles. Also the real estate market needs better regulation and price discovery mechanism like the financial markets.

And if you are reading this line, WOWW!!!! We are at the same wavelength.

And if all this got a little heavy. Lighten up. Click below

http://youtube.com/watch?v=ewiXA_he6VQ

Touted to be the initiator of a global recession, how much ever we may deny, all our immediate future is inextricably linked with this phenomenon. But the most we can do is to watch how the drama unfolds.