Financial Turmoil

Shyam column in Hindu today was superb. He has explained the Financial turmoil very well. Today I realized that he maintains blog and all the hilarious articles read in the last few weekends were found here. Shyam, I like your columns very much

Today we have read about the finance turmoil that has happened in USA. is this new or have i seen like this before. I realize this has happened before too,

My father made me learn the nuances of investment in deposits, shares and debentures starting when I was twelve. He always said that if all the depositors of a bank go to a bank and ask for refund of the deposits, the bank is in to problem and unless the back is strong, the bank may have to collapse. whether a bank is strong or not depends whether the bank can handle the perception of the investor on the soundness of the bank. I thought this would never happen, but when I read that a lot of people were withdrawing money from ICICI Bank, ICICI bank has to work hard and CEO had to make sure that the confidence of investors is kept high. What would have happened if it was a small bank or bank that could not handle freezes and withdrawals, it can file bankruptcy like Lehman.

In late 1990s there arose a lot NBFC which used to collect money from the public and provide loans. There were a battery of NBFC’s in the market and they misused the money and RBI stepped in .One company i remember very well because my father lost money by having Fixed Deposits with them is Shoppers Investment and Finance Company., which was even listed in BSE.  I was always used to wonder why the executives here play with investors money. Another one was Madras Motor Finance.