ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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From the Subprime to the Ridiculous

It is somewhat misleading to label the present crisis a "subprime crisis". This suggests that when banks make subprime loans, that is, practise financial inclusion, they are apt to get into trouble. Some commentators have even gone so far as to warn against political pressure for financial inclusion in India. It is not exposure to subprime loans that is a problem; it is the loss on subprime related securities that explains the sheer magnitude of the present crisis. The evolution of the crisis shows that the world did not fully absorb all the lessons from the collapse of the hedge fund, Long-Term Capital Management in 1998. When do episodes of financial stress have a measurable impact on the real economy? Over the past 30 years, 60% of the financial stress episodes that led to downturns were banking-related events.

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