Finalyst November 2013 Issue November 2013 | Page 6

FINALYST

NOVEMBER 2013

East is “East”, all the action lies in the West.

Akshay Gupta
MBA– I, IBS Hyderabad

WISH YOU A MERRY CRISIS
THE BUBBLE BOMB
Some might say this phrase is a

by fundamentals. However, in to-

The predominant factor of the

thing of the past now, others might

day’s era , the term bubble for me,

USA’s Great Depression known as

say the G4 economies are bouncing

is a situation in which asset prices

“The Black Tuesday” of 1930 was

back. The truth is, in long term, we

appear to be based on implausible

over-indebtedness and deflation.

are all in debt. Look closer, you will

or inconsistent views about the fu-

Loose credit to over-indebtedness,

see the elephant in the room – Soar-

ture that carries the potential to

which fuelled speculation and asset

ing Global Debt. From the tiny state

desolate the financial structure of

bubbles. Talking about bubbles,

of Cyprus racing to secure a bailout

the world.

how can one forget the “The Dot-

to stave off bankruptcy which looks
like a dot in the larger financial picture to Detroit bankruptcy to the
emerging markets losing their mojo.
We are all part of it now. Banks,
government and consumers, we are
moving money around in circles.
The deficit crisis and the financial
bubble busts are sweeping the
economies away. With Total World
Debt $190 trillion, even all the
World Bank Deposits can’t pay it off.
Conclusion – Financial Bubbles are
good for economy’s health? Think
about it - It’s a TRAP!

It all began in 1637, speculation of
Dutch Tulip Bulbs popularly known
as the “Tulip Mania” peaked at today’s equivalent of more than
$1000 per bulb and the market collapsed under its own weight, presenting financially wrenching crisis
speculators and their backers. The
South Sea Bubble of 1720 - This was
a time of lavishness and opulence in
Britain, with many wealthy speculators desperate to invest in a company that wildly promised astronomical returns, trading wool and fleece
for piles of jewels and gold. Shares

What is a bubble? When the prices

in the company quickly reached 10

of securities or other assets rise so

times their value, but when the bub-

sharply and at such a sustained rate

ble burst, many of the country’s

that they exceed valuations justified

elite were left destitute. The pre-

Com Bubble “ of 1997, one of the
historic ‘speculative’ bubbles of all
time left behind many vacant buildings and many more failed dreams.
Low interest rates by the Fed’s,
availability of cheap credit lead to
over investment which was the
main cause of the downfall. This
was the time when growth was preferred over profits and the market
collapsed yet again. A classic example of low interest rates demolition
is of the Housing Bubble Crisis (SubPrime Mortgage Crisis) where the
US Fed’s made more mistakes than
yogi bear reciting Shakespeare. This
bubble also led to the Eurozone
Debt Crisis - a complex network of
financial derivative products (Which
are nothing but WMD’s - Weapons
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