The rich dad & poor debt: An Indian perspective

Today the world is facing heat due to sub-prime crisis. All the developed countries and developing countries have caught recessionary fever. Even the powerful economy of china has also felt ‘D’ factor (downturn in the economic activities). The epicenter of the crisis is U.S.A. It is all about the story of a rich father (U.S.A) who has made poor debt in the form of Sub-prime lending. The father’s mistake of excessive debt (levered finance) has resulted into a catastrophe. The Indian scenario is that outsourcing business has dried up, finance from overseas market has become difficult due to liquidity crunch at global level and in addition to that banking sector has also adopted policy of preference base lending program. Indian automobile industry has also been affected because of lowering of domestic consumer demand. Moreover, there are various challenges that have come up as new peculiarities of present financial system, which is going through a paradigm shift.

This paper depicts the entire process of credit crisis – in the form of story of a rich father (U.S.A) who has made poor debt (Sub-Prime Lending) – its effects from Indian perspective and several issues that must be taken into consideration by the government of India at the time of framing macro-economic policies.

[...] Second Stage - Securitization & Housing Bubble: Some economists claim that government policy actually encouraged the development of sub-prime lending through legislation like Community Reinvestment Act through which banks are forced to lend otherwise uncreditworthy consumers. The banks started giving loans to sub-prime borrowers (having poor track record in loan repayment and lacking financial soundness) in various forms like ‘piggyback’, ‘interest only’ and ‘no-doc’ loans. Due to access to loans, borrowers started to purchase houses, which have resulted into price hike by 124% between 1997 and 2006 in the housing market. [...]

[...] Third Stage - When Bubble Bust: Overall homeownership rate increased from 64% in 1994 (since 1980) to a peak in 2004 with an all time high of There was normal situation till the interest rates were low and the housing market was in boom. However, later on when Fed Rate revised to in June 2006 from the level of in 2004. As a result the Adjustable Rate Mortgage (ARM) was also revised, and sub-prime borrowers started defaulting the payments due to inability to repay loan obligation. [...]

[...] Various books like Trump The Art of the Deal, Investment Biker, The New Positioning, and Rich Dad Poor Dad change the thinking of the people. These books have targeted the investment pattern and objectives of the people and have changed them drastically. Some principles that have been highlighted for real life includes: true luxury is a reward for investing in and developing a real asset”, "Remember the Golden Rule. He who has the gold makes the rules." As Robert Kiyosaki writes in Rich dad, Poor dad, the poor and middle class work for their money, but rich make money work for them. [...]