Black Swan is the buzzword for economists and other street guys across the world. Black Swan is the name of the book written by Nicholas Taleb in which he says that Black Swan is an event which is beyond our thinking.
People across the world have started to call recent financial crisis as once in life time event. If you ask anyone they’d say its almost impossible to predict magnitude of event like this that would happen once in our lifetime or generation.
Would this economic crisis be called as Black Swan?
My answer is NO. Let’s speak about India.
Our crisis started from realty which started to bubble after unrealistic prices across the board in India. Every tom, dick and harry become Real estate tycoon and people got sucked in the name of owning a house.
10 Lacs worth of house was sold around a crore and people went on to buy despite beyond their reach. Their logic- Today’s 1 crore house would get a value of 4 crore within 5 years. People started to think an asset would always appreciate than thinking about the real value.
Banks started to give loans to real estate companies without assessing the real value. Their aim is to mint millions in interests. But these banks have forgotten to assess real value of realtors. Banks started to concentrate on variety of activities other than banking. They ventured in Forex, and derivatives which no one understands in the world.
Greed is reason for this crisis. Every product and service was priced artificially and companies have been started overnight and it looted money from public. “Overnight millionaire†was the motto for most of the entrepreneur.
Companies went on to stretch beyond their capabilities and core competencies. They took too much leverage. If you don’t think big, you’re dumb. Every company becomes dumb by over expanding in new businesses that are not their core competence. They employed thousands of people and borrowed through various innovative instruments which would be subscribed by a genius called private equity.
Whole India ran at leverage and domestic growth story. If pantaloon enters in retail business, why we should wait was the question asked by Birla group and they acquired some retail companies and started MORE which is now creating more problems for Birla group.
Stock broking is another business in which everyone from Kashmir to kanyakumari started to capture their share in India. Insurance is another. Likewise everyone started everything and they went on to demolish brands and made every service as a commodity.
Everything has been created based on DOMESTIC GROWTH STORY which has been misunderstood by corporate managers who work in air-conditioned room with their PowerPoint presentations. They went on to give amazing numbers to their bosses and as a result everyone went on to venture in a crowded business and made it unviable for everyone who has started it without knowing ground reality about the business.
Whole mess has been started by corporate managers who doesn’t know any ground reality about business but who play efficiently with numbers, statistics, case studies and PowerPoint presentations.
Now these folks are calling this crisis as Black Swan. Mess that has been created by managers without understanding of real condition. Mess that has been created in the name of expansion and diversification. Mess that has been created by leverage. Mess that has been created by greed. Mess that has been created by fictitious value creation.
Boys and girls – Don’t call this as Black Swan. Instead call this as “Black Magic†which has been created due to ill attempts by companies in the name of diversification, leverage and growth.
- APPLE – Mind Blowing Facts - January 26, 2012
- Its Black Magic Stupid! - March 24, 2009
- Funny Sites - July 25, 2007
To Sandeep: Everyone know what happened to Gekko – He become a zero. I think you’d remember a conversation which would come as : Wealth is not created, but it has been transferred my son! I firmly believe this is the reason for this crisis. People didn’t create it, rather they transferred it on single motive – GREED.
To sameer: I don’t know whom you’re calling as experts. Do you know how stocks are recommended. If you don’t know I’ll tell you; An institution would buy a stock in tranches. It’d appoint a so called expert and speak non-sense about a stock in commercial business television. Based on the craps, innocent people would buy. This is how system function. Never never think that well educated from ivy biz school guys are intelligent, experts, so on and so forth. I think you must read open letter of a hedge fund manager named Andrew Lahde who’ve written about so called experts in his open letter.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aVUE96d.HKyw
http://forum.go-bengals.com/index.php?showtopic=45452
Its pretty easy to paint all that happened as shortsighted, greed driven, etc. However, one needs to define “value” in each of these. How’s the average Joe supposed to have any clue to the “real value” of an apartment, or a stock, when even the “experts” got carried away?
Hindsight is wonderful, and easy, and of course, pointless. Frankly, hype sure had a role to play in the euphoria, but the current pessimism is equally over-the-board.