Prajna Capital - An Investment Guide

The relation between the Fed’s interest rates and the markets here The US Federal Reserve has decided to leave the interest rates unchanged. However, it has expressed concerns on the escalating crisis. The unanimous decision left the benchmark overnight rates at two percent. The Fed has said, 'strains in the financial markets have increased significantly and labour markets have weakened further' . The central bank said it also remained concerned about the inflation pressures. The Fed said the downside risks to growth and upside risks to inflation are of significant concern to the committee. The move is expected to enable banks in the US to borrow money for the short term from the Fed as well as lend to each other at the same rate as before. In the past few months, the Federal Reserve had been cutting US short-term interest rates amidst concerns that the economic growth will slow down in the coming months. The effort was to stimulate economic activity and keep the country ...

The events that unfolded last week were so extraordinary that the former Fed chief Allen Greenspan called it 'a once in a century occurrence'. In the latest Wall Street crisis investment bank Lehman Brothers filed for bankruptcy protection, the Bank of America took over Merrill Lynch and the Federal Reserve provided an USD 85 billion bailout for insurer American International Group, all of it happening almost at the same time. In fact, the story of Lehman Brothers was scripted in the mortgage market crisis last year. The firm was a major player in the market for sub-prime and prime mortgages. The company had a relatively small balance sheet, and was heavily dependent on the mortgage and repurchase markets for short-term funding. As the mortgage markets did not recover, the company had huge write-offs. Its efforts to raise capital failed. The company's expectations of being bailed out by the government did not work out. Lehman had reached its end, setting off a domino ...

AIG has borrowed nearly $150 bn from US Government ans its seeking more now. But hte total market cap og the company itself is $ 1 bn. Those of you worried about the state of AIG Mutual Fund can rest now. The U.S. company was on the verge of declaring bankruptcy and needed up to $100 billion to stay afloat. Naturally, its shares plunged on Wall Street amid fears of its collapse. But the government has come to the rescue of the American International Group (AIG). Under the bailout deal, the U.S. Federal Reserve will lend AIG up to $85 billion to guarantee its short-term liquidity. But there will be a price for this lending hand. In return, the U.S. Government will take an 80% stake in the company with the right to veto the payment of dividends to shareholders. This will save the company from bankruptcy. But it will need to sell assets to repay the loan, which will be due in 2 years' time. An insurance company takes premium from people who've bought insurance and instead of inves...

Year 2008 has been an action packed one in all respects. It started off with stock market correction in mid January, later it turned out to be a bear market and eroded Billons of dollars of investor money. By then sleeping giant was awaken, the sub prime. It had cascading effect all walks of the economy only in US nut all across the world. Then came the big investment bank failures. Fed has to Bail out leading mortgage lenders of the country Fannie Me, Freddie Mac. But, worst was yet to come, Lemon Brothers, a hundred year old investment bank went bankrupt. It was the situation with Merrill Lynch and Morgan Stanley as well. Goldman Sachs was also taken a beating but was slightly better off. Merrill Lynch was acquired by Bank of America. Wachovia acquired by Wells Fargo, Washington Mutual (WaMu ) acquired by JP Morgan. Both Goldman and Morgan were converted to conventional banks. Meanwhile, Warren Buffet, greatest investor that the world has seen also showed confidence in Goldman. On th...