[Romins]

A thought provoking article on the economy and its future:

Will coronavirus signal the end of capitalism?

"The peasants' revolt after the 14th-century plague saw off feudalism. After COVID-19, will it be the turn of capitalism?

In the 2008 financial crisis, it looked like the "roof" - the finance system - had collapsed onto the main structure which, though it was damaged, stood firm and we eventually rebuilt the roof.

This time, by contrast, it is the foundations that are collapsing - because all economic life in a capitalist system is based on compelling people to go to work and spend their wages."

[SmartCat]

Quoting from the article:

Politicians are busy reassuring voters that it will be a "V-shaped recession" - a sharp slump followed by a bounce-back, because the "real economy", they claim, is sound.

Most economists and commentators have already moved away from v-shaped recovery theory.

Our gym memberships, our student loan repayments, our rents, our car repayments this year, next year and beyond are already counted as "paid", with people in the finance system taking sophisticated bets on how much they are worth. But what happens when we do not go to the gym, do not buy a new car? Some of those IOUs become worthless and the financial system has to be bailed out by the state.

Correct. If payments to financial institutions are not being made, Govt/central banks will have to bail them out. But we have seen the movie trailer (AIG, Fannie Mae, Freddie Mac etc) before in 2008. We will probably see the full movie now. Other important sectors (including manufacturing) may get bailed out too. So yeah, nationalization might happen but this is likely to be only temporary. As we have seen in AIG's case, it went back to being a private corporation after a few years

Treasury Sells Final Shares of AIG Common Stock, Positive Return on Overall AIG Commitment Reaches $22.7 Billion
https://www.treasury.gov/press-cente...es/tg1796.aspx

Thanks to zero interest rates, policy makers have another option to nationalization - give long term loans to private corporations with flexible payback terms.

I don't think this crisis will be the "end of capitalism". But I can sense that globalization might be in little bit of trouble, if covid-19 crisis worsens and we see shortages of goods (food, energy, medicine etc)

[CrAzY dRiVeR]

Tesla starts reducing employees - starting with contract workers:

“It is with my deepest regret that I must inform you that the Tesla factory shutdown has been extended due to the COVID-19 pandemic, and as a result, Tesla has requested to end all contract assignments effective immediately,” Balance Staffing, a workforce management company, said in a memo sighted by CNBC.

Source - https://www.reuters.com/article/us-h...-idUSKBN21M04S

[ZenMaster]

Originally Posted by SmartCat

Correct. If payments to financial institutions are not being made, Govt/central banks will have to bail them out. But we have seen the movie trailer (AIG, Fannie Mae, Freddie Mac etc) before in 2008. We will probably see the full movie now. Other important sectors (including manufacturing) may get bailed out too. So yeah, nationalization might happen but this is likely to be only temporary. As we have seen in AIG's case, it went back to being a private corporation after a few years

Do you think, if this all takes a turn for the worse, more private banks in India will be affected. Failing business, chances of increase in bad loans, moratorium etc means sharp fall in revenue for Banks.

Will this tip even good private banks Into the red eventually see them going the PMC or Yes Bank way.
I have slowly started shifting part of my savings to SBI from my main Bank account in a good private bank, just in case. I don't want to be caught off guard and end up not being able to use my own money If things go south.

Do you advice moving your savings and emergency funds to Public sector Banks like SBI just for safety.

Can one expect the Govt. To save all banks if they go under especially of they are NOT too big to fail.

[bluevolt]

Originally Posted by ZenMaster

my own money If things go south.

Do you advice moving your savings and emergency funds to Public sector Banks like SBI just for safety.

.

How are you sure that your money in SBI will remain safe when SBI is releasing bailout packages for banks in crisis?

SBI is a bank just like any other XYZ bank and has equal probability of failing like others!

[SmartCat]

Originally Posted by ZenMaster

Do you think, if this all takes a turn for the worse, more private banks in India will be affected. Failing business, chances of increase in bad loans, moratorium etc means sharp fall in revenue for Banks.

To begin with, this article seems to suggest that lockdown in India will be lifted soon but clusters of covid-19 infections will be locked down aggressively.
https://www.ndtv.com/india-news/coro...spread-2206513
If my understanding of the above article is correct, then we can expect Indian economy to be in limp-mode for sometime - but it won't be as disastrous as mechatronics failure.

Worst case scenario - let's assume that India will be placed in complete lockdown for a long time. If that's the case, banks and financial institutions will be in trouble. But this is a known problem and there are always financial solutions to future known problems. For eg:

- RBI can take steps (Eg: reserve ratio, repo rates, OMOs) to ensure that all banks have enough liquidity to take care of withdrawals and FD interest payments.
- RBI can instruct banks to ensure that NBFCs have enough liquidity to take care of their commitments, so that there is no panic in the financial system.
- RBI can change NPA classification norms temporarily, so that banks don't "show" losses.

If amateurs like us can recognize that extended lockdown can cause problems in the financial system, rest assured that RBI folks too know this. And I'm sure they will take whatever steps needed to ensure that financial system does not collapse.

Will this tip even good private banks Into the red eventually see them going the PMC or Yes Bank way. I have slowly started shifting part of my savings to SBI from my main Bank account in a good private bank, just in case. I don't want to be caught off guard and end up not being able to use my own money If things go south. Do you advice moving your savings and emergency funds to Public sector Banks like SBI just for safety.

If it helps you sleep well, diversify your savings across multiple banks. If you are getting salary in Indusind Bank, your bank FDs are all in Indusind Bank but if your home loan is with HDFC, then you are in deep trouble if something goes wrong with Indusind Bank. So ensure that you have operating accounts + fixed deposits in atleast 3 banks.

Can one expect the Govt. To save all banks if they go under especially of they are NOT too big to fail.

Every commercial bank is too big to fail. I'm reasonably confident that Govt/RBI will not allow depositors to lose money. But I still recommend diversifying across banks, so that you don't have cash (liquidity) problems.

[ZenMaster]

Originally Posted by bluevolt

How are you sure that your money in SBI will remain safe when SBI is releasing bailout packages for banks in crisis?

SBI is a bank just like any other XYZ bank and has equal probability of failing like others!

I was just asking about the worst case scenario. I am recent graduate on his first job. So I am no millionaire and therefore won't lose millions either. But I don't have any non-monetary assets either. Everything's in the bank(s).

Since I opened a new account in SBI ecently I moved some to it anyway, since I didn't want all my eggs in one basket.

As for SBI , if I am right, most of the govt.'s Finances runs through it and I wouldn't expect it to be left to die (in the worse case scenario) as long as india exists.

If one thing 2020 has taught me is that anything can happen at anytime with no warning. The entire world is like a deer staring into the headlights due to one virus.
Who knew that would happen.

Forgive me if I sounded pessimistic.

Hope all this goes away soon. Good luck to us all.

[warrioraks]

Originally Posted by bluevolt

How are you sure that your money in SBI will remain safe when SBI is releasing bailout packages for banks in crisis?

SBI is a bank just like any other XYZ bank and has equal probability of failing like others!

SBI is owned by the government (majority stake). Other big private banks are certainly equal to SBI in one respect - all of them are too big to fail. But SBI is the first amongst equals and will have government backing in bad times like no other private bank would.

[dark.knight]

Originally Posted by ZenMaster

Forgive me if I sounded like pessimistic. Hope all this goes away soon. Good luck to us all.

I'd say if there's any time to worry about the future, it is today. You're right to fear an unstable banking system - helmed by a very bipolar administration, combined with the covid flu it is scary times.

The timeless art of saving is to always diversify, 2 banks as a minimum and 3 to 4 once the savings rise. I'd prefer a ratio of 60/40 in government banks and private banks respectively, of course in early stages of earning its also ok to have majority savings in very strong private financial institutions like ICICI, Kotak Mah, Citi etc, as their perks and banking ease, combined with good debit/credit card facilities can make life much easier. As the time goes by and as savings and future planning come into focus, it's better to shift to public banks like SBI, Indian Bank, PNB etc.

Its always good to remember that banks may disappear overnight, and we will be left with no recourse other than to claim the insured sum. The pain of having multiple bank accounts thus, is worth it.

[nandadevieast]

Hi
Any reason why you didn’t consider HDFC Bank in the list of sound private banks? I thought it was NPA free and very solid bank. Haven’t checked on it for a year now so maybe i am wrong.

Originally Posted by dark.knight

As the time goes by and as savings and future planning come into focus, it's better to shift to public banks like SBI, Indian Bank, PNB etc.

Its always good to remember that banks may disappear overnight, and we will be left with no recourse other than to claim the insured sum. The pain of having multiple bank accounts thus, is worth it.

[download2live]

Originally Posted by Samurai

Considering how many US states have not taken the whole thing seriously, the model will have to be revised to show a higher number.

I still fail to understand how US totally failed on this. Is this some conspiracy by/against Trump? This is election year after all and political parties would like certain outcomes out of this.

Or is it rot within US political/healthcare system getting exposed.

[dark.knight]

Originally Posted by nandadevieast

Hi
Any reason why you didn’t consider HDFC Bank in the list of sound private banks? I thought it was NPA free and very solid bank. Haven’t checked on it for a year now so maybe i am wrong.

Oh HDFC is still a tremendous bank, number 1 according to most people, many ranking sites have put it even above SBI, although my list wasn't all encompassing since I'd mentioned "etc", I guess HDFC should always be listed.

However I'll still recommend that majority funds be put into public banks only as savings, for current accounts, regular banking, card facilities, secure online transactions etc, private banks are much better so one can have like 20% in them for regular contact banking.

[V.Narayan]

Originally Posted by ZenMaster

I was just asking about the worst case scenario. I am recent graduate on his first job. So I am no millionaire and therefore won't lose millions either. But I don't have any non-monetary assets either. Everything's in the bank(s).

Since I opened a new account in SBI ecently I moved some to it anyway, since I didn't want all my eggs in one basket.

If one thing 2020 has taught me is that anything can happen at anytime with no warning. The entire world is like a deer staring into the headlights due to one virus.
Who knew that would happen.

Forgive me if I sounded like a Feminist

Originally Posted by ZenMaster

Really sorry, I meant "pessimist". My autocorrect seems to be making it's own decisions now.

In case you are married it would make your better half very happy. My wife's been trying for three plus decades without success as claimed by her.

For many years I have followed a policy of putting my money in only those banks whose equity shares I'd buy for long term holding. In my case in alphabetical order, HDFC , Kotak Mahindra and SBI. While I dont hold any FDs my F-I-L and mother hold all their earned savings in FDs only. At their age that is what they understand and works well for them.

I don't believe the RBI will allow any bank to fold up. But it is still sensible to put your money only in large well run banks. A co-operative bank is not a real bank. So don't go down that route.

In a way you are fortunate to have experienced a big crises early in your career. It helps keep a perspective of things later on. Too many Indians whose careers started in the late 1990s and later have never seen a real downer in India {2008 affected us only in a limited way} and that leads people to assume that the graph of life is a linear upward inclined curve. Over a life of 60 to 80 years nothing could be further from reality.

[adithya.kp]

I think the assumption is that RBI will protect depositors in all public and private banks. But till now we have had only 2 cases in last 2 decades. Global trust bank and Yes bank. What if more banks get into trouble?. Can they handle?
Even after the balance sheet cleanup exercise, most of the psu banks have a net npa of about 5%. All of them have a leverage ratio > 10. I hope there wont be large fresh slippages.
One thing I liked is that the number of psu banks has come down to 12. ( We had 27 before).

[Traveler]

RBI maintains a list of banks that are considered to be very important and that cannot be allowed to fail. They are classified as D-SIB banks. Please see https://m.rbi.org.in//Scripts/FS_Pre...=46553&fn=2745

An easier explanation to the above is here https://www.business-standard.com/ar...1500019_1.html