The Hindu Business Line : Impact of sub-prime crisis

The reports on the impact of the US sub-prime mortgage fallout on developing markets and emerging economies is unfortunately based on information provided by the administrations and regulators, which may not be transparent.

Given the levels of visibility reached through satellite-imaging techniques, it is surprising that financial transactions running to billions of dollars are sometimes opaque.

The crisis which was purportedly created by a few banks seems to have had regulatory sanction. A regulator in the UK has come out openly to save a bank and the US Fed is reportedly injecting billions to allow some of the entrenched entities to move out in a more orderly manner.

In a mature functioning capital market, it is indeed strange to come across certain regulatory actions, which can be clearly interpreted to be in support of defined entities which have abused the rules.

In such circumstances, given the opacity of the transactions, it is but natural that the excesses committed by these entities have been enjoying the regulators’ tacit support. No wonder, the RBI Governor has warned of surprises and indicated recently his resolve to take ‘unconventional’ actions. All these point to more major events in the immediate future.

V. Balakrishnan e-mail